Federal Employees and Retirees Have Decisions to Make During “Open Season” for Health Benefits
Edward A. Zurndorfer–
Starting November 14,2022 and ending December 12,2022 federal employees and retirees will be making decisions about their health, dental and vision insurance benefits. Employees (but not retirees) must decide whether to enroll or reenroll in the health care flexible spending account and/or dependent care flexible spending account. This column is the first of five FEDZONE columns presenting information that is intended to help employees and retirees make these decisions. This column discusses the Federal Employees Health Benefits (FEHB) program including what employees and retirees need to know about the program, and the decisions that need to be made during the “open season”.
The FEHB program is the largest employer-sponsored health insurance program in the United States. The program covers millions of federal employees and retirees and their families. Enrollees in the FEHB program have hundreds of health plans to choose from. They can change their health plan every year during the annual “open season”. Eligible family members who are covered by the insurance include spouses and children under the age of 26 who can be added to an enrollee’s FEHB program health plan either during an “open season” or a qualifying life event. Both employees and retirees pay on average 25 to 28 percent of their FEHB program health plan premium and the federal government pays the other 72 to 75 percent of the premium, no matter which health plan they are enrolled in and no matter how many family members are included in employee’s or retiree’s health plan.
Choosing an FEHB Program Health Plan for Plan Year 2023
Employees and retirees who are currently enrolled in the FEHB program can change their FEHB program health plan for 2023. They can also change their current health plan options. For example, changing from “low” deductible to “high” deductible, or from “standard” to “basic”. They can change enrollment type – to self only, to self plus one, or to self and family. They can “suspend” their coverage or they can cancel their coverage. Finally, employees (but not retirees) can elect to cancel their participation in “premium conversion” (retirees by law do not participate in “premium conversion”). Each of these changes are discussed in more detail below.
If an employee/retiree is satisfied with the FEHB program health plan he or she is currently enrolled in for 2022, then he or she need not take any action. The employee or retiree will remain in that plan for plan year 2023.
There are many types of FEHB program health plans to choose from including: Fee-for-Service, Preferred Provider Organization, Point of Service, Health Maintenance Organization, Consumer Driven Health Plans, and High Deductible Health Plans associated with a Health Savings Account. The actual number of choices available to a federal employee or retiree may be lower and vary by geographic location.
In terms of FEHB premium cost, no matter which FEHB program health plan an employee/retiree in enrolled in, the employee/retiree pays on average 25 to 28 percent of the health plan premium and the federal government pay the other 72 to 75 percent of the premium. No FEHB program health insurance plan pays 100 percent of the doctor, hospital, laboratory expenses that the employee/retire or a family member enrolled in the FEHB health plan incurs. There are always some deductibles, coinsurance and/or copayment that the employee or retiree must pay.
No-Cost Webinar ft. Ed Zurndorfer:
The following are some questions for employees/retirees who are considering a change in their FEHB program health plan for 2023:
- Although 2023 FEHB program health plan premiums will be increasing (on average, 7.2 percent over the 2022 FEHB program plan premiums, the highest increase in 10 years), there is more than just looking at health plan premium cost when choosing an FEHB program health plan.
- Should an employee or a retiree try to find an FEHB health plan that will pay for most of their medical expenses or just the larger ones?
- How much of a deductible, copayments, and coinsurance is the employee/retiree willing to spend for himself or herself and family members?
- If currently an employee or a retiree is enrolled in a Preferred Provider Organization (PPO) in which there are savings for using in-network doctors and hospitals, will these same in-network doctors and hospitals remain in the network during 2023?
- Retirees who are enrolled in an FEHB plan and who are also is enrolled in “Traditional Medicare” (Medicare Part A and Medicare Part B) should be aware that Medicare is considered their primary health insurance, paying on average 60 to 80 percent of the retirees’ doctor, laboratory and hospital bills. Their FEHB health plan is considered as secondary (Medicare supplemental) insurance, paying on average the remaining 20 to 40 percent of doctor, laboratory and hospital expenses. Under this arrangement, a federal retiree enrolled in Traditional Medicare is encouraged to change their FEHB health insurance plan to something that is less expensive. For example – change from “low’ deductible to “high” deductible, or from “standard” coverage to “basic” coverage. This change can be made during an FEHB program “open season”.
Employees and retirees can view 2023 FEHB program premium rates by going here.
OPM has also provided an FEHB program health plan comparison tool here.
Types of FEHB Program Enrollment Coverage
The FEHB program offers three types of enrollment coverage for employees and retirees. They are:
(1) Self only (covers only the employee or the retiree): or
(2) Self plus one (covers the employee or a retiree plus one eligible family member. Eligible family members include: (a) a spouse, including a valid common-law spouse in a state recognizing common-law marriage; (b) a recognized natural child and a legally adopted child younger than age 26; (c) a stepchild, younger than age 26, including a child of a same-sex marriage; (d) a child age 26 or over who is incapable of self-support due to a mental or a physical disability that existed before the child’s 26th birthday; (e) a foster child under age 26 who meets certain requirements with the employee’s certification. Note that a grandchild is not an eligible family member unless the child qualifies as a foster child; and (3) Self and family coverage that covers the employee or retiree and multiple eligible family members.
