24k Cadillac Stethescope

Happy January 13th!  It’s a New Year for your Federal Employee Health Benefit (FEHB) Plan. Have you put your new insurance card in your wallet yet?

The Patient Protection and Affordable Care Act (referred to by the short-hand ‘ObamaCare‘ moniker in this post) puts a lot of changes on the middle class and most Federal Employees starting this year.  Here’s a summary of how it will impact you (h/t to Paul Sisson of San Diego U-T for the summary).

 2013 Effects (High impact on Feds):

  • FSA HC Deduction reduced from $5000 to $2500.
  • Medical expense deduction threshold rises from 7.5% of AGI to 10% of AGI.  Translation: Federal Employees (and the rest of the middle class) have NO CHANCE to deduct medical expenses unless they migrate over to a High Deductible Health Plan(HDHP) with Health Savings Account (HSA).

 2014 Effects (Minimal impact on Feds who are Full-Time employees):

  • Employer Mandate – Employers with 50 or more employees must provide Health Insurance or pay a fine.  I thought the folks in DC rooted for the Redskins, not the 49ers?
  • Individual Mandate – If you make enough to file a tax return you must purchase health insurance, IF the cost does not exceed 8% of your income.  Penalties grow from $95/adult in 2014 to $695/adult in 2018.

 2018 Effects (Potential High Impact on Feds):

2018 is when the ‘Cadiallac’ Tax kicks in.

If the annual health care benefit provided (that’s the combination of what YOU pay in premiums, plus what your employer (FEHB) contributes in premiums) totals more than $10,200 per year for individuals or $27,500 for families, then the insurer (employer) pays a 40% tax.  Translation: FEHB benefits exceeding this level will not be provided in 2018, as the 40% tax will be charged to the taxpayer.

Is the Health Care vehicle you are presently driving destined to become a shiny new Cadillac someday? It’s possible for some FEHB plans and very likely for others depending on the rate of Health Care Inflation between now and 2018.  Note that since 1999 Health Care inflation has averaged 8.83% per year.

At a 5% Health Care inflation rate, the following FEHB plan is classified as High-Risk of becoming a Cadillac in 2018 (2018 Total Monthly premium of $850/mo. Self,  $2292/mo. Family):

  • SAMBA High Self – (Currently $661/month)

2018 Cadillacs at 8% Health Care Inflation:

  • SAMBA High Family (Currently $1558/mo.)
  • BCBS Standard Self ($599/mo.)
  • GEHA High Self ($611/mo.)
  • MHBP – Std ($622/mo.)

2018 Cadillacs at 11% Health Care Inflation:

  • BCBS Standard Family (Currently $1354/mo.)
  • Almost ALL FEHB Fee-For-Service Self Plans

As mentioned here, I’ve switched the GubMints family to a HDHP/HSA for 2013. Can a Federal Employee with a family of four save money switching to an HSA?  Stay tuned!

 

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(c) 1999 20th Century Fox

Post Update 2/26/2013: TSP Funds made Whole by the Treasury Dept-  ‘G’ Fund ‘raid’ is over (for now).

(c) 1999 20th Century Fox
‘Whassup, G?’

Recently the TSP Director issued a statement reassuring TSP members that their investments in the G Fund are safe, and that any short term borrowing performed by the Treasury as a part of its ‘extraordinary measures‘ in dealing with the debt ceiling will not affect TSP participants.

He referenced the recent GAO report reviewing the recent raid on the G Fund.

For those who do not wish to read all 39 pages of the GAO report, the key findings are:

  • G Fund investors during the previous ‘raid’ were made whole, and that the Treasury Department borrowing against the G Fund is legal as “required by subsection 8438(g) of title 5, United States Code” (page 19).
  • Treasury Yield spreads drop during the ‘raid’ periods (page 22).

When yield spreads drop, it gets more expensive for the Treasury to borrow.   So while the effect on the TSP G Fund investor is negligible, the overall effect on the U.S. Taxpayer is increased cost.

 

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Two riders in The American Taxpayer Relief Act of 2012 (the Fiscal Cliff Deal) apply directly to Federal Employee Benefits.  They are:

1) Increasing the Transportation Incentive Program (TIP), a program to incentivize federal employees to use mass transport or vanpools, to a monthly stipend of $240.  The language in the bill restores parity between commuter expenses for parking (currently $240/month) vs. mass transport (was $125).  They are now both set at $240, retroactive to 01 January 2013.

2) Ability to convert money in your employer-sponsored 401k account to the employer-sponsored Roth 401k account (if offered by the employer).

Just like the creation of the Roth TSP, It will probably take the TSP 12-18 months to catch up with this provision, but my prediction is that it will happen.  This provision in the Fiscal Cliff Deal was put there as revenue grab to get income taxes now (immediately upon 401k conversion to Roth 401k)  vs in the future (eventual withdrawals from 401k).  My take on the conversion is that it is probably a bad idea to convert a Traditional IRA/401k to a Roth IRA/401k right now unless you are absolutely certain you will be in a higher marginal bracket when you retire.

As an aside, “The American Taxpayer Relief Act of 2012”?  If my recollection is correct, this was created and passed by both houses of congress on January 02, 2013…


I’ve updated the recent analysis about Fiscal Cliff (aka Sequestration) impact on your wallet, now that we have a ‘Fiscal Cliff Deal’ struck on 02 January 2013.

There’s also a good synopsis of the ‘Deal’ done by Fidelity Investments.

Graphic click will take you to the updated GubMints ‘Fiscal Deal’ analysis post:

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