Should We Switch our FEHB to a HDHP + HSA Plan?

It’s the annual open season for federal employees and annuitants.  Time to look at health plans – federal employee health benefits plans (FEHB), to be specific – and make a change!  

Or maybe not.  Few feds seem to bother.  Less than five percent change health plans each year.  

I think we’ve only switched once. We had Aetna for many years until Mrs. Anysecondnow got tired of dealing with them.  We switched to Blue Cross Blue Shield (BCBS) Basic about seven years ago.  I couldn’t find hard statistics, but anecdotally BCBS seems to be a very popular option, maybe the most popular.  Mrs. Anysecondnow likes them very much, so that’s what counts. 

To diverge for a moment, Mrs. Anysecondnow takes the lead on healthcare costs in our home. I think a good marriage partnership is good at divvying up tasks.  I do dishes and vacuum.  She cleans the tiles and grout, I clean the tub and toilets.  We both cook a day or two a week.  And we both ignore the dust on the dresser.  

Anyway, healthcare generally falls to her because she is more knowledgeable from some of her prior jobs and because she uses our plan more [tooltip: ]than I do.I mostly use our plan because of trauma. Typically some sort of mishap on my bike. Or last month, a dog bite. While on my bike. (Yes, I see a trend here.). 

But, my goodness, FEHB premiums and other costs keep going up – an average of 13.5% in 2025 and another 12.3% this year.  Even with the government paying 72% of the premium cost, that is tough to take.   

Seeing those rising prices, maybe all we can do is reminisce about those newlywed married days in our late 20s of hardly ever going to the doctor and only paying a $5 co-pay when we did go. 

We are inching closer to the 55-64 group. Sigh. Image credit: Structure and Distribution of Health Care Costs across Age Groups of Patients with Multimorbidity in Lithuania

But it is open season, so maybe we can do more than pine for earlier days.  Maybe we can find a different plan out there where we can get the coverage we need at a lower price and still keep BCBS’ good customer service?

Which brings us to HDHP + HSA plans. This clunky acronym means “High Deductible Health Plan + Health Savings Account”.  Employers began offering HDHP+HSA plans after 2003 legislation established HSA accounts.  These plans purport to reduce health care costs.  The lure is attractive enough that 50% of employers now offer them, including the federal government. 

The highlight of HDHP+HSAs is the HSA part – the Health Savings Account that you contribute to.  Personal financial folks go nuts over HSAs. “It’s triple tax advantaged!!” they say.  The triple part is this: 1) tax deductions on the money contributed to the HSA  2) the HSA contributions grow tax free and 3) owners pay no taxes on HSA withdrawals when used for broadly defined qualified medical expenses (QMEs).  

Image: BoomerBenefits.com, “How Do High-Deductible Health Plans Work with a Health Savings Account?”

If those present and future tax benefits weren’t enough, part of your already lower premium is paid back to you and automatically dropped into your HSA.  This is the premium pass through, or “PPT”.  For a family plan the 2026 PPT is $1800. 

More? Okay, how about this?  HSAs are flexible enough that you can even pull money out later to reimburse yourself for past medical expenses.  Let’s say you paid out of pocket $500 for an emergency room visit co-pay in 2020 but didn’t use your HSA dollars to pay for it back then.  Ten years later, in 2030, you decide you want some extra tax-free cash.  Pull out that medical receipt (in case you need to document it to the IRS) and then withdraw $500 from your HSA to “reimburse yourself” for that long ago 2025 medical expense.    

Wow, I guess an HSA is pretty amazing.  And I want one.  But you have to have the HDHP insurance plan to get the HSA part.  Although HDHP premiums are generally lower, it’s that HD, the initial high deductible – $3400 for a family plan, in our case – that scares people off.  A family like ours on the CareFirst HDHP would have to pay $3400, full price, for our medical expenses before co-pays and other insurance coverage kicks in.¹ 

I’ve read that HDHP plans are best for folks who don’t think they’ll go to the doctor very much.  In other words, you reckon that you or your family will only need preventive care and maybe another random visit here and there, maybe a few generic prescriptions for the year.  Accordingly, you probably won’t come close to the deductible limit.  You’ll likely save a lot of money compared to a traditional health care plan. 

But what about folks like us who are relatively high users?  As of November, my family has spent $11K of our family out of pocket limit $15K.  I expect that will continue in 2026.  We will definitely max out the deductible and then keep incurring health costs.

How does our situation play out in a HDHP+ HSA environment compared to our current BCBS Basic with no deductible?  Would we save money if we switched?  Or are we better off staying in our current plan?

Let’s run some numbers.²  

But first, two caveats.  One, everybody’s situation is different. These calculations are for my family, nobody else.  Work through your own calculations before making any major health insurance decisions and take the time to do some research.³ 

Two, U.S. health care is complicated.  And that’s an understatementFor many years I have concluded that the most complicated man-made entity in the history of planet Earth is the United States healthcare (or lack of) system. It’s hard to imagine that any one person truly has, or even could have, a firm grasp of all the aspects. All the various players – patients, insurers, medical providers, scammers, etc. – are trying to game the system to their financial advantage. For our family, all I can do is make what seem to be the best choices within the context of this inexcusably complex system we’ve ended up with..  Therefore, I am not, and never will be 100% confident that my calculations will reflect the upcoming 2026 reality.  But we do the best we can.  If anybody thinks I’m missing something major, please let me know in the comments.

