Flickr user Bilal Kamoon

The Most-Asked Federal Retirement Question

Hint: It has to do with health insurance.

Are you unsure about whether you should enroll in Medicare after you’re retired if you’re also covered under the Federal Employees Health Benefits Program? If so, you’re not alone. The number one query I get in my email inbox starts something like this: “I have a simple question for you. I’m about to turn 65 and I’m not sure what to do about Medicare enrollment.”

Unfortunately, this is not a simple question to answer. First of all, Medicare has four parts: A (hospital Insurance), B (outpatient or doctor’s coverage), C (Medicare Advantage) and D (prescription drug coverage). Each part provides benefits that are largely duplicated by FEHBP coverage. In addition, you will continue to be covered by your FEHBP plan even if you choose not to enroll in Medicare. Despite both of these facts, the majority of federal retirees choose to enroll in Medicare Part A and Part B. Let’s explore why.

Most people will have paid the Medicare hospital insurance tax (1.45 percent payroll tax) during their careers and will automatically be entitled to Medicare Part A without paying a premium. This coverage, when combined with most FEHBP plans, will generally cover 100 percent of hospital room and board and other inpatient expenses when Medicare Part A is the primary payer. (Generally, Medicare pays first once your FEHBP premiums are being deducted from a federal retirement check rather than from you or your spouse’s paycheck.)

Most federal employees and retirees do not choose to enroll in Medicare C or D. Medicare C can be used instead of FEHBP. It includes Medicare A and B along with additional benefits that may include dental, vision, hearing and prescription drug coverage. Part D provides additional prescription drug coverage for retirees who may not have prescription benefits that meet the Centers for Medicare and Medicaid Services minimum coverage standards. Generally, this does not include federal retirees covered by an FEHBP plan.

That leaves Part B. In 2016, the Congressional Research Service reported that 86 percent of federal retirees 65 and older who were enrolled in a fee-for-service FEHBP plan (such as Blue Cross/Blue Shield, GEHA or NALC) had also signed up for Medicare parts A and B. And 56 percent of retirees who were enrolled in an HMO (such as Kaiser Permanente or United Healthcare) were also enrolled in parts A and B. The report said that in the previous 20 years, the percentage of retirees enrolled in in a fee-for-service FEHBP plan and Medicare A and B had dropped by 6 percent. The percentage of retirees enrolled in an FEHBP HMO plan and parts A and B had declined by more than 10 percent.

This drop in Medicare enrollment can be attributed largely to the rising cost of Part B coverage. The standard 2018 premium is $134 per month per individual enrolled. So for a married couple, the cost would be $3,216 per year. In addition, an income-related monthly adjustment amount can raise the cost considerably higher.

About 70 percent of Medicare enrollees are covered by a “hold harmless” provision that prevents the annual increase in their premiums from exceeding the cost-of-living increase in Social Security benefits if the premiums are automatically deducted from their Social Security payments. This applies to about 70 percent of Medicare enrollees. Some 42 percent of Part B enrollees who are subject to this provision for 2018 pay the full $134 standard rate because the 2018 increase in Social Security was adequate to cover the additional cost of Medicare Part B.

People who are 65 or older and covered by a health plan based on current employment can delay enrollment in Medicare Part B without penalty. They will have a special enrollment period that will follow their retirement by eight months. Those who aren’t covered by health insurance based on current employment will incur a permanent 10 percent surcharge on the Part B premium for every 12-month period that enrollment is delayed.

So why might you want to add Part B to your FEHBP coverage when you’re over 65 and retired? I recently was talking to a federal retiree who requires physical therapy to treat knee problems stemming from years of pounding the pavement as a runner. Her out of pocket expense for the therapy is $100 per visit. She is entitled to a generous federal retirement benefit and has a substantial balance in her TSP account, but she limits her therapy visits to less than those prescribed by her doctor because of the  out of pocket expense. If she were enrolled in Medicare Part B, her FEHBP plan would waive the out of pocket expense because Medicare would be her primary payer. Medicare would pay 80 percent of the Medicare-approved amount and her FEHBP plan would only have to cover 20 percent. If her provider participates in Medicare and accepts the Medicare allowance as payment in full, then she would have no out of pocket expense.

Although having Medicare Part B would save her the coinsurance to receive her physical therapy as prescribed by her doctor, she would still be required to pay the additional Part B premium every month whether or not she was receiving therapy. To control the cost of FEHBP premiums in addition to the cost of Part B, she could opt to reevaluate her FEHBP plan enrollment.

Here are some other tips about enrolling in Part B:

  • If you’re eligible, use TRICARE for Life and suspend FEHBP during retirement. TFL provides “wraparound” coverage when combined with Medicare A and B and also includes a generous prescription drug benefit.
  • Check to see if your FEHBP plan offers a health fund or a Medicare reimbursement account. Some plans provide payments to help offset the cost of Part B.
  • Keep in mind that the majority of your lifetime health care needs may lie ahead of you. It’s more likely you’ll need expensive care in your later years.

FEHBP open season is coming soon. This year’s dates are Nov. 12 to Dec. 10. Open season provides an opportunity to evaluate your health insurance needs and make the best choice of coverage for you and your family.

Photo: Flickr user Bilal Kamoon