Order Code RS21974
November 17, 2004
CRS Report for Congress
Received through the CRS Web
Federal Employees Health Benefits Program:
Available Health Insurance Options
Hinda Ripps Chaikind
Specialist in Social Legislation
Domestic Social Policy Division
Summary
The Federal Employees Health Benefits Program (FEHBP) provides health
insurance coverage to over 8 million people. Until recently, eligible individuals could
choose between several nationally available fee-for-service type plans or locally
available Health Maintenance Organizations (HMOs). Continuing its commitment to
provide choices and to constrain health insurance costs, FEHBP began offering a new
type of plan in 2003; a health insurance plan that has a high deductible combined with
a tax-advantaged account. Beneficiaries can use their account to cover certain qualified
medical expenses. FEHBP now offers several variations of these plans and accounts.
Since July 2003, FEHBP eligible active employees can also place their own pre-tax
wages into a Health Care Flexible Spending Account (HCFSA) to cover qualified
medical expenses. While enrollees have a range of health plan choices, they must
decide which plan best matches their needs, how much of their wages to contribute to
health insurance, and how risk adverse they are to potential out-of-pocket costs. This
report will be updated for legislative activity.
FEHBP Basics
The federal government is the largest employer in the United States, and the Federal
Employees Health Benefits program (FEHBP) is the largest employer-sponsored health
insurance program. FEHBP covers about 8.2 million current workers, Members of
Congress, annuitants, and their families. FEHBP offers enrollees a choice of six fee-for-
service plans available government-wide, another five plans available to employees of
certain small federal agencies (such as the Foreign Service), and almost 200 HMOs
serving limited geographic areas. Because most of these plans are HMOs serving a
limited locale, as a practical matter, an enrollee’s choice is limited to between six and
thirty options. Plan details for all FEHBP plans are available on the Office of Personnel
Management’s (OPM) website — [http://www.opm.gov].
Participation in FEHBP is voluntary, and enrollees may change from one plan to
another during designated annual “open season” periods. Special enrollment periods are
Congressional Research Service ˜ The Library of Congress

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also allowed for new employees and for those with a qualifying special circumstance,
such as marriage. Enrollees are not subject to pre-existing condition exclusions. Since
1999, the government’s share of premiums has been set at 72% of the weighted average
premium of all plans in the program, not to exceed 75% of any given plan’s premium.
The percentage of premiums paid by the government is calculated separately for
individual and family coverage, but each uses the same formula. Annuitants and active
employees pay the same premium amounts.
Although there is no core or standard benefit package required for FEHBP plans, all
plans cover basic hospital, surgical, physician, and emergency care. Plans are required
to cover certain special benefits including prescription drugs (which may have separate
deductibles and coinsurance); mental health care with parity of coverage for mental health
and general medical care coverage; child immunizations; and limits on an enrollee’s total
out-of-pocket costs for a year, called the catastrophic limit. Generally, once an enrollee’s
covered out-of-pocket expenditures reach the catastrophic limit, the plan pays 100% of
covered medical expenses for the remainder of the year. Plans must also include certain
cost-containment provisions, such as offering preferred provider organization (PPOs)
networks in fee-for-service plans and hospital preadmission certification.
FEHBP Plans
FEHBP specifies three types of participating plans:
! Government-wide plan — This includes the fee-for-service plan that
pays providers directly for services (this slot has always been filled by
Blue Cross and Blue Shield);
! Plans sponsored by employee organizations — These are fee-for-
service plans, such as the American Postal Workers Union (APWU) plan.
All persons eligible to enroll in FEHBP may choose the APWU plan,
subject to small annual membership dues;
! Comprehensive medical plans — These are the HMOs. Some eligible
individuals have no access to FEHBP HMOs, while other may have
several choices.
Deductibles, copayments, and coinsurance amounts vary across plans. Many plans
offer two options with different premiums and levels of coverage. Even within individual
plans, enrollees may be offered a lower deductible and coinsurance amount if they choose
to use services, such as a physician or hospital provider, in the plan’s network.
