Medicare & Retirement: What Federal Employees Need to Know – Part IV

This is the fourth of five columns discussing what federal employees need to know about Medicare.

This column discusses the situation in which a federal employee is enrolled in the Federal Employee Health Benefits (FEHB) program and has an older spouse who is enrolled on the employee’s FEHB program health insurance plan (as part of self plus one or self and family coverage).

The question is: What happens when the older spouse becomes Medicare eligible? In particular, when does the older spouse enroll in Medicare (Parts A and B) and how does enrolling in Medicare affect the older spouse’s coverage under the federal employee spouse’s FEHB plan?

Three different scenarios are presented that will best illustrate the situation. The discussion emphasizes what actions should be taken by the federal employee and the older spouse with respect to the latter becoming Medicare eligible.

Scenario #1: Married federal employee enrolled in the FEHB program and whose non-federal employee spouse is also enrolled in the FEHB program through the federal employee. The spouse who is becoming age 65 in a few months.

Melinda, age 60, is a federal employee, has 30 years of FERS service and intends to retire in three years when she becomes age 63. She is married to David (not a federal employee), who will become age 65 in December 2021. Melinda has been enrolled in the FEHB program her entire federal career and includes David on her FEHB program health plan through “self plus one” coverage.

The questions facing Melinda and David are:

(1) When does David enroll in Medicare Part A and Part B?

(2) Assuming David enrolls in Medicare around the time that he becomes age 65, is there any action that Melinda should perform during the next FEHB program “open season” (taking place between Nov. 8 and Dec. 13, 2021); and

(3) is there anything that Melinda has to do to ensure that David keeps his FEHB program health insurance coverage in the event that Melinda predeceases David?

The answers to these questions are:

(1) Since Melinda plans to continue working in federal service for the next three years, and David is enrolled in the FEHB group health insurance program through Melinda, David is not required to enroll during his Medicare “initial enrollment period” (IEP) (three months before the month David becomes age 65, the month he becomes age 65, and the three-month period after the month he becomes age 65). But because there is no monthly premium charge for Medicare Part A, there is no reason why David should not enroll in Medicare Part A shortly before December 2021 when he becomes age 65. He will continue to have primary health insurance coverage under Melinda’s FEHB program plan. Once enrolled in Medicare Part A, the FEHB program plan will be a “primary” with respect any hospital and skilled nursing care facility (inpatient) care and Medicare Part A will be secondary coverage for hospital and skilled nursing care facility (inpatient) care that David may occur.

(2) Melinda need not make any changes to her FEHB program coverage as long as she continues in federal service in order to take into consideration that David has enrolled in Medicare Part A.

(3) To guarantee that David remains enrolled in the FEHB program in the event that Melinda predeceases him, when Melinda retires she has to elect a FERS spousal survivor annuity for David. The survivor annuity can be either a “maximum” (50 percent) or “less than maximum” (25 percent) survivor annuity.

Scenario #2: Married federal employee enrolled in the FEHB program whose non-federal employee older spouse is also enrolled in the FEHB program through the federal employee. Spouse has been enrolled in Medicare Part A but not Medicare Part B. Federal employee retires.

Same background information as the example in Scenario #1 except that Melinda retires from federal service three years later when she is age 63 and David is age 68.

Melinda is too young to enroll in Medicare because she is age 63. When she becomes age 65, she will have her IEP in which she will enroll in Medicare Parts A and B. Melinda is eligible to retain her FEHB health insurance coverage for both herself and for David throughout her retirement.

Until now, David has been enrolled in Medicare Part A only. Now that Melinda has retired from federal service, David has his “special enrollment period (SEP) to enroll in Part B without being subject to a late enrollment penalty. The SEP is an eight-month period, starting the day after Melinda retires and ends eight months later. Melinda has to download form CMS L564 (Request for Employment Information), Melinda fills out Section A of Form CMS L564 and then gives it to her Personnel Office.

Once Melinda’s Personnel Office completes their portion of form CMS L564 (Section B) and returns it to Melinda, Melinda and David have to make an appointment with a Social Security office in order for David to enroll in Medicare Part B. This appointment must occur during the eight-month period starting the day after Melinda retires from federal service. They will bring with them the completed form CMS L564. By completing his enrollment for Medicare Part B during this eight-month period, David will not be subject to a Medicare Part B late enrollment penalty.

Melinda will subsequently enroll in both Medicare Parts A and B during her IEP in two years when she becomes age 65. Once enrolled in Medicare Part A and Part B, Melinda may consider switching her FEHB insurance plan to something that is less comprehensive for her and David. For example, she may want to switch from “high” option to “low” option, or “standard” coverage to “basic” coverage.

