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Healthcare Reference Materials

Cost of Insurance

Shared Cost

Generally, if you are a Federal employee or annuitant, you share the cost of your health benefits coverage with the Government as your employer. Temporary employees enrolled under 5 U.S.C. 8906(a), former spouses enrolled under Spouse Equity provisions, and most persons covered under temporary continuation of coverage (TCC) do not receive a Government contribution towards the cost of their health benefits.

Government's Share

The Government's share of premiums paid is set by law. Amendments to the FEHB law under the Balanced Budget Act of 1997 (Public Law 105-33, approved August 5, 1997) authorized a new formula for calculating the Government contribution effective with the contract year that begins in January 1999. This formula is known as the "Fair Share" formula because it will maintain a consistent level of Government contributions, as a percentage of total program costs, regardless of which health plan enrollees elect.

For most employees and annuitants, the Government contribution equals the lesser of: (1) 72 percent of amounts OPM determines are the program-wide weighted average of premiums in effect each year, for Self Only and for Self and Family enrollments, respectively, or (2) 75 percent of the total premium for the particular plan an enrollee selects.

OPM must determine the FEHB program-wide weighted average of premiums no later than October 1st which immediately precedes each FEHB contract year. The law directs OPM, first, to multiply each health plan premium for the upcoming year by the number of enrollees enrolled in that health plan as of the previous March 31 who received a Government contribution. OPM will then divide the total of premiums associated with Self Only enrollments and with Self and Family enrollments, respectively, by the corresponding total number of eligible individuals with each type of enrollment, to derive the weighted average of premiums.

The Government contribution for eligible employees is paid out of agency appropriations or other funds available for payment of salaries. OPM receives an annual appropriation to cover Government contributions for eligible annuitants.

Government Contribution for Part-Time Employees

If you are a part-time career employee, the Government contribution toward your health benefits is prorated in proportion to the percentage of full-time service you are regularly scheduled to perform.

Your Share

During each pay period in which your FEHB enrollment is in effect, you are responsible for paying all premiums in excess of the Government contribution, usually 25% of the total premium.

If your pay (after retirement, FICA tax, Medicare and Federal income tax deductions) will cover the full employee share of your health benefits premiums, the withholding is taken from your salary. Group life insurance withholdings follow health benefits withholdings in the order of precedence set forth in the Treasury Fiscal Manual.

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Premium Conversion

What is Premium Conversion?

Premium conversion is a tax benefit. It allows you to allot a portion of your pay to your employer, who will in turn use that amount to pay your contribution for FEHB coverage. This allotment is made on a pre-tax basis, which means that the money is not subject to Federal income, Medicare, or Social Security taxes, and in most cases, state and local taxes. The allotment reduces your taxable income, so less tax is withheld, and your paycheck is larger.

Am I Eligible?

You are eligible to have your FEHB premiums paid under the premium conversion plan when:

  • you are an employee of the Executive Branch of the Federal Government;
  • your pay is issued by an Executive Branch agency; and
  • you participate in the FEHB Program.

If you are enrolled in the FEHB Program and are employed outside the Executive Branch, or your pay is not issued by an agency of the Executive Branch, you may be eligible if your employer agrees to offer participation in the plan.

If you are an employee paying both your and the Government's share of the premiums, the entire amount deducted from your pay qualifies for premium conversion.

Does Premium Conversion Apply Only to Employees?

Yes. At the present time, annuitants and compensationers whose FEHB premiums are deducted from annuities and benefits are not eligible to participate in premium conversion. There are special rules for reemployed annuitants; see below.

Persons enrolled through Temporary Continuation of Coverage and Spouse Equity are not eligible for premium conversion.

Does Premium Conversion Apply to Reemployed Annuitants?

Yes, if you are reemployed in a position that conveys FEHB eligibility, you may participate in premium conversion. See "Reemployed Annuitants" for more information.

How do I Enroll?

You are automatically enrolled in premium conversion.

Once you participate in premium conversion, your participation continues automatically unless you elect not to participate.Each year during FEHB Open Season you may decide whether or not to participate for the following year.

Can I Choose Not to Participate in Premium Conversion?

