Healthcare expenses keep going up year after year, and there’s no sign of things getting better anytime soon. For government workers, retiring brings even bigger financial challenges. Once you leave federal service, your Federal Employees Health Benefits (FEHB) premiums can no longer come out of your paycheck before taxes hit. On top of that, Medicare introduces new costs, and most people naturally use more healthcare as they get older. A new report suggests that men should have about $212,000 set aside, and women around $252,000, just to have a 90% shot of covering their medical bills in retirement.
Here’s the upside — there’s a savings tool built specifically to get you ready for these costs, whether they come today, a few years down the road, or far into retirement. It’s called a High-Deductible Health Plan paired with a Health Savings Account, and for most federal workers, it’s probably the lowest-cost health coverage option out there. Let’s break down what you need to know.
What exactly are HDHPs?
As you’d expect from the name, HDHPs require you to pay more out of your own pocket before your insurance kicks in compared to most other FEHB plans. Up until you hit that deductible amount, you’re on the full allowed charge for any covered service. After you reach it, you typically pay a percentage of the cost — not a flat copayment. One thing to keep in mind: just like all FEHB plans, preventive services are fully covered at no cost to you, even if your deductible hasn’t been met yet.
The HSA that comes with it
What really makes HDHPs different is that signing up for one automatically gives you access to an HSA, and the plan puts money into it for you. These payments, called premium pass-throughs, land in your account every month. To give you an example, the MHBP HDHP puts in $1,200 a year if you have self-only coverage — that’s $100 hitting your HSA every month. You’re also free to add your own money on top of that, which we’ll get into next.
HDHP options in the D.C. area
If you work for the federal government in the Washington, D.C. region, you currently have five HDHP choices available. The yearly contributions the plan makes to your HSA range from $750 to $1,200 for single coverage, and from $1,500 to $2,400 if you’re covering yourself plus one dependent or your whole family.
Understanding how HSAs work
HSAs are unique — they’re the only savings account in the entire country that offers three tax benefits at once:
- Money goes in tax-free. Your contributions come out pre-tax, either through payroll deductions that lower your taxable income, or you can claim a tax deduction if you contribute a lump sum on your own.
- Grow your money tax-free. Any returns your investments earn build up without a single dollar going to taxes.
- Take your money out tax-free. As long as you’re spending it on qualified medical expenses, you won’t owe a dime when you withdraw it.
FEHB plans that offer an HDHP team up with a financial services firm to run the HSA. Most of these providers offer a solid lineup of investment choices similar to what you’d see in an IRA, so you can go with a cautious or aggressive strategy depending on how much risk you’re comfortable with.
How much can you contribute?
The government adjusts HSA limits every year. For 2026, the total you can put in — combining both your own contributions and the plan’s — is $4,400 for single coverage and $8,750 for self-plus-one or family coverage. If you’re 55 or older, there’s an extra $1,000 you can add on top each year as a catch-up contribution.
No pressure to spend it
Unlike a Flexible Spending Account, your HSA balance doesn’t vanish at the end of the year. Your money rolls over indefinitely and can either be invested for long-term growth or kept in cash for whenever a medical expense comes up.
Using HSA money for non-medical costs
You can pull money from your HSA for anything you want, but the tax treatment changes based on when you do it. If you’re under 65, you’ll face a 20% penalty on top of paying regular income tax. Once you turn 65, the penalty goes away, and those withdrawals are simply taxed as regular income — basically the same as a traditional IRA.
Your HSA goes where you go
The HSA belongs to you. So if you decide to switch to a non-HDHP during a future Open Season, your existing balance is still completely yours and available to spend or keep investing. The one catch is that you can’t keep adding new money to it while you’re enrolled in a non-HDHP.
Tips for getting the most out of your HSA
Pair your HSA with a Limited Expense FSA: Under IRS rules, you can’t sign up for a general-purpose healthcare FSA if you’re in an HDHP with an HSA. But you can use a Limited Expense FSA (LEXHCFSA) alongside it. These accounts only cover dental and vision costs, but they enjoy the same tax advantages as a standard FSA. By directing routine dental and vision bills to the LEXHCFSA, your HSA funds stay untouched and keep growing through investments.
