Navigating the complexities of health insurance can be daunting, especially when you’re building a part-time career. As a part-time career employee in the federal government, understanding your health benefits and associated costs is crucial for financial planning and well-being. This guide breaks down the essential aspects of health insurance costs within the Federal Employees Health Benefits (FEHB) program, specifically tailored for those in part-time career positions.
Shared Responsibility: Government and Employee Contributions
Typically, the cost of health benefits coverage is a shared responsibility between the government, as the employer, and its employees or annuitants. This shared cost model helps make comprehensive health coverage more accessible and affordable. However, it’s important to note that certain categories of employees, such as temporary employees under specific statutes, former spouses under Spouse Equity provisions, and individuals under Temporary Continuation of Coverage (TCC), might not receive the government’s contribution towards their health benefits.
The Government’s Contribution: The “Fair Share” Formula
The government’s portion of health insurance premiums is legally mandated and calculated using a “Fair Share” formula. Introduced in 1999 under the Balanced Budget Act of 1997, this formula ensures a consistent level of government contribution, regardless of the health plan chosen by the employee. This percentage is designed to remain stable relative to the total program costs.
For most eligible employees and annuitants, the government’s contribution is capped at the lesser of two amounts:
- 72 percent of the program-wide weighted average of premiums for Self Only, Self Plus One, and Self and Family enrollments. This average is determined annually by the Office of Personnel Management (OPM).
- 75 percent of the total premium for the specific health plan selected by the employee.
OPM calculates this weighted average premium by October 1st each year, before the new FEHB contract year begins. The calculation involves multiplying each health plan’s premium by the number of enrollees in that plan as of March 31st of the previous year who received a government contribution. These totals are then divided by the respective total number of enrollees for Self Only, Self Plus One, and Self and Family enrollments to arrive at the weighted average premiums.
Government contributions for active employees are drawn from agency appropriations or other salary-available funds. OPM receives an annual appropriation to cover the government share for eligible annuitants.
Prorated Government Contribution for Part-Time Career Employees
A key aspect for part-time career employees to understand is that the government contribution towards their health benefits is prorated. This means the government’s share is proportional to the percentage of full-time service they are regularly scheduled to work. For individuals building a part-time career, this pro-rata system ensures fair contribution based on their work schedule.
Employee or Annuitant Responsibility
Employees and annuitants are responsible for covering the remaining premium amount that exceeds the government’s contribution. This payment is deducted during each pay period while the FEHB enrollment is active.
Deductions are made from the employee’s salary or annuity after standard deductions such as retirement contributions, FICA tax, Medicare, and federal income tax. Health benefits withholdings take precedence over group life insurance withholdings, as outlined in the Treasury Financial Manual.
Premium Conversion: Maximize Your Savings
Premium conversion is a valuable tax benefit available to many federal employees, allowing you to pay your share of FEHB premiums with pre-tax dollars. This can significantly reduce your taxable income and increase your take-home pay, making your part-time career even more financially rewarding.
How Premium Conversion Works
Under premium conversion, a portion of your salary is allocated to your employer, who then uses this amount to pay your FEHB premiums. This allotment is made before taxes are calculated, meaning you don’t pay federal income, Medicare, or Social Security taxes (and in most cases, state and local taxes) on this portion of your income. By reducing your taxable income, you effectively lower your tax liability, resulting in a larger paycheck.
Premium Conversion Eligibility
Generally, you are eligible for premium conversion if:
- You are an employee of the Executive Branch of the Federal Government.
- Your pay is issued by an Executive Branch agency.
- You participate in the FEHB Program.
Employees outside the Executive Branch or whose pay isn’t issued by an Executive Branch agency may still be eligible if their employer agrees to offer premium conversion. Importantly, if you are paying both the employee and government shares of the premiums, the entire deducted amount qualifies for premium conversion.
Currently, annuitants and compensationers whose FEHB premiums are deducted from annuities and benefits are not eligible for premium conversion, although there are special rules for re-employed annuitants. Individuals enrolled through Temporary Continuation of Coverage and Spouse Equity are also not eligible.
Automatic Enrollment and Opting Out
Eligible employees are automatically enrolled in premium conversion unless they actively waive participation. Once enrolled, participation continues automatically from year to year, unless you choose to opt out. You have the option to decide whether to participate each year during the FEHB Open Season for the following year.
Choosing Not to Participate
You can opt-out of premium conversion by completing and submitting a waiver/election form to your employing office. Before making this decision, especially as someone building a part-time career where every dollar counts, it’s advisable to consult a tax advisor to understand the full financial implications. Employees who pay little to no federal income tax should particularly consider waiving participation.
Changing Your Premium Conversion Status
Opportunities to change your participation status are limited. You can waive participation:
- During Open Season, with changes effective the first day of the first pay period in the following calendar year.
- When you experience a qualifying life event and make a change in FEHB enrollment consistent with that event.
- When you have a qualifying life event and the waiver is consistent with that event, even if you don’t change enrollment. You have 60 days after a qualifying life event to file a change.
You can cancel a waiver and begin participating:
- During Open Season, effective the first day of the first pay period of the next calendar year.