Yes, but you need to opt-out or waive participation in premium conversion. You should obtain, complete and return a waiver/election to your employing office. A copy of the waiver election is available in Attachment 3 of the Benefits Administration Letter 00-215.

Who Should Not Participate?

Regardless of your marital status, and the number of dependents you have, if you:

  • pay no federal income tax, or
  • earn less than $6,400 per year

you should give serious consideration to waiving participation in premium conversion.

Can I Change My Premium Conversion Participation Status?

Yes, but your opportunities to do so are limited. You may waive participation:

  • During Open Season. The effective date of the change is the first day of the first pay period that begins in the following calendar year.
  • When you make a change in FEHB enrollment that is on account of and consistent with a qualifying life event.
  • When you have a qualifying life event and the change is on account of and consistent with that event (even when you don't change your enrollment). You have 60 days after the qualifying life event to file your change with your employing office. The waiver is effective on the first day of the pay period following the date your employing office received your change request.

You may cancel your waiver and participate:

  • During Open Season. The effective date of the change is the first day of the first pay period that begins in the following calendar year.
  • When you have a qualifying life event; the change in FEHB coverage is consistent with the qualifying life event; and you complete an election form to participate within 60 days from the qualifying life event.

Does Premium Conversion Affect My Other Federal Benefits?

No. All Federal retirement, thrift savings and life insurance benefits are based on gross salary and are not affected by participation in premium conversion.

What is the Impact of Premium Conversion on my Social Security Benefits?

Premium conversion may slightly reduce the Social Security benefit you will receive upon retirement. The extent of the impact depends on several factors:

  • The retirement system that you participate in;
  • Whether your salary exceeds the social Security wage base; and
  • The number of years left until your retirement.

CSRS

If you are covered under CSRS, you are generally better off with premium conversion. Your tax savings are slightly less, since you don't pay social security taxes. However, a reduction in Social Security benefits is not an issue for you since Social Security is not a component of your Civil Service Retirement.

Even if you have Social Security coverage as a result of a non-Federal job, premium conversion would not change your Social Security benefit.

CSRS Offset

Under CSRS offset, your Social Security benefits would be slightly reduced, but your CSRS Offset benefits would be increased by almost the same amount. Participating in premium conversion is most likely a benefit to you.

FERS

Your Social Security benefits are calculated on your taxable earnings, so any reduction in your taxable income will affect your Social Security calculation

The small reduction in Social Security benefits is greatly outweighed by the much larger tax savings. Here is a simple formula you can use to estimate the difference in your Social Security benefit:

  1. Take the number of years you will participate in premium conversion (from now until your estimated retirement) and divide by 35.
  2. Multiply this by your current annual FEHB premium
  3. Multiply the result of Step 2 by the marginal SSA rate (15% for most Federal employees)

The result is the annual loss of Social Security benefits.

(# of Years of Premium Conversion /35) X Annual FEHB Premium X marginal SSA rate = Annual Loss

Example:

Antonio participates in FERS. He's had a full career of FICA contributions, with an ending salary (today) of $50,000 and projected retirement at age 66 in January 2016. His estimated Social Security benefit equals $1,414 per month.

He begins participating in premium conversion and reduces his taxable income by $2,000, the amount of his FEHB premium. By changing his salary to $48,000, his monthly Social Security benefit is now $1,403, an $11.00 per month difference in today's dollars.

15/35= .4286 X 2000 = 857 X .15 = 128/12 = 10.71 or 11

Compare that to the estimated $67 increase in take home pay per month.

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Making Withholdings and Contributions

General

Your employing office must make the appropriate health benefits premium withholdings and contributions beginning with the first pay period that your enrollment is effective. It must submit the full cost of your enrollment to OPM on a current basis for each pay period that your enrollment continues, even if you are paid for only part of the period (except in transfer and reinstatement cases) or you are in leave without pay status.

You should check your pay statement to verify that the health benefits premium withholding is correct and report any discrepancy to your employing office immediately. You are obligated to make the correct payment, regardless of any error in withholding made by your employing office. When too little or no money has been withheld from your pay for health benefits, you incur a debt due the U.S. Government for the proper withholdings for each pay period that your enrollment continues.