Two important items to be noted about enrollment:
- Premium cost for self plus one coverage is usually less than self and family coverage for the same FEHB program health plan. However, OPM recently announced that 84 FEHB program health plans for 2023 have higher premiums for self plus one coverage than for the self and family coverage option.
- Those employees who will benefit (meaning they will pay less premiums will) by switching from “self and family” coverage to “self plus one” coverage, may do so during an “open season”. However, those employees/retirees who cannot switch from “self and family” to “self plus one” during the current “open season” (because they have more than one eligible family member enrolled on their FEHB program health plan) can switch to “self plus one” during the plan year (outside of the ‘open season”) if they experience a “life event”. The following example illustrates:
Example. Phillip, age 52, is a federal employee enrolled in the FEHB program. During 2022, Phillip has “self and family” coverage. Included on his FEHB program health plan is his wife Susan and their son Jason, age 25. Jason will become age 26 in May 2023 at which time Jason will no longer be eligible to remain on Phillip’s FEHB program health plan. In June 2023, Phillip will be allowed to remove Jason from his FEHB program health plan and switch to “self plus one” coverage for himself and Susan. He will be able to switch FEHB program coverage since a family member’s loss of FEHB program eligibility is considered to be a “life event”, allowing an employee to switch his or her enrollment type of FEHB program coverage.
Employees who want to enroll in “self plus one” FEHB program coverage may do so by filling out and submitting form SF 2809 (Health Benefits Election Form). Some agencies use online self-service systems such as Employee Express, My Pay, Employee Personnel Page, or EBI.
Retirees who are requesting health benefit changes and plan information should:
- Go to Open Season Online at https://retireefehb.opm.gov/
- Call Open Season Express at 1-800-332-9798, or
- Write to: FEHB Open Season Processing Center
- P.O. Box 5000
- Lawrence, KS 66046-0500
Participation in Premium Conversion
Federal employees (but not retirees) use before-taxed dollars to pay their portion of the FEHB program health plan insurance premiums. This is called “premium conversion”. Premium conversion uses the Internal Revenue Code (IRC) rules to allow employees to deduct their share of FEHB program health plan premiums from their gross salary. The result is a reduction in the employee’s taxable salary, leading to a decrease in federal taxes, and in most states, state and local income taxes. Premium conversion also decreases Social Security (FICA) and Medicare Part A (Hospital Insurance Tax) payroll taxes. The amount of reduction in federal and state income tax savings depends on the:
(1) Amount of the employee’s FEHB program health plan premiums; and
(2) Employee’s marginal federal and state income brackets.
Premium conversion went into effect in October 2000. Unless an employee formally elects not to enroll in premium conversion during the annual FEHB “open season”, an employee is automatically enrolled.
No-Cost Webinar ft. Ed Zurndorfer:
An employee would want to disenroll from premium conversion participation for three possible reasons:
(2) Effect on future Social Security monthly benefits; and
(3) Possibly Itemizing as medical expenses their FEHB program health plan premiums, including them as part of the medical and dental expenses on Schedule A of their federal income tax return. This may be to their tax advantage. These three reasons are further discussed:
- “Flexibility”. An employee participating in premium conversion generally has the same flexibility with respect to their FEHB program health insurance choices as an employee who chooses not to participate. But an employee who chooses not to participate in premium conversion has the flexibility, without giving any reasons, to drop their FEHB program insurance in the middle of the plan year. An employee who waives premium conversion has the flexibility (without giving any reason) to change their FEHB program enrollment from self and family to self plus one or to self only at any time during the year. An employee participating in premium conversion is allowed to drop FEHB program participation or change their enrollment to self only if the decision to do so comes at a time of a “qualifying life event” such as marriage. Note that this flexibility is generally of little or no value compared to the tax savings associated with premium conversion.
- Effect on future Social Security monthly benefits. For FERS-covered employees who pay Social Security (FICA) taxes based on their Social Security wage earnings, premium conversion could eventually lead to somewhat lower Social Security retirement benefits. But the possible reduction in future benefits is small compared to current year tax savings in federal and state income taxes.
- Itemizing FEHB health insurance premiums. By being enrolled in premium conversion, an employee is not permitted to include the FEHB premiums deducted from their gross salaries as medical expenses on Schedule A of their federal income tax returns. This assumes that the employee itemizes on his or her federal income tax return. In order for an individual to deduct their out-of-pocket medical, dental and vision expenses on Schedule A of their federal income tax return, the total expenses would have to exceed 7.5 percent of the individual’s adjusted gross income. Most employees probably do not have in most years that amount of out-of-pocket medical, dental and vision expenses to be able to deduct them as an itemized deduction. There may be a year that an employee may be close to having a sufficient amount of out-of-pocket medical expenses (especially when including FEHB health plan premiums) that will exceed the 7.5 percent of the employee’s adjusted gross income. In that case, waiving premium conversions will be to the employee’s tax advantage.
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.