Federal employee unions were able to minimize the impact of HSAs on the total government program for 2005 but the good news is that they will be available.

In the federal guidelines promulgated for 2005, federal employees will be able to opt for HSAs in many regions of the country.

The unions, afraid that healthy workers will shift away from traditional plans and raise costs for other employees who remain with more traditional offerings, fought very hard to limit the attractiveness of HSAs to government workers.
Government officials and union representatives agree that the expanded choices being offered to employees and retirees will probably require more homework than shopping around based on price alone.

Many Alternatives Available

Eighteen of the new plans joining FEHBP next year are "high-deductible health plans," that are eligible for "health savings account" status that allows for tax-free contributions and payments for medical expenses.

Nationwide, The Government Employees Hospital Association and the Mail Handlers Benefit Plan will offer nationwide HSA plans. In most parts of the country, Aetna HealthFund will make them available. Health Care of Delaware will make available a high-deductible plan in Maryland.

Under the government employees program, a portion of premiums — typically, somewhat less than the minimum deductibles — will go automatically into the savings accounts. HSA enrollees (but not those covered by HRAs) also will be able to contribute an additional amount out of pocket, up to the plan's deductible. That additional contribution, like the portion going in from premiums, will be pre-tax.

One attractive feature for many employees is that such plans allow monies in the savings account not spent in a given plan year to be available for use in future years. They also roll over into retirement accounts and can be used for many more procedures, such as cessation programs, than other medical insurance plans.

Union Concerns

Federal employee and retiree organizations expressed concern that such plans will draw off relatively healthy enrollees, leaving other plans with higher claims rates and higher premiums, known in health insurance lingo as "adverse selection."

The result is that these first plans, upon first examination are not as attractive as others offered to non-governmental employees.

"We were very cognizant of that concern," said Abby L. Block, an OPM deputy associate director. "It was a shared concern, and so we carefully designed a product that we believe is unique in the industry."

According to published reports, in both types of plans, annual deductibles must be at least $1,050 for self-only coverage and $2,100 for self-and-family coverage.

As a result, perhaps, the premiums for high-deductible plans are not much different from those in traditional FEHBP plans.
For example, the biweekly federal employee share of the Mail Handlers high-deductible plan will be $42.25 for self-only, compared with $45.16 for its standard coverage, and $95.75 for family coverage, compared with $95.64 for standard coverage.

The advantage to HSAs is that any unused funds carry over into future years and that they are all paid with pre-tax dollars.

"We did not negotiate bare-bones plans here," Block said. "The deductibles are not terribly far beyond the minimum, and the benefits once you get beyond the deductibles are quite good."

Moderate Rate Increases Seen

Published reports estimate that overall, federal employees and retirees, by and large, should see some moderation in the rate of increase in their premiums. Health insurance premiums will rise an average of 7.9 percent next year, "good news" as Kay Coles James, director of the Office of Personnel Management, put it in her announcement yesterday.

James said that FEHBP enrollees who sign up for individual coverage will pay an average of $4.32 more biweekly, and those taking family coverage will pay an average of $9.99 more biweekly.

OPM officials said they have no projections on how many of the 8 million FEHBP enrollees — counting employees, retirees and eligible family members — might switch to high-deductible plans. They noted that a somewhat similar type of plan that has been in existence for several years, called the consumer-driven option, has only about 16,000 enrollees. Those plans feature an available pool of money, then a deductible, then HMO or fee-for-service coverage.

"We think it will take awhile for enrollees to understand them and get used to them," said Nancy H. Kichak, an OPM deputy associate director.

The annual open season in which employees and retirees can change plans will be Nov. 8 to Dec. 13.