Can a Federal Employee save money by switching his family of four to a High Deductible Health Plan (HDHP) / Health Savings Account (HSA)?
Here’s the first update.
As mentioned here before, at the FEHB ‘New Year‘, my family switched from Blue Cross Basic to Aetna HDHP. When both kids caught the flu and had to visit the Doctor, I took a deep breath. Thankfully they are both fine and the visits were not as costly as I had feared.
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!
As promised, I’ve run the numbers on what the Fiscal Cliff (aka Sequestration, aka Taxmageddon) will cost Joe and Jane Sixpack.
There’s no chance of a deal being worked out by the lame duck Congress. Both sides are too far apart and there are too few work days left in the year. If you disagree with me, then I’ve got some arid mountain land to sell you in Florida. (Update 1/2/2013, I was right about the Year, but wrong about the lame duck congress not making a deal before the new congress being sworn in).
So it’s time to brace for impact. Crunching the numbers as promised, here are the assumptions:
Mid-grade Federal Employee, married w/2 kids, living on the West Coast or an expensive area like Washington DC (this covers over half of active Federal Employees).
Itemized deductions of $31,000 (reasonable assumption for areas with expensive mortgages).
4 exemptions claimed
Annual Long Term Capital Gains of $8000.
Annual Qualified Dividends of $2600.
Health Care Flex Spending Account election of $5,000 in 2012 (capped at $2,500 in 2013).
Here are the calculations:
Holy Schnikes! Looks like I’ll be paying Uncle Sam another $4k$3k next year for the same amount of work. Note that these calculations can apply to just about anyone in the current 25% marginal bracket- just knock of the anticipated 0.4 percent hike in FERS annuity contributions. (1/1/2013 Update Notes: still plenty of uncertainty about FERS contributions, still some uncertainty with the Executive Order-ed 0.5 percent pay increase for federal employees).
2013 Health Premiums are on the rise, even for those of us Feds with a ‘Buick’ health plan.
In my case, our family’s premium for the popular Blue Cross/Blue Shied (BCBS) Basic FFS/PPO (code 112) goes up 5% from $131.73 to $138.32 per bi-weekly pay period.
Junior GubMints needs braces this year. His mouth full of metal could break the bank account when combined with the Obamacare 50% Medical FSA cut coming in 2013.
I was on the fence last year during Open Season in considering switching to an HSA… this may be the forceful shove I was waiting for.
It looks like the Aetna HDHP/HSA is a bargain, plus it covers 100% preventative dental care. We’ve been paying dental costs 100% out of pocket using DentalBenefitsPlus from Navy Federal Credit Union, since BCBS provides no coverage with the Basic Plan.
Stay Tuned for detailed analysis. Would love to hear feedback from fellow Feds with HSA’s!