Medicare Mysteries

By Tammy Flanagan

November 21, 2008

I have spent the past 20 years trying to understand the relationship between the Federal Employees Health Benefits Program and Medicare. I think I know more than I did a couple of decades ago, but that isn't saying much. I thought I would take some time during this open season to try to help those who are making a decision about the best health plan after you turn 65. Let's start with some basics. In my next column, I'll take up the big question: "Do I need Part B?"

What Is Medicare (From A to B)?

Medicare is health insurance. It has been around since 1965 and mostly serves Americans 65 and older. It also covers some people with disabilities and those who have kidney disease. It's distinct from Medicaid, which is health insurance for the poor -- or those who become poor when paying for the expense of a nursing home.

The original Medicare consists of parts A and B. Part A covers hospitalization, and Part B covers outpatient care and doctor visits. Part A is what you are helping to finance by the 1.45 percent tax that is withheld from your salary. There is no premium to enroll in Part A for people who have paid this tax. Part B has a monthly premium.

What About Parts C and D?

Part C is called Medicare Advantage. It consists of health plans that are approved by Medicare but are run by private companies. If you use Medicare Advantage for your health insurance, you will not need FEHBP coverage. There are many different kinds of Medicare Advantage plans. Some function like preferred provider plans and others are like health maintenance organizations. Premiums vary depending on the plan you choose. Many include prescription coverage.

Some of these plans have premiums that are smaller than FEHBP premiums, but before you sign up for one, look closely at the out-of-pocket expenses you will be responsible for and consider whether you will need additional coverage for such items as prescriptions and dental benefits. You also might find there are more restrictions on the doctors you can use. If you use a Medicare Advantage plan, you can suspend your FEHBP coverage in retirement. The Office of Personnel Management Web site has more information on how to do that.

Part D is Medicare's prescription drug benefit. It has a separate monthly premium. Most federal employees and retirees do not need to enroll in Part D, since all FEHBP plans have prescription drug benefits that are at least equal to the standard Medicare prescription drug coverage. The average cost of a Part D plan is about $30 per month.

Why Is Medicare's Web Site So Confusing?

Maybe it's just me, but I think the official Medicare Web site could be more user-friendly. It has loads of information, but I find it hard to find exactly what I'm looking for at times. Here's a quick guide to some key information you can find on the site:

How Do I Enroll in Medicare?

The short answer is it happens via Social Security. Here's the basic information you need.

If you already are getting Social Security retirement, disability benefits or railroad retirement checks, you will be contacted a few months before you become eligible for Medicare and given the information you need. You will be enrolled in parts A and B automatically. Because you must pay a premium for Part B, however, you have the option of turning it down.

If you are not getting retirement benefits already, you should contact Social Security about three months before your 65th birthday to sign up for Medicare. You can sign up even if you don't plan to retire at 65.

What If I'm Still Working?

Contact Social Security and let them know that you are currently employed with health insurance through your employer, and you want to enroll only in Part A. Medicare will be the secondary payer to FEHBP. You will continue to pay your co-pays, co-insurance and deductibles as applicable to your FEHBP plan. You will have a special enrollment period following your retirement to enroll in Part B without incurring a late enrollment penalty. This exception to enrolling at age 65 also applies when you are covered by the health plan of a spouse who is still employed.

What Are the Benefits of Enrolling in Part A?

Remember that once you are enrolled in Part A as a retiree, Medicare becomes the primary payer for your hospitalizations. This can provide huge savings. In many cases your FEHBP plan will waive its normal inpatient co-payments, co-insurance and deductibles when Medicare is the primary payer. Check your FEHBP plan's brochure to find out the benefits of coordinating Medicare with your plan.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on or on WFED AM 1500 in the Washington metro area.

By Tammy Flanagan

November 21, 2008