So, just focusing on the premiums for now, here are my calculations, with numbers lifted from OPM’s FEHB comparison tool: 

Well, well, that is pretty interesting. Just focusing on premiums and deductibles, we’re already saving a bit more than $2K by switching to the HDHP-HSA plan.  At least that’s how I read this.  This assumes that we max out the deductible.  And given our 2025 numbers, we almost definitely will.  (But if this were 1999 when we were younger and healthier, we would not have come close to maxing out the deductible.) 

A promising start so far.  What if I now include in these calculations the additional tax savings from making contributions to my HSA?  In 2026, the IRS sets a $8750 limit for an HDHP family plan like ours.  If you’re 55 or older during the year (which I will be in November, sigh), you can contribute another $1000.  This contribution limit includes the $1800 PPT into the HSA, so deducting that from our $9750 contribution limit, we can contribute $7950 to the HSA in 2026.  That’s a decent chunk of change.  It’s possible we may not hit that maximum.  There is no requirement to do so.  But let’s say we do.  

I’m a little less confident in my numbers here because I don’t have a good sense of our 2026 income with my new retirement status and Mrs. Anysecondnow’s fluctuating employment, but let’s assume a 22% marginal tax rate for MFJ (married filing jointly) status.  This marginal rate applies to taxable income dollars between $50,400 and $105,700 after the standard deduction.  I suspect our family taxable income will end up somewhere in that range for 2026.

So, let’s say we max out our contribution and then take a deduction of $7950 from our 2026 income.  22% of that deduction is $1749.  Worth noting that I had to “pay” $7950 from somewhere to trigger those savings.  But let’s assume I diverted that $7950 from non-deductible contributions I would have made anyway to our taxable Vanguard investments.   

Now let’s add in these projected tax savings to our running totals from the above table. :

Dang, the numbers are looking better and better. With the tax savings from our HSA contributions, we could potentially save $3773.66 using the HDHP+HSA.  Are we really saving nearly $4K by going with an HSA?  Is this too good to be true?  

And, if the savings are that good, why isn’t everyone doing this?  

Finally, is here something I’ve missed or some catastrophe that will pop up during the year that will wipe out these savings?  

As noted earlier, the U.S. health care system is incredibly complexSay what you will about the shortcomings of the European and other government single payer systems (and I think those shortcomings tend to be overblown by Americans) I envy their simplicity, affordability and, most of all, transparency. This entire blog post about competing plans and savings and deductions would make no sense to a European..  In the end, all you can do is run the numbers as best as you can and proceed.  That’s what we’re doing. 

There are two more major considerations for this analysis.  (To be candid, there are yet more factors that might be considered – customer service, plan geographical coverage, etc. – but I can only cover so much here!) 

The first major consideration is our individual co-pays and medication expenses between the plans.  Specifically, once we reach the deductible limit on an HDHP, what are the co-pays and expenses for coverage that kick in as compared to our current BCBS Basic plan? 

I’m not going to deal with this consideration here because all of our various medical visits and prescriptions are personal and, frankly, probably too boring for this already lengthy post.  Suffice it to say that nearly all of those co-pays – primary care visits, specialty care visits, outpatient surgery, emergency room, etc. – are less under the HDHP.  Sometimes significantly so.⁴  That’s pretty great. 

The second consideration is the overall out of pocket (OOP) maximum for each plan.  Our current BCBS Basic family plan sets it as $15K and the HDHP sets it at $13K.  After that, all of our medical expenses are covered.  (So they say.)

In fact, regarding OOP maximums, an HDHP throws out one more advantage here. While a traditional plan may still charge you additional prescription costs and co-pays once you reach the OOP max, not so an HDHP. According to OPM, once you reach the OOP for an HDHP plan, you will pay no more out of pocket expenses.

At any rate, the family OOP maximum is one of those numbers you prefer not to think much about because if you’re getting close to it, it means your family had a lot of health care expenses that year, maybe even an extended hospital stay.  But it’s nice to know that the HDHP OOP maximum is lower than our current plan.    

Based on all of this, I think there is a strong case to be made for our family switching to a HDHP+ HSA in 2026.  

But even if we do switch, we’re not getting married to the new plan.  If we are disappointed for whatever reason, health care “divorce” in the FEHB is easy.  We can switch back to our old plan — or even try another plan — during open season at this time next year.  If nothing else, we’ll have ended up with a portable HSA that can keep growing tax free and that we can withdraw from anytime.  

Thanks to the OOP maximums, I don’t think either choice is going to break us financially, even if everything falls apart healthwise. 

So, is an HDHP too good to be true?  Check back next year!

1. Just like a traditional, non-HDHP plan, preventive care is at no cost to you under the HDHP, so don’t skip those basic preventive health care visits and screenings. ↩︎
2. If you really want to geek out on comparing FEHB plans, you could do worse than these spreadsheets. ↩︎
3. I like Layered Financial’s blog articles. Tyler Weerden is a federal employee and knows what he is talking about.  Here is his analysis of an HDHP for his personal health situation.  ↩︎
4. Here are a few comparisons between our current BSBC plan and the HDHP plan:
   Emergency room visit: 425 v. 300
   Outpatient surgery: 250 v. 75
   Specialist visit: $50 v. $35
   Nearly all of the charges are less under the HDHP. The only significant area where a traditional plan charges less is if you are admitted to the hospital. BCBS Basic charges a co-pay of $425, but the HDHP will charge you 20% coinsurance.  Twenty percent of whatever a hospital charges you on a daily basis is probably going to be a lot more than $425. ↩︎