Should Federal Retirees Enroll in Medicare?

Federal employees have numerous questions as they plan for their retirement from federal service. One of the most often-asked questions is whether a CSRS or a FERS annuitant should enroll in Medicare when he or she becomes first eligible.

This question is difficult to answer for many federal annuitants.

SEE ALSO:

• Why Some Federal Retirees Pay More for Medicare Part B
• 10 Common Medicare Mistakes Federal Retirees Should Avoid

The reason for this difficulty is that most federal employees are eligible to keep their Federal Employees Health Benefits (FEHB) health insurance benefits throughout retirement and the federal government continues to pay on average 72 to 75 percent of the FEHB premiums, identical to what the federal government pays on their behalf for their health insurance premiums when they are employees.

The question therefore becomes: Why does a federal annuitant need to enroll in Medicare when they have full insurance coverage under the FEHB program? This column will attempt to answer this question and will also answer other frequently asked questions, namely:

· When should federal retirees enroll in Medicare and in which parts of Medicare?

· Is there a late enrollment penalty for Medicare and when does the penalty apply?

· Which is “primary” coverage – An FEHB program health insurance plan or Medicare?

It is important to first review the various parts of Medicare. There are four parts to Medicare – Part A, Part B, Part C and Part D.

· Part A (Hospital Insurance). Helps pay for inpatient hospital care, home health care, and hospice care and prescriptions dispersed in a hospital or skilled nursing facility.

· Part B (Medical Insurance). Helps pay for covered services received from a doctor, outpatient hospital car, durable medical equipment, ambulance services, and many other health services and supplies that are not covered by Part A. Part B does not pay for most routine dental care, eyeglasses, hearing aids, most immunizations, or most prescription drugs. Part B also covers an annual wellness visit in which beneficiaries are provided a personalized prevention plan, including a health risk assessment.

· Part C (Medicare Advantage Plans), formerly called Medicare Choice plans. These plans are offered by private companies that are approved by Medicare. Since 2021, Medicare Advantage Plans have been offered as part of the FEHB program. Federal annuitants enrolled in Medicare Part A and Medicare Part B are eligible to enroll in one of the several FEHB program-sponsored Medicare Advantage plans.

· Part D (Prescription Drug Plans) which helps pay for outpatient prescription drugs. These plans are approved by Medicare and are managed by private companies. Different plans cover different drugs and may be offered only in specific areas of the country.

Medicare Parts A and B are called the “original” Medicare. Federal employees are eligible to enroll in Medicare Part A at no cost if they, or their spouse, worked in a Medicare Part A-covered employment for at least 10 years (40 credits), are 65 years or older, and are a citizen or permanent resident of the U.S. If an individual is eligible for Medicare Part A, then the individual and the individual’s spouse (who have married for at least 10 years)ais automatically eligible for Medicare Parts B, C and D.

An individual pays no monthly premium for Medicare Part A, assuming the individual has at least 10 years’ worth (40 credits) of Medicare-covered employment. Since all federal employees have been paying the Part A payroll tax since Jan. 1, 1983, all federal employees will be eligible to enroll in Part A when they are age 65 and there will be no monthly premium cost. Annuitants aged 65 and employees who are working past age 65 are strongly encouraged to enroll in Part A within a few months of their 65th birthday. In so doing, this may help cover some of the hospital-related costs that a FEHB plan may not cover, such as deductibles, coinsurance, and charges that exceed the plan’s allowable charges.

Any federal annuitant 65 and older enrolled in a fee-for-service (FFS) plan or Preferred Provider Organization (PPO) plan (such as Blue Cross Blue Shield or GEHA) should seriously consider enrolling in Medicare Parts A and B. Medicare Parts A and B enrollment and one’s FFS or PPO plan may combine to provide almost complete coverage for all medical expenses. In other words, between the FEHB health plan and Medicare Parts A and B, an annuitant would have minimum – probably no –out-of-pocket expenses to pay, including no deductibles, copayments or coinsurance.

Those annuitants who are enrolled in an HMO may not need to enroll in Part B. HMOs provide most medical services with usual small copayments. But some annuitants enrolled in HMOs may want to consider enrolling in Part B as Part B pays for costs involved with seeing doctors outside the HMO network. Part B also pays for costs for non-emergency care in the US if traveling is involved.

