FEHB Premium Conversion

Premium Conversion is a "pre-tax" arrangement, meaning that the employees’ FEHB premiums are non-taxable. This means that the employees save on Federal income tax and FICA taxes (Social Security and Medicare taxes). In most cases, the employees will also save on State income tax and local income tax.

Employees are automatically enrolled in premium conversion. Employees may waive premium conversion during the annual FEHB open enrollment period or at the time of a “qualifying life event,” such as marriage, birth of child or spouse gets a job that covers the employee under the spouse’s health insurance. If employee wishes to waive premium conversion, employee should contact the Army Benefits Center at 877 276 9287. Note: waiver cannot be processed via the website.

An employee participating in premium conversion generally has all the same flexibility as a person who chooses not to participate. Because of the tax laws, there are two exceptions. If employee waives premium conversion he/she will have the flexibility, without giving any reason whatsoever, either to drop health insurance altogether or change from a Self and Family enrollment to Self Only. If the employee is participating in premium conversion, he/she will be allowed to drop coverage, or change to Self Only, only if the decision to do so comes at the time of a "qualifying life event". This flexibility is generally of little or no value compared to the tax savings of premium conversion.

If the employee pays Social Security taxes on salary, then premium conversion may result in somewhat lower Social Security benefits. In rare situations, it may be advantageous to pay full Social Security taxes rather than the lower Social Security taxes the employee pays under premium conversion. These unusual cases do not involve employees covered by the old Civil Service Retirement System (CSRS) or the CSRS-Offset plan. If the employee is covered by the Federal Employees Retirement System (FERS) and pay no Federal income tax, employee may wish to investigate further.

Former employees enrolled in Temporary Continuation of Coverage (TCC) and retirees pay premiums on an after-tax basis.

More information can be located at

Content last reviewed: 6/21/2012-VLH

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This page was last revised: 6/21/2012