One of the ways that the FEHB program reduces costs and holds premium costs is by imposing restraint on health care provider choices including doctors, hospitals, laboratories for blood tests and x-rays. The only exception to this pattern is for federal retirees who are enrolled in Original Medicare (Medicare Part A and Medicare Part B), and who are enrolled in FEHB program national health plans such as Blue Cross Blue Shield or GEHA. Retirees enrolled in these national plans can go to almost any hospital or physician at no cost. This is because Original Medicare pays first for Original Medicare beneficiaries and the federal government uses its legal power to force Medicare-participating health care providers to “accept assignment” from Medicare, regardless of what the health care providers charge. “Accepting assignment” means that the health care provider accepts whatever Medicare pays. The health care provider then bills the federal retiree’s FEHB program health plan for the balance.
Different Types of National FEHB Program Health Plans
The following are the types of FEHB program plans: (1) Preferred provider organization (PPO) plans; (2) Preferred provider organization (PPO) plans associated with fee-for-service (FFS) plan for using out-of-network providers; (3) Local Health Maintenance Organizations (HMOs) with no HMOs being national plans; (4) High Deductible Health Plans (HDHPs) associated with an HSA; (5) Consumer-Driven Health Plans (CDHPs) associated with a CDHP; and (6) Point-of-Service (POS) plans. A full description of each type of FEHB program health plan, together with each program’s advantages and disadvantages, is presented in the following tables:
| Type of Plan | Medical Provider Flexibility | Cost Controls | Preferred Providers | Advantages | Disadvantages |
| PPO
PPO/FFS (PPO associated with an FFS plan for using out-of-network medical providers) |
Much larger selection of preferred providers, national and local | All plans now use networks of preferred providers who agree to accept lower fees and avoid unnecessary utilizations. All plans engage in other measures such as second opinions before surgery. High discounts on generic drugs that are therapeutically equivalent to name brand drugs, $500 penalty for any non-emergency hospital admission without a “preadmission certification”. | All national plans obtain reduced rates from “preferred providers” operating through PPO networks. Enrollees in the plan share in these savings through elimination of deductibles or lower copayments if preferred providers are used. Enrollees can switch to a provider of the enrollee’s choice rather than a preferred provider. | By using preferred providers, can save much in out-of-pocket costs. Enrollees should never use a non-preferred provider without first checking to be sure that the non- preferred provider will accept the plan’s payment level, including coinsurance or copayment in full. Before incurring an expensive provider, the enrollee should ask the provider, will accept the PPO plan’s payment level. Retirees enrolled in Original Medicare face minor risk because by law almost all providers have to accept the Medicare rate. | Employees have to “do their homework” when using non-preferred providers. If they do not, they can face catastrophic out-of-pocket expenses. |
| Type of Plan | Medical Provider Flexibility | Cost Controls | Preferred Providers | Advantages | Disadvantages |
| HMO Facility-based group practice | Group of doctors working together at the plan’s facility and hospital and chosen by the plan. Enrollees are required to go to one of their office locations except in emergencies. Limited choice of doctors | Enrollees pay premiums plus co-payment. Controls are in place in order to prevent a doctor from charging more than the plan will reimburse | Must use doctors in the facilities, except in emergencies. Impose barriers to obtaining care as rapidly as enrollees would like, such as making appointments for “non-urgent” visits | Have systems for doctors to review each other’s practices. Enrollees do not have to submit claims for costs of services. Assurance of access to a group of doctors. Doctors are prevented from charging more than the plan will reimburse | Some HMOs rely heavily on mid-level professionals such as nurse practitioners and physician assistants. Few group HMOs offer the extra benefits to Medicare enrollees that are found in most national Medicare Advantage plans |
| HMO Individual practice association (IPA) | Physicians agree to share costs and premium income. Often many participating physicians and hospitals join an HMO-IPA. More modest departure from the fee-for-service system than joining an HMO group practice | All IPAs have a system to assure that physicians do not give costly excessive service. Controls are in place in order to prevent a doctor from charging more than the plan will reimburse | Some have both group and individual physicians. Many participating physicians and hospitals impose barriers to obtaining care as enrollees would like, such as making appointments for “non-urgent” care | Many participating physicians and hospitals, but not as many as the national preferred provider national plans. | Some IPA HMOs rely heavily on mid-level professionals such as nurse practitioners and physician assistants. Few IPA HMOs offer the extra benefits to Medicare enrollees that are found in national Medicare Advantage plans. |
| Type of Plan | Medical Provider Flexibility | Cost Controls | Preferred Providers | Advantages | Disadvantages |
| High Deductible Health Plans including HDHPs (associated with an HSA) and CDHPs (associated with an HRA). | Completely. HDHP and CDHP enrollee can choose any medical provider. | Up to the enrollee. HDHPs offer spectacular savings opportunities. HDHPs provide a savings account (HSA) for health care expenses, financed on a tax-free basis through the premium paid to the HDHP, and additional tax-deductible contributions by the HAS owner. Leftover money from the HSA carries year-to-year and can be used in retirement to pay medical expenses, including Medicare Part B and Medicare Part D premium reimbursement. CDHP is associated with high deductible and provides a Health Reimbursement Account (HRA). HRAs do not grow over time. | HDHP and CDHP enrollees can use any provider. But if they use a preferred provider, they will still have to meet their high deductible. 2025 minimum deductible is $1,650 for self only and $3,000 for self and family coverage (including self plus 1 coverage). | Total cost for HDHPs could be less than tax-preferred premium share, taking into account one’s year-end HSA balance. The focus of both the HDHP and CDHP is for an enrollee to be a prudent purchaser of health care, keeping healthy and spending wisely. Routine preventive care costs do not count against the HSA or the CDCHP spending account | Avoiding health care when needed in order to save HSA funds or preserving the CDHP savings account could lead to serious illnesses in the future. There is catastrophic protection for both the HDHP and the CDHP. |
| Type of Plan | Medical Provider Flexibility | Cost Controls | Preferred Providers | Advantages | Disadvantages |
| Point of Service (POS) | Use any medical provider – doctor or hospital – with the enrollee paying a deductible and coinsurance. Essentially an HMO operating as a “dual plan” | For the HMO portion of the POS plan, enrollees pay little out-of-pocket. Enrollee can go out-of-plan to any doctor or hospital, paying a deductible of $250 or $300, and co-insurance of 25 to 30 percent | Outside the HMO, can choose a preferred provider thereby saving on deductible and coinsurance | By joining an HMO with a POS benefit, an enrollee gets essentially the same choices as an enrollee joining a national plan with both PPO and fee-for-service. | Enrollees have to “do their homework” when going out of the plan network in order to use a doctor not participating in the plan. |
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Space Suggestions for Choosing/Changing an FEHB Program Health Plan for Plan Year 2025
Now that a description and explanation of the several types of FEHB program health insurance plans have been presented, it is important to present suggestions for employees to choose or change an FEHB program health plan for plan year 2025.
