Can Federal Employees Drop Medicare Part B and Re-Enroll Without a Late Penalty?

Reader question:

“I am currently employed, have a Federal Employees Health Benefits (FEHB) health plan, and I am enrolled in Medicare. If I terminate Medicare now, can I pick it up after retirement without incurring a penalty?”

This answer assumes the reader is a federal employee age 65 or older.

The short answer

Generally, yes, if you are referring to Medicare Part B (Medical Insurance) and remain covered by FEHB through current federal employment. You can usually drop Part B and re-enroll after retirement without a late enrollment penalty, provided you qualify for Medicare’s Special Enrollment Period (SEP) and enroll within the required timeframe.

Medicare Part B must be formally terminated through Social Security. Dropping Part B is different from dropping Medicare Part A (Hospital Insurance), which has separate rules.

Why there is usually no penalty

Medicare allows people covered by an employer group health plan through current employment, either their own or a spouse’s, to enroll in Part B during a Special Enrollment Period. Active-employee FEHB coverage generally qualifies. The SEP is available while the person has qualifying current-employment coverage and continues for eight months beginning the month after employment or that coverage ends, whichever comes first.

Enrolling within that window generally avoids the Part B late enrollment penalty, which otherwise adds 10 percent to the monthly premium for each full 12-month period a person could have had Part B but did not. The penalty generally lasts as long as the person has Part B.

The catch: retiree FEHB does not count

The eight-month SEP clock starts when active employment ends or qualifying employer coverage ends, whichever happens first. FEHB coverage continued into retirement does not extend that window, and neither does COBRA. A retiring employee who misses the deadline may face a continuing late enrollment penalty and may have to wait until the General Enrollment Period (January 1 through March 31) to reenroll.

Coverage generally begins the month after enrollment.  Enrolling in Part B before employer coverage ends can help avoid a gap in coverage.

What to do before dropping Part B

• Confirm that FEHB coverage is through your own or your spouse’s current employment, not retiree coverage, and that you qualify for the Part B Special Enrollment Period.
• Contact Social Security to request termination of Part B and confirm the effective date. Ending Part B requires filing form CMS-1763 with Social Security, which may include an interview about the consequences.
• Keep records of employment and FEHB coverage dates. When reenrolling, you will generally need Form CMS-40B (Request for Enrollment in Medicare Part B) and Form CMS-L564 (Request for Employment Information), which documents qualifying employer coverage.
• Calendar your retirement date and the eight-month enrollment deadline. Ideally, arrange for Part B to resume when active employment coverage ends.
• Consider Part A separately. Most people receive Part A without a premium, and premium-free Part A generally cannot be voluntarily dropped. Different rules apply to terminating Part A.
• Check the current Medicare premiums to weigh the monthly savings against the risk of missing the enrollment window.

For a broader look at how the two programs coordinate, see Medicare Part B and FEHB.

Official sources

Medicare enrollment rules are administered by the Social Security Administration (SSA) and the Centers for Medicare & Medicaid Services (CMS). These official sources cover the details:

• Office of Personnel Management (OPM): Medicare guidance for active federal employees
• CMS: Special Enrollment Period rules for employer coverage
• Medicare.gov: how to drop Part A and Part B
• Form CMS-1763: Request for Termination of Premium Part A, Part B, or Part B Immunosuppressive Drug Coverage
• Form CMS-40B: Request for Enrollment in Medicare Part B
• Form CMS-L564: Request for Employment Information

FEHB questions can go to the employing agency’s benefits office.

DISCLAIMER: General and educational information only; individual situations vary. These rules generally apply to people eligible for Medicare based on age 65 or older. Different rules can apply to Medicare eligibility based on disability or end-stage renal disease. Readers should confirm their own eligibility, enrollment dates, and coverage details with Social Security and their agency benefits office before making changes.