Terminated and Cancelled Enrollments

Generally, if your enrollment terminates (other than for entry into military service), the effective date is the last day of the pay period in which the terminating event occurred. If you cancel your enrollment, the effective date is the last day of the pay period in which your employing office receives your cancellation request. Withholdings and contributions for the full pay period are required.

If your coverage terminates because you are in leave without pay status or you have insufficient pay to make the withholding, and you do not elect other payment options, the effective date is the last day of the pay period that you paid your share of the premiums.

Your coverage continues at no cost for 31 days after your enrollment terminates for any reason except when you voluntarily cancel your enrollment or your plan is discontinued.

When You Transfer to a Different Payroll Office (Daily Proration Rule)

Effective March 1, 1997, the Daily Proration Rule applies when you transfer to a position serviced by a different payroll office at a time other than at the beginning of the pay period. Each payroll office (gaining and losing) is responsible for withholdings and contributions for the actual time you occupied a position each office services.

If you owe a debt for health benefits withholdings to your former employing office, the gaining office must make arrangements for withholding your indebtedness and forward the amount collected to your former employing office.

Daily Rate

A daily rate must be computed as follows:

Daily withholding and contribution rate = Biweekly withholding and contribution rate x 26 ÷ 364

Note: The denominator of 364 is always used, even during a leap year.

Active Employees

The formula for determining the amount of withholdings and contributions for which the losing and gaining payroll offices are responsible is:

Daily Rate x Days on Payroll

Example

During a pay period beginning August 4 and ending August 17, Henry transfers to a different agency, with his new appointment effective August 10. The biweekly employee share of his health benefits plan premium is $21.46 and the biweekly Government share is $61.51.

The daily withholding rate is $1.53 ($21.46 x 26 ÷ 364) and the daily contribution rate is $4.39 ($61.51 x 26 ÷ 364).

The losing agency is responsible for withholdings and contributions for 6 days (August 4 through 9), calculated as follows:

Withholdings: $1.53 daily rate x 6 days = $9.18

Contributions: $4.39 daily rate x 6 days = $26.34

The gaining agency is responsible for withholdings and contributions for 8 days (August 10 through 17), calculated as follows:

Withholdings: $1.53 daily rate x 8 days = $12.24

Contributions: $4.39 daily rate x 8 days = $35.12

When You Retire

When you retire, your employing office's responsibility for withholdings and contributions depends on when your annuity starts.

  • If your annuity starts after the end of your final pay period, your employing office will make withholdings and contributions for the entire final pay period.
  • If your annuity starts before the end of your final pay period, your employing office will make withholdings and contributions through the day before the starting date of your annuity, using the Daily Proration Rule.

(For information about determining when your annuity starts, see the CSRS/FERS Handbook for Personnel and Payroll Offices.)

Example

Mary Helen is retiring on May 31. The pay period begins on May 25 and ends on June 7. The biweekly employee share of her health benefits plan premium is $32.26 and the biweekly Government share is $61.51.

The daily withholding rate is $2.30 ($32.26 x 26 ÷ 364) and the daily contribution rate is $4.39 ($61.51 x 26 ÷ 364).

Her employing office will make withholdings and contributions for the period from May 25 through May 31 (7 days), calculated as follows:

Withholdings: $2.30 daily rate x 7 days = $16.10

Contributions: $4.39 daily rate x 7 days = $30.73

When You Die

The daily proration rule applies when you die and you have a survivor annuitant eligible to continue your enrollment. If there is no survivor annuity or if you had a Self Only enrollment, your employing office must make full withholdings and contributions for the pay period in which you die.

Upon Termination or Reinstatement for Military Service

The daily proration rule applies if your enrollment is terminated or reinstated because of entry into, or return from, military service. The effective date of the action is the date you entered into or returned from military service.

Retroactive Restoration

If you are retroactively restored to duty after an erroneous suspension or removal, you may either have your enrollment reinstated retroactively, or you may enroll in the plan and option of your choice, the same as a new employee. If you elect to have the enrollment reinstated retroactively, withholdings for the period of suspension or removal must be made, and your employing office must make contributions from the appropriate fund, as though the suspension or removal had not occurred.

Part-time Career Appointment

If you became a part-time career employee (working 16 to 32 hours a week or 32 to 64 hours biweekly) on or after April 8, 1979, you are entitled to a partial Government contribution in proportion to the number of hours you are scheduled to work in a pay period.