Studies over the past have shown that a sizable percentage of federal employees often automatically choose low deductible health insurance plans that ultimately cost the employees more in premiums. Other studies found that many employees stick with the same plan each year rather than evaluating the options each year and choosing a better health plan. The result is higher premiums each year, an average of $2,032 or more annually.
Here are seven suggestions to consider when choosing or changing a health plan offered through the FEHB program:
- Consider employee’s and employee’s family health care needs. Those employees who are married and/or have children should consider what the individual’s and the family’s needs from a health insurance plan. Since FEHB program health plan coverage can change from year to year, it is important to know what plan(s) work better, given the family’s overall health circumstances.
- Check a health plan’s premiums, copayments, deductibles and annual maximum out-of-pocket cost.. The first thing that may catch an employee’s eye is the health plan premium. It is important to remember that the health plan with the lowest premium may not necessarily be the most cost-efficient option in the long run. Total out-of-pocket cost for health insurance can go far beyond the premium. It is essential not to base one’s decision to enroll in a health plan solely on premium costs. There are out-of-pocket costs to consider, including: (a) Copayments which are a fixed fee for certain types of office visits, prescriptions or other kinds of care and are paid at the time of service; (b) Deductibles which are costs paid before the insurance kicks in; (c) Coinsurance on certain services; and (d) Out-of-pocket maximums. Once the out-of-pocket maximum is reached, the health plan covers 100 percent of all costs. Out-of-pocket costs can get complicated and take a toll on an employee’s budget. It is important for an employee to consider what health care services the employe/family members may need during 2025. At that point, the employee should look at what costs may be associated with these services under each health plan being considered.
- Check provider networks. It is important to make a list of the health care providers that an employee and family members may use during 2025, including: (a) Physicians; (b) Specialists; (c) Specific hospitals; (d) Emergency care clinics; and (e) Pharmacies. Review each health plan to see if preferences are included in the network. Remember that medical professionals and insurance companies are continually updating their contracts. Doctors, emergency clinics and hospitals that were in-network during 2024 may be out-of-network during 2025.
- Consider Health Savings Accounts (HSAs). HSAs allow employees to set aside before-taxed dollars to pay for eligible health care expenses such as copayments, certain prescriptions and some medical equipment. HSAs require enrollment in a high deductible health plan (HDHP). Those employees who plan to use an HSA for 2025 should check the contribution limits and rollover policy. It is also advisable to confirm that the HSA will cover the types of healthcare expenses that the employee/family members anticipate during 2025.
- Know the difference between HMOs and PPOs. With an HMO, an employee and family members are generally covered if the doctors used are within the HMO network. PPOs on the other hand often provide some coverage for out-of-network services. HMO networks tend to have smaller networks, and it is likely that the employee will need to name a primary care physician who will refer the employee/family member to any necessary specialist. HMOs also tend to have lower premiums and deductibles. PPOs often have wider networks and do not require referrals. However, PPOs tend to be more expensive when it comes to annual premiums.
- Make sure medications are covered. It is important to make a list of medications an individual and family members are taking and whether a name brand prescription drug or generic drug is taken. Name brand or potential drugs can be pricey. Therefore, finding a health plan that covers these drugs is essential. Generic drugs are generally lower in cost. It is important to call one’s health plan to find out whether the health plan covers medications on the employee’s and family member’s list. It is also important to ask about copayments for filling and refilling prescriptions.
- If not enrolled in an HDHP associated with an HSA, consider enrolling in a health care flexible spending account. Those employees who are not enrolled in HDHP for whatever reason should consider enrolling in a health care flexible spending account (HCFSA). No matter which health insurance plan, dental insurance or vision insurance an employee is enrolled in, there are always deductibles, copayments and coinsurance that an employee must pay. The question is: What is the best way for employees to pay these out-pocket expenses? In particular, using before-taxed dollars or after-taxed dollars? Most financial advisors would agree that using before-taxed dollars via a health care flexible spending account (HCFSA) is better. Employees who participate in an HCFSA contribute to the HCFSA via payroll deductions from their gross salary. During 2024, all employees could contribute a maximum of $3,200 to their HCFSA. The maximum contribution amount for 2025 has not been announced yet by the IRS but will most likely be more than $3,200. Information about the HCFSA and enrollment information can be obtained at www.fsafeds.com.
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Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, 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 we 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.