With record inflation driving the biggest increase in FEHB premiums in the past decade, many federal employees are looking for ways to save money on health care in 2023. Here’s how to do it.
Find a new health plan
During the 2021 open season, the OPM reported that only 2.5% of federal employees elected to switch health plans. This is a big mistake; the best health plan for you and your family may not be the same one you chose last year. Those who stick with a health plan ignore new plans, changes in their lives that might make another option a better choice, and the impact of premium and benefit changes that occur each year.
Increase in the FEHB premium
Let’s start with the premium. The average premium share of enrollees increases by an average of 8.7% in 2023, but keep in mind that the increase is not uniform across all FEHB plans. Of the 262 FEHB plans available in 2022 and 2023, premiums decreased in 56 plans, remained the same in 9 plans, increased less than the average in 119 plans, and increased at or above the average in 8 .7% in 78 plans.
How will your plan premium evolve in 2023? While we don’t recommend choosing a plan based on premium alone, it’s a definite expense that can impact your budget. Take the case of Humana Health Plan High (9F) available in Illinois. The plan premium increases by 34.2%, meaning self-employed enrollees will pay an additional $6,510 next year as a bonus only.
Plan comparison by total cost
The total cost is a better way to choose a FEHB plan. It is the combination of safe expenses (premium) and expenses you are likely to incur next year based on your family composition considering age, family size and intended use health care.
Checkbook’s Guide to Health Plans ranks your options by total cost, and in 2023 there are big price differences between plans. For example, a family of four in the Washington, DC area could save $4,280 next year in total estimated costs by switching from BCBS Standard to Kaiser Standard. If the same family did not want to switch to an HMO, they could retain PPO coverage and save $3,670 in total estimated costs by switching from BCBS Standard to GEHA Elevate.
High deductible health plans
For most federal employees, a high-deductible health plan (HDHP) will be the least expensive in 2023. HDHPs generally have lower premiums than other types of plans, and enrollees receive a Health Savings Account ( HSA) funded by the plan which totals between $800 and $1,200. for self-registration only and $1,600 to $2,400 for self-plus-one or self-family registrations.
The HSA is funded by premium transfers, and enrollees can choose to make additional tax-advantaged voluntary contributions, either as a lump sum or as a payroll deduction. Total plan and member contributions are capped at $3,850 for personal coverage and $7,750 for personal plus one or personal and family subscription. You can invest your HSA funds as you would with an IRA. HSAs enjoy a triple tax benefit: money goes in tax-free, grows tax-free, and leaves tax-free for eligible medical expenses. For any employees expecting high healthcare expenses next year, HDHPs with an HSA can save you around 30% on those expenses.
HDHPs are also an excellent plan choice for federal employees approaching retirement. Once you turn 55, you can contribute an additional $1,000 per year as a catch-up contribution. Additionally, non-medical distributions without penalty are permitted once you turn 65, and you will only have to pay your normal tax obligations. Before and after retirement, your HSA can be invested in stocks, bonds or index funds and can reach tens of thousands of dollars.
So the HDHP with an HSA can supplement your Thrift Savings Plan (TSP) by paying out-of-pocket medical expenses, including Medicare Part B premiums. You’ll have the added flexibility of non-medical distributions that can be used as an additional stream of income. after retirement, preserving your TSP investments.
Self-Plus-One vs. Self & Family
For families of two, whether a married couple or a parent and child, auto-plus-one is often the cheapest enrollment option.
However, in 2023, there are 86 FEHB plans where auto and family are cheaper than auto-plus-one. The differences in some cases are substantial: for the Kaiser High (E3) plan in the DC region, the personal and family bi-weekly premium is $50.90 cheaper than the personal plus one premium. This difference totals $1,323 annually.
Remember that the plan benefits you receive are the same for both membership options. The best way to check the cost is to go to the last page of the official FEHB brochure, find the registrant’s premium share and choose the cheapest option.
Flexible savings accounts
The OPM reports that less than 20% of active federal employees have a Flexible Savings Account (FSA). Keep in mind that annuitants are not allowed to have an FSA. This means that most active federal employees are sure to miss out on savings on some or all of their healthcare costs.
You will fund your FSA with pre-tax payroll deductions. Contribution funds are not subject to payroll taxes, saving you around 30% on healthcare costs paid through the FSA. In 2023, you can start an FSA with as little as $100, and the maximum annual contribution limit is $3,050, an increase of $200 from last year. For households with two active federal employees, both can have an FSA, doubling the annual maximum to $6,100.
You will need to budget with some caution, as FSAs have a “use-it-or-lose-it” provision. You can only carry over $610 of unused funds to the next plan year, an increase of $40 from last year. Any additional funds beyond the rollover limit are forfeited if not used.
For budgeting, consider your known health costs, some of which could be dental or vision care, prescription drugs or medical expenses, etc. Realize that you don’t have to be perfect with your budgeting. In fact, there would be no risk for a first-time participant in the FSA to start by contributing $500, knowing that in the unlikely event that you do not have health expenses next, you could carry forward the entire $500 into the next plan year.
As you budget, keep in mind that even more out-of-pocket healthcare expenses are eligible for FSA reimbursement. Over-the-counter (OTC) items such as allergy medications, pain relievers and hundreds of other items are once again eligible for FSA due to the CARES Act passed during the COVID-19 pandemic.
Paperless reimbursement is now available from most FEHB carriers, making it even easier to use an FSA. When registering with the FSA, you can opt for paperless reimbursement. When your provider files a claim with your FEHB or FEDVIP plan, FSAFeds will automatically reimburse you for the eligible out-of-pocket costs of the claim.
If you’re one of the 80% of federal employees without an FSA, you’re sure to save money next year by taking advantage of this tax-efficient benefit.
The last word
Federal employees will face higher FEHB premiums in 2023, and this open season is a great opportunity to determine if your existing plan is still the best fit. Your plan may be one whose premium has increased by more than 8.7%. There are probably comparable plans out there that offer just as good or maybe even better benefits for less.
If you are one of the 80% of federal employees without an FSA, we strongly encourage you to take advantage of this means to save on disbursements for sure. If you haven’t already, it’s risk-free to start with a few hundred dollars, as you can carry over any unused funds to the next year.
The FEHB, FEDVIP and FSA open season starts on November 14e and ends on December 12e.
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