Employees who served on a part-time basis before April 8, 1979, and who have continued to serve on a part-time basis without a break in service (in that or any other position) are eligible for the full Government contribution, as are part-time employees who work less than 16 hours or more than 32 hours per week.

The amount of the Government contribution is determined by dividing the number of hours you are scheduled to work during the pay period by the number of hours worked by a full-time employee serving in the same or comparable position (normally 80 hours per biweekly pay period). That percentage is then applied to the Government contribution made for full-time employees enrolled in that plan.

The amount of the Government contribution is then deducted from the total premium (Government plus employee shares), and the remaining amount is withheld from your pay.

Example

Faith is scheduled to work 36 hours during a biweekly pay period, and the Government contribution for her health benefits plan is $61.38 biweekly for full-time employees. The Government contribution for her health benefits is as follows:

36 (Hours scheduled during pay period) ÷ 80 (Hours worked by full-time employees) = .4500

$61.38 (Government contribution/full-time employees) x .4500 = $27.62 (Government contribution/part-time employee).

Since the total premium (Government and employee share) for her health benefits plan is $92.35, Faith's share of premiums is $64.73 ($92.35 - $27.62).

Chart of Government Contribution Factors for Part-Time Career Employees

The following chart shows the factor used to determine the amount of Government contribution for health benefits for part-time career employees who, if in a full-time position, would work 80 hours during a biweekly pay period (the amount considered as full-time employment for most positions).

If the comparable full-time position would require you to work a tour of duty other than 80 hours per biweekly pay period, or if you are paid on a monthly or semimonthly basis, divide the actual number of hours or days you are scheduled to work on the part-time schedule by the number of hours or days required for a full-time employee in the same position to determine the Government contribution factor.

Hours worked on a regular biweekly schedule
HoursFactor
32 0.4000
33 0.4125
34 0.4250
35 0.4375
36 0.4500
37 0.4625
38 0.4750
39 0.4875
40 0.5000
41 0.5125
42 0.5250
43 0.5375
44 0.5500
45 0.5625
46 0.5750
47 0.5875
48 0.6000
49 0.6125
50 0.6250
51 0.6375
52 0.6500
53 0.6625
54 0.6750
55 0.6875
56 0.7000
57 0.7125
58 0.7250
59 0.7375
60 0.7500
61 0.7625
62 0.7750
63 0.7875
64 0.8000
< 32 or > 64 1.00

Former Spouse Enrolled under Spouse Equity Provisions

If you are a former spouse enrolled under the spouse equity provisions, you must pay both the employee and Government shares of your health benefits premium. You will normally make your payments directly to your ex-spouse's employing office.

Temporary Employees

If you are a temporary employee enrolled under 5 U.S.C. 8906a, you must pay both the employee and Government shares of the health benefits premium. (Exception: if you have a provisional appointment under 5 CFR 316.403, an interim appointment under 5 CFR 772.102, or if you continue coverage after your employment status changes from nontemporary to temporary without a break in service exceeding 3 days, you receive a Government contribution.)

Temporary Continuation of Coverage

If you enroll under the temporary continuation of coverage (TCC) provisions, you usually must pay the full amount of the premiums (both the employee and Government shares) plus an administrative charge of 2 percent of the total premium. You make your payments directly to your servicing employing office.

Former Department of Defense employees who qualify for TCC based on a separation described in 5 U.S.C. 8905a (d)(4) continue to pay the normal employee share of premiums.

Leave Without Pay Status and Insufficient Pay

You must still pay the employee share of health benefits premiums if you are in a leave without pay status for an entire pay period, or if your pay during a pay period doesn't cover the full amount of withholdings due, unless you want your enrollment to terminate. Your employing office must notify you of the choices available to you and provide you with a method to make direct premium payments.

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Remittance to OPM

When Remittance is Due

Your employing office must remit health benefits withholdings and contributions to OPM on the same date it pays its payroll.

Remittance Procedures

The method for remitting payments and supporting accounting information to OPM is the Retirement and Insurance Transfer System (RITS).

OPM will credit the total amount reported for health benefits to the Employees Health Benefits Fund.