The employees with FEHB coverage and who continue in federal service past age 65 do not have to enroll in Part B when they become age 65. As long as they continue to work in federal service, their FEHB program coverage will be primary for medical services such as doctor visits and laboratory services, and they can use their health care flexible spending account (HCFSA) to pay for any out-of-pocket expenses. These individuals will have a special enrollment period when they retire or when their spouse retires to enroll in Part B without paying a penalty.

Unlike Medicare Part A (which is free for most enrollees), there is a monthly premium for Medicare Part B. Most individuals will pay the standard monthly premium, but some individuals will pay a higher premium based on their modified adjusted gross income (MAGI).

· Medicare Part B Premiums/Deductibles. Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and certain other medical and health services not covered by Medicare Part A.

For example, the standard monthly premium for Medicare Part B enrollees was $174.70 during 2024, an increase of $9.80 from $164.90 during 2023. The annual deductible for all Medicare Part B beneficiaries was $240 in 2024, an increase of $14 from the annual deductible $226 during 2023.

Since 2007, a beneficiary’s Part B monthly premium each year is based on his or her prior year’s MAGI. These income-related monthly adjustment amounts (IRMAA) affect 5 percent of people enrolled in Medicare Part B. The total premiums for high income beneficiaries for 2024 are shown in the following table:

Premiums for high-income beneficiaries who are married and lived with their spouse at any time during the taxable year but file a separate return, are as follows:

Part D (Medicare Prescription Drug Coverage)

It will always be to a federal employee’s advantage to keep their FEHB coverage in retirement without any changes. The exception is for those with limited incomes and resources who may qualify for Medicare’s extra help with prescription drug costs. Prior to retiring, federal employees should contact the benefits administrator or their FEHB insurer for information about their FEHB prescription coverage before making any changes.

It is important to note that FEHB prescription drug coverage is an integral part of a federal employee’s total health benefits package. An employee cannot suspend or cancel FEHB prescription drug coverage without losing the FEHB plan coverage in its entirety (in other words, losing coverage) for hospital and medical services which could mean significantly higher costs for those services.

Since all FEHB Program plans have as good or better prescription drug coverage than Medicare, FEHB plans are considered to offer “creditable” prescription drug coverage. Therefore, if a federal retiree decides not to join a Medicare drug plan when first eligible (usually, age 65) but changes his or her mind later and while still enrolled in a FEHB health plan, the retiree can do so without paying a late enrollment penalty. As long as the individual has FEHB program coverage, they may enroll in a Medicare prescription drug plan during the Medicare Part D “open season” (October 15 to December 7 of each year) at the regular monthly premium rate.

However, if the individual loses FEHB coverage and wants to join a Medicare prescription drug program, they must join within 60 days of losing their FEHB coverage and the monthly Part D premium will include a late enrollment penalty. The late enrollment penalty will increase each year that one waits to enroll and will be included in the premium each year for as long as coverage is maintained.

The Medicare Part D prescription drug program rarely benefits Federal retirees who have good prescription drug coverage through the FEHB program. But this has now radically changed. Congress passed legislation in August 2022 (the Inflation Reduction Act) that strengthened Medicare Part D through several reforms, most importantly improving its catastrophic cost protection, via a maximum out-of-pocket expense to Medicare Part D enrollees of $2,000 a year. OPM is strongly encouraging FEHB program health insurance companies to adopt this improved Medicare Part D benefit as an alternative to what the FEHB program offers in prescription drug coverage as part of its health insurance coverage. For most Medicare Part D plans, the $2,000 maximum out-of-pocket prescription drug expense limit begins in 2025.

However, for federal enrollees in some nationwide FEHB program health insurance plans, the health plans have simply replaced their current drug benefit with a new EGWP (“egg-whip”) benefit that advances this ceiling on out-of-pocket drugs costs to 2024. These new EGWP benefits are discussed either in section 5(f) or section 9 of the FEHB program health plan in plans that are adopting this change.

The following table summarizes the circumstances Medicare or FEHB is the primary payer:

When Should a Federal Retiree or Annuitant Enroll in Medicare Parts A and B?

Individuals who elected to start receiving their monthly Social Security retirement benefits before age 62 are automatically enrolled in Medicare Parts A and B the month they become age 65. Individuals who are within a few months of their 65th birthday and not receiving monthly Social Security retirement benefits must apply for Medicare Parts A and B by contacting the Social Security Administration. They may do so by either calling 1-800-772-1213 or going online at https://www.ssa.gov/medicare. Before going online to enroll in Medicare, individuals should make sure that they have set up their own account on the Social Security web site. They may do so by going to www.ssa.gov/myaccount.