Examining the premiums, deductibles, copayment and coinsurance amounts for
physician office visits in the Blue Cross and Blue Shield (BCBS) plans provides an
example of this variation. For 2005, BCBS will offer both a Standard plan, which is its
more generous plan and a Basic plan. Under the Standard BCBS plan, in 2005 enrollees
will pay a monthly premium of $109.87 for individual coverage and $255.79 for family
coverage. The 2005 calendar year deductible for this plan is $250 per person with
maximum family deductible of $500. Enrollees receiving services from a “preferred”
provider are responsible for a $15 copayment for a physician office visit with no
requirement to first meet the deductible. For an office visit with a participating physician,
enrollees are responsible for 25% of the plan’s allowed amount, after meeting the
deductible. For an office visit with a non-participating physician, enrollees are

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responsible for 25% of the allowed amount, after meeting the deductible, plus all of the
difference between the allowed amount and the physician’s actual charge.
Under the Basic plan, in 2005, enrollees will pay a lower monthly premium of
$82.32 for individual coverage and $192.82 for family coverage. There is no calender
year deductible. Enrollees will pay a $20 copayment for an office visit with a preferred
primary care provider and a $30 copayment for an office visit with a preferred specialist.
The Basic plan operates similar to an HMO in that enrollees may only use preferred
providers to receive benefits, except in special circumstances such as emergency care.
The Newest FEHBP Options: Combining a Plan with a High
Deductible and a Tax-Advantaged Account
In 2003, FEHBP began offering a new option: a plan with a high deductible coupled
with a tax-advantaged account that could be used to pay for qualified medical expenses.
These plans have been offered in response to increasing health care costs and health
insurance premiums. They are believed to help control these increases by exposing the
enrollee to more of the decision-making process and the risk for expenditures for their
health care services. In 2003, FEHBP first offered this arrangement by combining a
consumer-driven health plan (CDHP) with a Health Reimbursement Arrangement (HRA).
For 2005, FEHBP expanded this option by also offering a high-deductible health plan
(HDHP) with either a Health Savings Account (HSA) or an HRA. While FEHBP’s
CDHPs and HDHPs both include a high-deductible plan, there are important differences
between the two, described below. In FEHBP, HRAs can be combined with either a
CDHP or HDHP, but HSAs are only available with an HDHP.
Consumer-Driven Health Plans. In 2003, FEHBP offered its first CDHP,
available nationally, through the APWU. For 2005, those choosing this plan are provided
with an HRA (referred to as a Personal Care Account [PCA] in the APWU plan), which
the plan will fund in the amount of $1,200 for individuals and $2,400 for families. PCA
funds are not taxable. Unused balances of the PCA may be carried over, with a limit of
$5,000 for individuals and $10,000 for families, but balances are forfeited when the
enrollee leaves the plan.
In APWU’s CDHP all eligible health care expenses (except in-network preventive
care) are paid first from the PCA. Eligible expenses include basic medical, surgical
hospital, prescription drug and other services covered under the high-deductible plan, as
well as dental and vision services (with a limit of up to $400 per year for self and $800
for family). Once the enrollee has spent the amount contributed by the plan to the PCA
(i.e., $1,200 or $2,400), enrollees must pay the “member responsibility.” This “member
responsibility” ($600 for individuals and $1,200 for families) is similar to a deductible,
except that it is not for first-dollar coverage. Members who have built up the balances in
their PCA over time may use any excess funds to meet their member responsibility.1
Once the deductible has been satisfied, the high-deductible plan will begin to cover
1 For example, for individual coverage, if the PCA balance is $2,000, then the individual could
use the first $1,200 from the fund to pay for services and then use another $600 from the fund
to meet the member responsibility. The enrollee would then qualify for coverage under the high-
deductible health care plan while still retaining a PCA balance of $200.

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services, with copayments and coinsurance amounts similar to coverage found in a
traditional health plans. The 2005 monthly premium for APWU’s CDHP is $88.60 for
self and $206.34 for family coverage. While enrollees are free to use providers either in-
or out-of-network, there are significant advantages to staying in the network. For
example, amounts over the plan allowance for out-of-network services do not count
toward reducing the “member responsibility.” APWU advises enrollees that although
they can use their PCA to pay to out-of network services, the PCA funds will go further
if they chose in-network providers.