- When you have a qualifying life event and the change in FEHB coverage is consistent with the event. You must submit an election form within 60 days of the event.
Impact on Other Federal and Social Security Benefits
It’s important to understand that premium conversion does not negatively impact your federal retirement benefits, thrift savings, or life insurance benefits. These are all calculated based on your gross salary, unaffected by pre-tax premium conversion deductions.
However, premium conversion may slightly reduce your Social Security benefit upon retirement because Social Security benefits are calculated on taxable earnings. The extent of this reduction depends on your retirement system (CSRS, CSRS Offset, or FERS), whether your salary exceeds the Social Security wage base, and the time remaining until retirement.
For most federal employees under FERS, the tax savings from premium conversion significantly outweigh any potential small reduction in Social Security benefits. It’s a financial advantage that can be especially beneficial for those in part-time careers looking to maximize their income and savings.
Withholdings and Contributions: Ensuring Accuracy
Accurate and timely withholdings and contributions are essential for maintaining your health benefits coverage.
General Procedures
Your employing office is responsible for making the correct health benefits premium withholdings and contributions starting from the first pay period your enrollment becomes effective. They must submit the full cost of your enrollment to OPM for each pay period, even if you are paid for only part of the period or are on leave without pay (except in specific transfer and reinstatement cases).
It’s crucial to regularly check your earnings statement (or annuity statement for annuitants) to verify that your health benefits premium withholding is correct. Report any discrepancies immediately to your employing office or retirement system. As an enrollee, you are ultimately responsible for ensuring correct payments, regardless of any errors in withholding. Underpayments can result in a debt to the U.S. Government.
Handling Enrollment Changes and Terminations
When your enrollment terminates (except for military service entry), it typically ends on the last day of the pay period in which the terminating event occurred. If you cancel your enrollment, it ends on the last day of the pay period when your employing office receives your cancellation request. Full withholdings and contributions are required for the entire pay period in these cases.
If coverage terminates due to leave without pay or insufficient pay, and you don’t elect other payment options, coverage ends on the last day of the pay period for which you paid your share of premiums. Importantly, coverage continues at no cost for 31 days after termination for most reasons, excluding voluntary cancellation or plan discontinuation.
Special Situations: Transfers, Retirement, and More
The article further details specific rules for handling withholdings and contributions in various situations, including:
- Employee Transfers: Daily Proration Rule applies when transferring to a different payroll office mid-pay period, with each office responsible for their respective period.
- Retirement: Withholding responsibilities depend on when your annuity starts relative to your final pay period, potentially involving the Daily Proration Rule.
- Death of an Enrollee: Daily Proration Rule applies if there’s a survivor annuitant; otherwise, full withholdings for the pay period of death.
- Military Service: Daily Proration Rule applies for terminations or reinstatements due to military service.
- Retroactive Restoration: Special rules for employees retroactively restored to duty after erroneous suspension or removal.
Part-Time Career Appointment Contributions Explained
For employees in part-time career appointments (working 16 to 32 hours a week or 32 to 64 hours biweekly) hired on or after April 8, 1979, the government contribution is partially provided, proportional to their scheduled hours. Those with part-time service before this date, or those working less than 16 or more than 32 hours per week, may be eligible for the full government contribution.
The government contribution is calculated by dividing your scheduled hours by the hours of a comparable full-time employee (typically 80 hours biweekly) and applying that percentage to the full-time government contribution amount. The remaining premium is your responsibility.
Example Calculation: If the full-time government contribution is $61.38 biweekly and you work 36 hours biweekly:
- Calculate the proportion: 36 hours / 80 hours = 0.45
- Calculate your government contribution: $61.38 x 0.45 = $27.62
- If the total premium is $92.35, your share is: $92.35 – $27.62 = $64.73
Other Employee Categories
The article also outlines contribution responsibilities for:
- Former Spouses: Typically pay both employee and government shares.
- Temporary Employees: Generally pay both shares, with some exceptions.
- Temporary Continuation of Coverage (TCC): Usually pay the full premium plus an administrative charge.
- Leave Without Pay/Insufficient Pay: Employees are responsible for their share of premiums to maintain coverage.
Remittance, Error Adjustments, and Reporting
The final sections cover administrative processes:
- Remittance to OPM: Employing offices must remit withholdings and contributions to OPM on the payroll date.
- Adjusting Errors: Procedures for correcting over and under deductions, including special considerations for premium conversion participants and separated employees.
- Reporting Enrollee Numbers: Semiannual and quarterly reports required from employing offices to OPM.
Conclusion: Making Informed Decisions About Your Part-Time Career Benefits
Understanding the costs and contributions associated with your FEHB coverage is a critical aspect of managing your benefits as a part-time career federal employee. By familiarizing yourself with the government’s contribution formula, the advantages of premium conversion, and the procedures for withholdings and adjustments, you can make informed decisions to maximize your benefits and financial well-being. For personalized guidance and specific details related to your situation, always consult with your employing office’s HR department or a benefits specialist. Building a successful part-time career includes taking full advantage of the benefits available to you, and health insurance is a cornerstone of that security.
