November 5, 2010This year's Federal Employees Health Benefits Program open season starts on Monday, and runs through Dec. 13. Many federal retirees and those planning for retirement ask me, "Why do I need Medicare if I already have health insurance under FEHBP?" The fact is, in many cases it makes sense to have both FEHBP and Medicare coverage. That might involve switching to a different FEHBP plan in retirement that better matches with Medicare and your health care needs. Let's take a closer look at how Medicare might fit into your planning.
First of all, just so we're clear, Medicare is health insurance for Americans age 65 and older and some other groups. It's been around since 1965, but federal employees have been covered only since 1983, when they first began paying the Medicare tax.
If you're a retired federal employee over 65 and enrolled in Medicare, then it becomes the primary payer unless you're covered by other health insurance through current employment (not retired). For example, if you're covered by your spouse's FEHBP and your spouse is still working, Medicare would be the secondary coverage. If you're 65 or older and enroll in Medicare while still working in a federal job, FEHBP remains the primary payer until you retire.
When Medicare becomes the first payer of medical expenses, the amount that needs to be covered by your FEHBP plan goes way down. And when FEHBP plans save money, they can hold down premium increases for all enrollees. Some of the original high-option FEHBP plans (such as Blue Cross high option) have faded away over the years because they were heavily used by older retirees who had not paid the Medicare tax during their careers and relied solely on FEHBP to cover their medical expenses.
Medicare comes in several parts:
Who Needs It?
Federal employees and retirees already have coverage through FEHBP for both inpatient and outpatient care and prescription drugs. So if you choose not to enroll in Medicare, your FEHBP insurance will continue to cover you. (But by law, your insurance plan must limit its payments for inpatient hospital care and physician care to what you would be entitled to if you had Medicare.)
So does this mean you don't need Medicare? Not necessarily. Every FEHBP plan features incentives if you take Medicare Parts A and B as your primary coverage as a retiree over 65. Some plans, for example, offer a waiver of your annual deductible and co-insurance for outpatient services if you are enrolled in Part B as your primary insurance. Other benefits include reduced co-payments for prescription drugs. Check your plan's brochure for specific information for your health plan. The savings can be significant if you rely heavily on medical care and incur high out-of-pocket expenses.
Remember, even if you're in excellent health at 65, as you get older, your medical needs might increase significantly. In many cases, when Medicare pays first and FEHBP pays second, you can end up paying nothing out of pocket, other than your monthly premiums for Part B and FEHBP.
Before you jump at the chance to enroll in Medicare, though, be sure to think it through. Part A is available to most people at no charge, but Part B has a premium that can be more costly than some of the FEHBP plans. This year, it ranges from $96.40 to $353.60 per month, depending on your income. I encourage everyone to enroll in Part A at 65, but Part B is a more personal decision.
Can You 'C'?
I'll admit, I'm not an expert on Medicare Part C, except to know that a federal retiree has the option of suspending FEHBP coverage and enrolling in a Part C plan. Chuck Newkirk, secretary of the New York Chapter of National Active and Retired Federal Employees, recently shared the following thoughts with me on that option:
In general, Newkirk said, two groups of people might benefit from enrolling in Part C and suspending FEHBP: those who are in generally good health and looking to save on monthly premiums, and those who are financially strapped.
Paying for Prescriptions
What about prescription drug coverage under Medicare Part D? According to the Office of Personnel Management, "Most federal employees do not need to enroll in the Medicare drug program, since all FEHBP plans will have prescription drug benefits that are at least equal to the standard Medicare prescription drug coverage."
I'll add that if you find yourself with extensive out-of-pocket expenses each month because you're filling numerous prescriptions, a Part D plan might be an option to supplement your FEHBP prescription benefits. This could be the case if you're enrolled in a low-option FEHBP plan that doesn't have the same level of drug benefits as some of the high-option plans.
If you don't opt for Part D right away, you can add it later. You won't incur a late enrollment penalty as long as you're covered by a qualified plan, and all FEHBP plans are qualified.
There's a new pilot program in 2011 to help with paying Part B premiums, available through the GEHA high-option plan and Mail Handlers Benefit Plan's standard option. Participants in the GEHA pilot will get $75 per month from the insurer, up to a maximum annual subsidy of $900, to help pay Part B premiums. The MHBP program will contribute an amount equal to the regular Part B monthly premium for every month you participate. These plans are not the least expensive FEHBP plans, so the incentives shouldn't be the only reason for choosing one of these plans.
The purpose of the pilots is to encourage retirees to enroll in Medicare as soon as they are eligible. The benefit to you as an enrollee is avoiding the penalty for enrolling in Part B after your initial seven-month enrollment period that begins three months before you turn 65 and lasts until three months after your 65th birthday. Those still working at 65 and covered by health insurance through current employment (or retired and covered by the insurance of a spouse who is still working) have a special enrollment period lasting until eight months after retirement (or your spouse's retirement if you're under their insurance while they are working). For every 12-month period you delay enrollment in Part B, there's a 10 percent surcharge on the premium.
Here are some final thoughts and tips to remember about Medicare this open season:
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 federalnewsradio.com or on WFED AM 1500 in the Washington metro area.
Upcoming programs will feature guests discussing health insurance open season this fall:
November 5, 2010