In 2005, in addition to APWU’s nationally available CDHP, two other plans,
AETNA and Humana, will also begin to offer a CDHP. Although widely available,
neither of these plans is available nationally. While these three plans are similar in many
ways, there are some significant differences, including (1) the amount the plans place in
the HRA, (2) the carryover amount, (3) rules for when the high-deductible plan begins to
cover medical expenses, (4) the catastrophic limit amount, and (5) availability. For
example, under the AETNA plan, the Medical Fund (similar to the PCA) will be funded
by the plan in the amount of $1,000 for individuals and $2,000 for families with a carry-
over limit of $4,000 for self and $8,000 for families.
High-Deductible Plans with an HSA or HRA. Beginning in 2005, FEHBP will
offer several HDHP plans paired with either an HSA or HRA. FEHBP’s HRAs coupled
with the HDHP are similar to HRAs offered with CDHPs, in that they; (1) cannot exclude
FEHBP eligible individuals, (2) can only be used for medical expenses, (3) are not subject
to tax, (4) are funded solely by the plan, (5) do not earn interest, and (6) are forfeited
when the enrollee leaves the plan. However, FEHBP’s HRAs connected with HDHPs
have no limits on carryover amounts, unlike the HRAs connected with CDHPs.
The rules for FEHBP HSAs are very different. HSAs are only available to certain
individuals: those who are not enrolled in Medicare, not covered by another health plan,
not claimed as a dependent on someone else’s federal tax return, and those who have not
received Veterans Administration health benefits in the past three months. Enrollees may
add additional funds to their HSA, as long as the plan’s and the enrollee’s combined
contributions do not exceed the lesser of the deductible or a federal limit (for 2005, the
lesser amount will be the deductible for most, if not all, FEHBP HSAs). Enrollees over
age 55 can make a “catch-up” contribution, in the amount of $600 in 2005. The plan’s
contribution to the HSA is tax-free, an enrollee’s contribution is tax deductible (an above-
the line deduction, not limited to those who itemize), and any interest earned is tax-free.
All unused funds, as well any interest, may be carried over each year without limit. In
addition to qualified medical expenses, HSA funds may also be used to for non-medical
expenses, subject to the income tax and an additional penalty for those under 65.
Each month, the plan will automatically credit a portion of the FEHBP HDHP
premium into an HSA or an HRA. Individuals enrolled in an HDHP who are not eligible
for an HSA, as of the first day of the month, will have their funds credited to an HRA.
Plans will place the same amount into an enrollee’s HRA as they do into an HSA.
Individuals who retire and remain in the same health plan can still use and accumulate
funds in their HRA.
There are also similarities and differences between the CDHP’s and HDHP’s high-
deductible plans. Both may cover preventive services without first meeting a deductible,

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both operate similar to traditional health care once the deductible has been met, both will
save beneficiaries money for using in-network services, and both require higher
deductibles and catastrophic limits than other FEHBP health plans. However, the
CDHP’s high-deductible plan only covers services once the amount contributed by the
plan for the year and the “deductible” have both been met, while the HDHP begins to
cover services once the deductible has been meet. There are exceptions in both cases for
preventive care. The minimum deductible for the HDHP is specified in law, as is the
maximum catastrophic limit, while neither is specified for the CDHP.
As an example, the GEHA will offer an HDHP nationally. For self-coverage in
2005, the monthly premium is $96.80, the deductible is $1,100, the plan will put $60 per
month in the HSA/HRA, and those in the HSA may contribute another $380 (the
difference between the amount contributed by the plan and the individual deductible for
2005). For family coverage in 2005, the monthly premium is $223.62, the deductible is
$2,200, the plan will put $120 into the HSA/HRA, and those with an HSA may contribute
another $760 (difference between the amount contributed by the plan and the family
deductible for 2005). Enrollees over 55 in self or family plans may also make “catch-up”
contributions.