Channel your premium savings into the HSA: Depending on what plan you’re on now and which HDHP you move to, you might see your premiums go down. Instead of treating that extra money as a raise, funnel it straight into your HSA. Since you were already used to the higher premium coming out of your paycheck, you likely won’t even notice. As an added perk, spending your own voluntary contributions first means the plan’s monthly deposits have more time to grow in investments.
You’re in no hurry to spend your HSA money. There’s no deadline for getting reimbursed — as long as the qualified medical expense happened after you opened the HSA, you can ask for reimbursement whenever you want. That gives you the option to pay out of pocket now, let your HSA balance compound for years, and then reimburse yourself down the road, completely tax-free. Just hold onto your receipts and records in case the IRS comes knocking.
What kind of savings can an HDHP deliver?
Checkbook’s Guide to Health Plans uses a model to estimate yearly costs for every FEHB plan, factoring in both premiums and the out-of-pocket expenses you’re likely to face based on your personal situation. Depending on which plan you’re currently in, making the switch to an HDHP could save you thousands of dollars.
And there’s an additional consideration.
When Checkbook projects plan costs, it can’t predict if, or how much, you may choose to add to your HSA, so it doesn’t include those tax benefits in its yearly estimates. Voluntary HSA contributions give you two distinct types of tax relief:
Lower income taxes. Every dollar you put into your HSA reduces what you owe in federal income tax, and usually state taxes too.
Payroll tax savings. When you use payroll deductions to contribute, you also dodge Social Security and Medicare taxes, putting an extra 7.65% back in your pocket.
Include these savings, and HDHPs look like an even smarter choice for those who contribute extra to their HSA.
Are there downsides to HDHPs?
Absolutely, and it’s important to weigh them before signing up.
The main challenge is figuring out what care will truly cost you. Depending on what services you need and when you use them, your expenses can swing widely.
The timing of care turns out to matter a lot more than most people expect. If you end up in the hospital toward the end of the plan year, chances are you’ve already received your full HSA contributions and chipped away at your deductible, so you probably have funds ready to cover what’s left. But if that same hospitalization happens in January, right at the start of the plan year, you might be on the hook for the full deductible plus coinsurance with little or nothing in your HSA to help. Compare that to many non-HDHP plans, which charge a set copay for hospital stays regardless of when they happen, so your costs stay more predictable throughout the year.
There’s also the risk tied to investing your HSA. Investing is one of the account’s strongest long-term perks, but markets go up and down. Based on the funds you pick and how the market performs, your HSA balance could end up lower than you’d hoped when you actually need the money.
The bottom line
HDHPs combined with an HSA give federal employees a unique advantage no other FEHB plan can offer: a tax-friendly way to cover current medical costs while also saving for the steep healthcare expenses you’ll face in retirement. Lower premiums, plan contributions to your HSA, and tax savings from voluntary contributions can combine to save you thousands each year, often outpacing popular PPO plans even after you account for the higher deductible.
Still, HDHPs aren’t a universal winner. Higher uncertainty around what you’ll actually pay, the difficulty of figuring out costs before and after your deductible is met, and the risk of investment losses are real factors to think through, especially if you’re expecting considerable medical needs in the coming months or don’t have much cash on hand to handle a surprise bill.
The takeaway: If you’re a federal employee who hasn’t taken a close look with your own numbers at what an HDHP could do for you, it’s worth the effort. For most people, the savings are significant, and the long-term benefit of preparing now for future healthcare costs is hard to beat.
I’m happy to answer your FEHB questions and look forward to giving you advice that can help you save money or get a clearer picture of how FEHB works.
Kevin Moss is a senior editor with the Guide to Health Plans for Federal Employees published by Consumers’ Checkbook. Watch more of his free guidance and see here whether the Guide is available at no cost from your agency. You can also purchase the Guide and save 20% with promo code FEDNEWS.
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