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Adjusting Errors

Errors in Withholdings and Contributions

Payroll offices must adjust errors in withholdings and contributions on a subsequent payroll and must include the adjustments in a subsequent withholdings and contributions report.

Your employing office must ensure that your individual payroll record shows not only the regular (current) deductions for health benefits withholdings, but also the adjustments.

Where annual appropriations are involved and the fiscal year changes between the processing of the erroneous withholdings and/or contributions and the processing of the adjustment, the proper appropriation must be adjusted.

When you participate in premium conversion, IRS rules require that no adjustments to taxable income be made as a result of an error correction (even when the employing office is at fault). When your employing office processes a correction, the actual amount of FEHB premiums deducted from your pay will receive pre-tax treatment.

Example

Wendy has $100 per pay period deducted from her pay for FEHB. Her employing office mistakenly deducted $150 during the last pay period before the effective date of her election to participate in premium conversion. To correct the error, the agency deducts $50 for FEHB from Wendy's pay in the following pay period, during which she becomes a premium conversion participant. Although if not for the error, $100 would have been deducted from her pay, only $50 is treated on a pre-tax basis.

Errors Involving Current Employees - Overdeductions

When too much money has been withheld from your pay, or when withholdings have been made when you are not enrolled, your payroll office must adjust the withholdings on a subsequent payroll on which your name appears. This adjustment automatically corrects any excess agency contribution.

Errors Involving Current Employees - Underdeductions

When too little or no money has been withheld from your pay for health benefits withholdings, your employing office must send the correct payment to OPM no later than 60 calendar days after it determines the amount of the underdeduction. This payment must be made to OPM regardless of whether or when the underdeduction is recovered by your employing office.

The underdeduction represents an overpayment of your pay. Your employing office must determine whether to waive collection of the overpayment (up to $1,500), in accordance with 5 U.S.C. 5584. The law provides that an employing office can waive recovery of the overpayment if, in its judgment, you are without fault and recovery would be against equity and good conscience. (If the employing office involved is excluded from the provisions of 5 U.S.C. 5584, it can use any applicable authority to waive the collection.)

If the employing office waives the collection of the unpaid health benefits withholdings, it must remit the payment, along with any applicable Government contributions, out of its own funds.

Waiver is not available for unpaid withholdings when you are in a leave without pay status or when your pay is insufficient to make the withholding.

Errors Involving Separated Employees

When an adjustment in withholdings is necessary after you have separated from service, your payroll office must make the adjustment in your final pay (or payment to your beneficiary or estate).

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Reporting Number of Enrollees Covered

Semiannual Headcount Report

Employing offices must submit a semiannual headcount report on OPM Form 1523 for the last payroll paid during the 1st through the 15th of March and September. It must also report the number of enrollees from whom it made withholdings (or who paid directly or through advanced pay) for that particular pay period for each enrollment code. An enrollee for whom more than one payroll deduction was made in that pay period should be counted only once.

Separate supplemental reports are required for:

  • former spouses enrolled under the Spouse Equity provisions;
  • temporary employees enrolled under 5 U.S.C. 8906a; and
  • temporary continuation of coverage (TCC) enrollees.

Quarterly Report of Enrollees

Each payroll office is required to generate a quarterly report for each plan that lists enrollee names, enrollment code, and total money (withholdings and contributions) submitted to OPM for each enrollee. This report gives enrollment information for the payroll paid during the 1st and 15th of the last month of each quarter. If there are two payrolls paid during that period, the enrollment information for the second payroll paid is reported.

The plans must be listed in enrollment code order and the enrollees within each enrollment code must be listed in the order of their social security numbers. There must be subtotals for each enrollment code and grand totals for each plan.

National Finance Center

Some agencies have agreements with the Department of Agriculture's National Finance Center (NFC) in New Orleans, Louisiana to perform the payroll functions for enrollees who are making direct payments under the Spouse Equity and temporary continuation of coverage (TCC) provisions. These agencies have the same responsibilities regarding FEHB enrollments as the agencies that retain the payroll function for these enrollees; however, NFC acts as their agent in servicing these enrollments. The agency must resolve any disputes between NFC and enrollees; OPM will not intervene. The agency's responsibility in both initial and reconsideration decisions about enrollees' enrollment complaints is explained in "Initial Decision and Reconsideration."

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