Flexible Spending Accounts and Their Role in FEHBP
Active federal employees (not annuitants) may participate in the federal Flexible
Spending Accounts (FSA) program, consisting of a Health Care FSA and a Dependent
Care FSA.2 Contributions to an FSA are voluntary, with accounts funded solely by an
employee from his or her pre-taxed salary, thereby reducing taxable income. The
government does not make any contribution to the FSA. Funds in a Health Care FSA
(HCFSA) can be used to pay for qualified medical expenses that are not reimbursed or
covered by any other source. Qualified medical expenses include coinsurance amounts,
copayments, deductibles, dental care, glasses, hearing aids, as well as certain over-the-
counter medical supplies that are not cosmetic in nature. The FSA program provides a
complete list of covered and non-covered medical expenses: [http://www.fsafeds.com].
Employees choosing to participate in an HCFSA must contribute at least $250 and
no more than $4,000 per year to an account, and the total pledged contribution for the year
is available at the start of the year. One significant limitation of the HCFSA is that funds
cannot be carried over from one year to the next so that unused funds are forfeited at the
end of the year. During the annual FEHBP open season, employees may voluntarily make
a new election for an FSA amount to be set aside in the upcoming year. Federal
employees eligible for FEHBP (even those not currently enrolled) are able to elect a FSA.
Under the rules of the Internal Revenue Code, only current employees and not annuitants
are eligible to participate in an FSA.
Individuals who are enrolled in either a CDHP or HDHP coupled with an HRA may
also enroll in the HCFSA, as long as they are not annuitants. While the Internal Revenue
Service allows individuals to have both an HCFSA and an HSA, OPM has determined
that under the FEHBP, individuals must chose between the two (although they may still
2 For a detailed description of the FSA program, see CRS Report RL32656, Health Care Flexible
Spending Accounts, by Chris Peterson and Bob Lyke.

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have a Dependent Care FSA). Therefore, individuals have to weigh the benefits and
limitations of the HCFSA and the HSA, choosing the one that best fits their needs,
especially if they have a big expense, such as a hearing aid. HSAs are the more flexible
of the two, because they can be carried over each year. Additionally, some of the funding
in the HSA comes from the plan. The FSA limit is $4,000 per year, which is higher than
the HSA limit for individual coverage, but may be lower than the HSA limit for family
coverage.
Medicare and FEHBP
Finally, most federal employers or annuitants reaching age 65 will qualify for
Medicare coverage. Federal workers and their employer each pay 1.45% of earnings and
individuals must have at least 40 quarters of Medicare-covered employment to be eligible
for Medicare Part A, Hospital Insurance (HI). The other parts of Medicare, Part B
Supplementary Medicare Insurance (SMI), and Medicare Part D, prescription drug
coverage (available in 2006), are voluntary, and qualified individuals choosing to enroll
are required to pay a monthly premium. Generally, individuals are required to enroll in
Part B, and in 2006, Part D, during their initial eligibility period, and those who wait to
enroll at a later date are subject to a penalty. However, if individuals are covered by
employer-sponsored health insurance either though their own active employment (not
annuitant coverage) or their spouse’s active employment, they may wait until either they
or their spouse retires to enroll in Part B and, beginning in 2006, Part D, without incurring
a delayed enrollment penalty. Upon retirement, individuals must enroll in Parts B or D,
or be subject to a late enrollment penalty. The same rules also apply in the private sector.
Conclusion
FEHBP’s wide range of plans gives eligible individuals a greater say in how they
want to spend their health insurance dollars. Members can use their decision-making
authority to hold down their own health insurance costs, and because premiums are based
on an average of all plan costs, individual decisions ultimately affect all members. Each
eligible individual or family must weigh personal factors such as how much of their
wages they are willing to contribute to health insurance and how risk adverse they are to
potentially incurring out-of-pocket costs. In the end, however, because FEHBP eligibles
may re-visit their decision every year during the annual open season, these decisions can
be changed each year. Individuals who find themselves with too much or too little risk,
under- or over-coverage, and those whose health status changes during the year or those
who experience life changes such as having a child, may leave any plan at the end of the
year. They may try another option and continue to do so every year. In the past, however,
there has been very little movement from one plan to another each year. More than one
half of all FEHBP eligibles are enrolled in a Blue Cross and Blue Shield plan, and even
those enrolled in other FEHB plans tend to remain in their plan from year to year.
Perhaps this will change now that the options have been expanded, and as people face
increasing premiums, they may be more willing to try new options.

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