The reason for the switch is that once Melinda has enrolled in Medicare Part A and Part B, Medicare will be considered “primary” coverage for both she and David and FEHB will be “secondary” coverage. There is no need for them to be enrolled in a more comprehensive FEHB insurance plan when FEHB insurance is considered secondary coverage. In so doing, Melinda will likely be saving in her FEHB plan monthly premiums deducted from her FERS annuity check.

The switch of FEHB insurance plans may be performed outside of an FEHB open season as enrolling in Medicare is considered to be a “life event.” The switch of FEHB insurance should be performed within 30 days of Melinda’s enrolling in Medicare.

Scenario #3. Two federal employees who are married. Older spouse will be retiring shortly and will be eligible for Medicare within the next year.

Example. Harold and Claudia are married federal employees. Harold is age 64 and will retire from federal service on Dec. 31,2021 after 35 years of federal service. Claudia is age 62 and currently has 30 years of federal service and intends to continue working in federal service until she is age 65.

Harold and Claudia are both enrolled in the FEHB program. They each have “self only” coverage with the same FEHB insurance plan. They determined that two “self only” FEHB plans are cheaper in overall costs (premiums, deductibles, co-insurance, and maximum out-of-pocket costs) compared to being enrolled in one “self plus one” FEHB plan.

Questions: Are there any actions that Harold and Claudia should perform over time in order to minimize their health care expenses?

Answer: Harold and Claudia should perform the following actions in the order presented:

Action #1. During the next FEHB program open season (Nov. 8, 2021 – Dec. 13, 2021), Harold and Claudia should switch their FEHB program coverages from two “self only” coverages to one “self plus one” coverage. The “self plus one” coverage will be under Claudia’s name and Harold will be under Claudia’s coverage. There are two reasons why this change is recommended, namely:

(1) By having the FEHB program coverage under Claudia’s name (Claudia is continuing in federal service), the FEHB premiums will be deducted from Claudia’s bi-weekly gross pay (premium” conversion – before-tax) whereas if Harold had self only coverage the premium would be deducted on an after-taxed basis from Harold’s annuity check; and

(2) When Harold enrolls in Medicare in 2022 at the time he becomes age 65, he will not be required to enroll in Medicare Part B because Harold would be under Claudia’s FEHB health plan which is the only insurance he needs to pay his doctor and other medical bills provided Claudia continues working in federal service.

Action #2. Claudia is encouraged to enroll or to reenroll in the health care flexible spending accounts (HCFSA – www.fsafeds.com). The reason for enrolling in the HCFSA is that Claudia will be able to use her HCFSA to reimburse herself and Harold for out-of-pocket medical, dental and vision expenses that the two of them may incur. Note that Harold after retiring from federal service is not allowed to enroll in an HCFSA. But any out-of-pocket medical, dental, and vision expenses that he incurs as a retiree can be reimbursed through Claudia’s HCFSA.

Action #3. About two months before Harold becomes age 65 in 2022, he is encouraged to enroll in Medicare Part A (hospital insurance) (but not Medicare Part B). In the event Harold has to go to the hospital or to a skilled nursing facility, the FEHB insurance that is under Claudia’s name will be “primary” insurance and Medicare Part A will be “secondary” insurance.

Action #4. In three years when Claudia retires from federal service, at age 65, Claudia will enroll in both Medicare Part A and Medicare Part B. Within eight months starting the day after Claudia retires, Harold should enroll in Medicare Part B. Claudia needs to download form CMS L564 and have her HR office complete their portion. Harold will take the completed form CMS L564 form with him when he goes to the Social Security office to enroll in Part B. In so doing, he will not be subject to a late enrollment penalty. This is assuming that Harold enrolls within the eight-month period – “special enrollment period” – that begins the day after Claudia retires.

Action #5. Within 30 days after Claudia enrolls in Medicare, she is encouraged to change her FEHB health insurance coverage that is less comprehensive and cheaper. For example, switch from “high” option to “low option,” or “standard” to basic.” The reason is that at this time both Claudia and Harold are enrolled in Medicare Parts A and B. Medicare will be the primary payer of their medical bills while the FEHB plan will be the secondary coverage. They can therefore drop to a lesser amount of coverage for the Medicare supplemental insurance. This will result in lower FEHB plan monthly premiums.

Action #6. During next FEHB “open season,” Claudia should switch the “self plus one” coverage to “self only” for herself and Harold should enroll in the FEHB program with “self only “coverage. The reason is that two “self only” FEHB insurance coverage is usually cheaper in overall premium cost than one “self plus one” coverage for the same FEHB plan.

Claudia and Harold will continue being enrolled in Medicare and FEHB throughout their retirement. When the first spouse dies, the surviving spouse will continue with their own FEHB insurance and Medicare coverage.

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