High Deductible Health Plans and Health Savings Accounts for Federal Employees

As a Federal employee, understanding your health insurance options within the Federal Employees Health Benefits (FEHB) Program is crucial. This guide focuses on High Deductible Health Plans (HDHPs) paired with Health Savings Accounts (HSAs), options that have become increasingly popular among Federal workers.

The Basics

High Deductible Health Plans (HDHPs) – An HDHP is a health insurance plan that offers lower monthly premiums in exchange for higher out-of-pocket costs. This means you pay more for healthcare services before your insurance kicks in. If you have relatively low healthcare needs, an HDHP can be more affordable due to the lower premiums.

Health Savings Accounts (HSAs)-An HSA is a tax-advantaged savings account specifically designed for medical expenses. Key features include:Tax-deductible contributions, tax-free growth on investments, tax-free withdrawals for eligible medical expenses, and portability (funds belong to you and can be carried over from job to job or into retirement).

Note: To be eligible for an HSA, you must be enrolled in a High Deductible Health Plan, you cannot have other health coverage that is not an HDHP (with some exceptions like dental or vision), you cannot be enrolled in Medicare, and you cannot be claimed as a dependent on someone else’s tax return.

HDHP vs. Traditional Health Plans

Feature	HDHP	Traditional Plan
Monthly Premiums	Lower	Higher
Deductible	Higher	Lower
Out-of-pocket Costs	Higher initially	Lower initially
HSA Eligibility	Yes	No

2024 Limits

HDHP Minimum Annual Deductibles

• Self-only coverage: $1,600
• Family coverage: $3,200

HSA Contribution Limits

• Self-only coverage: $4,150
• Family coverage: $8,300
• Additional “catch-up” contribution (age 55+): $1,000

These limits include both employee contributions and any “premium pass-through” contributions made by your FEHB plan.

Health Reimbursement Arrangements (HRAs)

Some FEHB HDHPs offer HRAs instead of HSAs, particularly beneficial for Federal employees who aren’t eligible for an HSA (e.g., those enrolled in Medicare). Key differences:

• HRAs are funded solely by the FEHB plan
• Unused HRA funds may be forfeited if you leave federal service or switch plans
• HRA funds don’t earn interest

Considerations for Federal Employees

1. Compare FEHB HDHP options:
   • Review premiums, deductibles, and out-of-pocket maximums across available plans
   • Consider your expected medical expenses and ability to meet the higher deductible
   • Weigh potential tax benefits from HSA contributions
2. Retirement planning:
   • HSAs can supplement your Federal pension and Thrift Savings Plan (TSP)
   • After age 65, you can withdraw HSA funds for non-medical expenses without penalty (though you’ll pay income tax)
   • Unlike TSP, there are no required minimum distributions for HSAs

Example Scenarios

1. Low Healthcare Needs: Samantha, a healthy 30-year-old Federal employee, rarely visits the doctor. An HDHP with lower premiums and an HSA for future expenses might be ideal for her.
2. Family Planning: John and Maria are planning to have a child next year. They might benefit from a traditional plan with lower out-of-pocket costs for prenatal care and delivery.
3. Approaching Retirement: Roberto, age 60, is looking to maximize his retirement savings. An HDHP with an HSA allows him to make catch-up contributions and save tax-free for future healthcare expenses.

Conclusion

HDHPs paired with HSAs or HRAs can offer significant benefits for federal employees, including potential cost savings, tax advantages, and additional retirement planning options. However, they require careful consideration of your personal financial situation, healthcare needs, and how they fit with your overall federal benefits package.

Before making a decision:

• Thoroughly review your FEHB options
• Consider consulting with your agency’s benefits officer or a financial advisor familiar with federal benefits
• Carefully read the brochures of any FEHB plans you’re considering
• Reassess your choice during each FEHB Open Season, as both your needs and plan offerings may change over time

FAQ

1. Can I contribute to an HSA if I’m enrolled in Medicare? No, once you enroll in Medicare, you can no longer contribute to an HSA.
2. What happens to my HSA if I leave federal service? Your HSA belongs to you and you can take it with you, regardless of employment.
3. Can I use my HSA for my spouse’s medical expenses? Yes, you can use your HSA for qualified medical expenses for yourself, your spouse, and your tax dependents.
4. What happens to HSA funds after death? When the owner of an HSA passes away, the treatment of the funds depends on the designated beneficiary:
5. Spouse as Beneficiary: the HSA will be treated as the spouse’s own HSA after the owner’s death. This means the spouse can continue to use the HSA for qualified medical expenses without any tax consequences, and the same tax advantages (tax-free withdrawals, no required minimum distributions) will apply.
6. Non-Spouse Beneficiary: If someone other than the spouse is the designated beneficiary, the HSA ceases to be an HSA upon the owner’s death. The account’s fair market value at the date of death becomes taxable income to the beneficiary. However, if the beneficiary uses the funds to pay for the decedent’s qualified medical expenses within one year after death, those amounts are not taxed.
7. No Designated Beneficiary: If no beneficiary is designated, the HSA funds become part of the decedent’s estate. The value of the HSA is included in the decedent’s final income tax return and is subject to taxes as part of the estate.

For the most up-to-date and comprehensive guidance on HDHPs and HSAs, and more detailed information specific to your situation, consult the Office of Personnel Management (OPM) website or contact your agency’s human resources department.