Should I Purchase a FEDVIP Dental or Vision Plan?
The Federal government offers standalone "FEDVIP" dental and vision plans, separate and distinct from the PSHB program. The FEDVIP program shares the same Open Season dates as the PSHB program, but you join them separately. To enroll, use Benefeds or call 1-877-888-3337. In sharp contrast to regular health insurance benefits, there is no direct Federal government contribution to the cost of the premium. You pay it all, though with substantial tax savings to employees (but not retirees).
While these plans do have an element of insurance, in that they protect you against some unforeseen dental or vision expenses, they are best thought of as primarily pre-paid care. Most people enroll in these kinds of plans because they know roughly what kinds of expenses to expect, and plan to do a little better than breaking even. In effect, you pay for those new contact lenses or your recurring dental expenses on the biweekly or monthly installment plan, with protection against some unanticipated expense.
Like PSHB plans, FEDVIP plans offer three enrollment options: self only, self plus one, self and family. The premiums for self plus family are almost always about double or triple the self-only premium.
The dental and vision plans save you money in two ways. First, they use affiliated providers who provide discounts because of the increased business the plans attract. Second, because employees (but not retirees) pay the premiums with pre-tax dollars, you save approximately one-third of the premium cost. Almost all Federal employees face a marginal tax rate close to or above 33 percent, taking into account Federal income tax, State income tax, and Medicare and Social Security taxes. Any money an employee spends on dental or vision insurance is not subject to these taxes and employees get what amounts to a one-third discount on the premium.
On the other hand, these plans charge a premium, averaging about $200 to $400 a year for self-only dental (after tax savings) and about $80 to $140 a year for self-only vision (also after tax savings, with family premiums about three times as high. Also, the companies that underwrite these plans know that they will attract persons who are heavy users of these services. This means that the premiums have to be higher than would otherwise be the case.
Virtually all PSHB plans provide insurance coverage for accidental dental or vision injuries. Typical brochure language says, "we cover services and supplies necessary to promptly repair sound natural teeth when services are needed due to an accidental injury." For vision services, typical brochure language says "the plan will cover testing and evaluation and fitting for implanted ocular lenses or contact lenses when the impairment is caused by accident or illness." Many PSHB plans also have some routine dental and vision benefits. These are often substantial benefits (though never as good as FEDVIP plan offerings). By joining a health insurance plan with better than average dental or vision benefits, you can eliminate much of the need for a supplemental plan. As an example, the Aetna Healthfund CDHP plan offers a special $300 fund for self-only enrollees (and double that for families) that covers dental costs.
You can also use a Flexible Spending Account to provide prepaid dental or vision care. By earmarking several hundred or even several thousand dollars of your salary, you avoid paying taxes on that income and effectively gain the same one-third discount that the FEDVIP plans provide. To set up an FSA, you estimate your likely spending for dental, vision, or other anticipated out of pocket expenses. You create an FSA during the same Open Season used for selecting health plans and FEDVIP plans.
You can use all three approaches simultaneously. For example, suppose you enroll in a health insurance plan that pays for preventive dental care and an annual eye exam. You can also enroll in a supplemental vision or dental plan, or both. The health insurance plan will be "primary" and pay first, and the FEDVIP plans pay second. You can then use your FSA account to pay the residual that the first two sources do not cover. This three-part approach may, of course, require more planning and more paperwork than you are willing to tolerate. There is the further complication that your favorite provider may not be a plan participant under either the PSHB or FEDVIP plan. But it does give you maximum wrap-around coverage.
Annuitants do not get the same tax advantages as employees. They may sign up for supplemental dental or vision plans, but do not get the pre-tax "discount." They are not allowed to create FSAs. However, annuitants do get the government contribution towards their PSHB plan, which averages about 70 percent. A health insurance plan with a good dental benefit may be an excellent choice for retirees with low to moderate dental or vision expenses, and with heavy anticipated expenses a FEDVIP plan is a sensible choice even without the taxpayer subsidy.
Consumer-Driven and High Deductible health plans are particularly flexible and comprehensive options for funding dental and vision expenses. These plans allow you to shelter from taxes a personal savings account (HSA/HRA) that you can use for dental and vision expenses. And, importantly, unused funds carry over from year to year in a HSA/HRA without an upper limit (FSAs in contrast limit unused fund rollover to $640). Several of them have special dental funds, and all of them allow employees (but not retirees) to augment savings accounts during the year if unanticipated expenses arise. These accounts may be used for dental or vision expenses quite apart from expenses that the plan normally covers, and without restrictions on provider choice. If you already know your dental expenses will be high next year, you can even set up a special account called a Limited Expense Health Care FSA (LEX HCFSA) during Open Season. This will provide dental and vision funding over and above the normal limits on your tax-free contributions to personal savings accounts.
Dental and vision benefits are areas in which you can plan, and in which it pays to plan. Unlike true insurance, where your main need is to guard against large and unpredictable expenses, you probably have a pretty good idea what you are likely to spend on dental and eye care expenses. You can structure your decision around those predictable costs, keeping in mind of course that a tooth, crown, or bridge can break unexpectedly, or some other dental emergencies arise. Be careful to read the fine print of the plan brochures carefully, however. The plan may be unlikely to pay for a denture if the need arose before you joined the plan, for example. Also, be sure to check with your dentist(s) to make sure they are in the network before you choose a particular plan.