Medicare Parts A and B Enrollment Periods

There are three enrollment periods for Medicare Part A and Medicare Part B. These periods are: (1) The initial enrollment period; (2) The special enrollment period; and (3) The general enrollment period. The three enrollment periods are discussed.

Initial Enrollment Period

If a federal employee retires from federal service before age 65 and is eligible to and retains his or her FEHB health insurance benefit for retirement, then the retired employee who can elect to enroll in Medicare during their ‘Initial Enrollment Period” (IEP). The IEP is a 7-month period entered in the month in which a retired federal employee becomes age 65. The 7-month period consists of: (1) Three months before the month the annuitant becomes age 65; (2) The month the annuitant becomes age 65; and (3) Three months after the month the annuitant becomes age 65. The IEP is illustrated in the following chart:

Special Enrollment Period

A federal employee who reaches his or her 65th birthday, enrolled in an FEHB and continues in federal service, can enroll in Medicare Parts A and B but is not required to enroll. The employee can enroll in Medicare Parts A and B once the employee retires in Medicare and not be subject to a late enrollment penalty assuming the retired employee enrolls in Medicare during the special enrollment period (SEP). The SEP is an 8-month period that starts the effective date of the employee’s retirement and ends 8 months thereafter.

The following examples illustrate:

Example 1. Larry retired from federal service on Jan. 3,2024 and will become age 65 in July 2024. Larry is enrolled in FEHB and will be throughout his retirement. Larry needs to enroll in Medicare Parts A and B between April 1,2024 and October 31,2024 in order to avoid paying a late enrollment penalty for Part B.

Example 2. Fran, age 66, is a federal employee and intends to retire from federal service on Dec. 31,2024 at the age of 67. When Fran became age 65 in 2022, she enrolled in Medicare Part A but did not enroll in Part B. This is because she continued to work in federal service and is enrolled in a FEHB plan. When Fran retires on Dec. 31, 2024, she must enroll in Medicare Part B between Jan. 1,2025 and Aug. 31,2025 which is her SEP. She will do so in person at a local Social Security office, bringing with her two items as proof that she continued to work past age 65 and had health insurance through her employer. She needs to bring her last statement of earnings and leave, and Center for Medicare and Medicaid Services Form CMS-L564 (Request for Employment Information). This form is downloadable from https://www.cms.gov and is completed by Fran’s Personnel Office.

General Enrollment Period

Medicare conducts an open-season enrollment each year between January 1 and March 31. Medicare-eligible individuals can enroll in Medicare Parts A and B during this time. Coverage becomes effective the first day of the month following enrollment. Late-enrollment penalties may apply for Medicare Part B.

Is There a Late Enrollment Penalty?

If an individual did not sign up for Part B when he or she was first eligible, then the Part B monthly premium may be higher. In particular, the cost of Part B may go up 10 percent for each 12-month period that an individual could have been enrolled in Part B but did not sign up for it. The individual will have to pay this extra monthly premium as long as the individual has Part B, except in special cases. A late enrollment penalty for Part B (not for Part A) equals 10 percent of the first tier Part B monthly premium amount in effect that year ($174.70 per month during 2024). The penalty period is measured from the last month the individual could have enrolled in Medicare and the first day of the month the individual’s Medicare Part B enrollment becomes effective.

Which is “Primary” Coverage – Medicare or FEHB?

A FEHB plan must pay first when an individual is an active federal employee or rehired annuitant. When an individual is an annuitant and is enrolled in Medicare Parts A and B and in a FEHB plan, then Medicare is primary coverage and the FEHB is secondary coverage or Medicare supplement.

FEHB premiums will not be reduced when an employee or annuitant enrolls in Medicare. Annuitants pay the same FEHB premium for the same FEHB plan as active employees. However, once Medicare becomes the primary payer of an individual’s healthcare related expense, the individual may find that a lower cost FEHB plan is adequate for their needs, especially if the individual is currently enrolled in a FEHB plan’s high option coverage. Also, some FEHB plans waive deductibles, coinsurance, and copayments when Medicare is primary.

Since enrolling in Medicare is considered a “life event,” an annuitant or employee can change his or her FEHB plan to any available plan or option at any time beginning 30 days before becoming eligible for Medicare and ending 30 days after the day the individual becomes eligible for Medicare. Changes to one’s FEHB plan can also be made during the annual FEHB open season.