Whether or not to enroll in Part B is a key decision that enrollees must make, most typically at age 65 or upon retirement, whichever comes later. Because there is a 10 percent per year premium penalty for not enrolling in Part B within a few months of the deadline, annuitants are under great pressure to make a decision and about 70 percent decide to enroll. It can be surmised that this is usually an “everybody does it” rather than well-calculated decision.
This has been an expensive decision viewed from a lifetime perspective, since few have ever recouped in reduced cost sharing more than a fraction of the money spent on the Part B premium in any one year, let alone over a period of years. But at least those in Part B got the “political insurance” value of being enrolled in both programs as a protection against anything very good or very bad happening in one program but not the other. They also got the ability to use Part B to breach the boundaries of plan networks and to use any Medicare-participating provider by paying Part B’s 20 percent coinsurance for such care.
Finally, it let them overcome much of the adverse selection in the FEHB by joining lower premium plans with inferior benefits and a healthier enrollment pool, and a good wraparound benefit. With reduced cost sharing from wraparound benefits, it became a close financial decision for those willing to enroll in FEHB plans whose premiums were hundreds or thousands of dollars a year less than in the higher-priced plans, and in some cases save as much in FEHB premium cost as the cost of the Part B premium.
As a result, under the wraparound strategy, whether or not enrolling in Part B is a sensible decision rests largely on which FEHB plan it is paired with. Part B enrollment is a bad financial decision when enrolling in plans with high FEHB premiums, but a relatively good financial decision when enrolling in plans with low FEHB premiums and good wraparound benefits. Of course, there were and are some plans, such as the D.C.-area Kaiser HMOs, most high-deductible plans, and some of the more frugal national plans and other local HMOs that are even better than Part B wraparound plans in financial cost.
Which Part B Enrollment Decision or Coordination Strategy is Best with Medicare Parts A and B?
Viewed purely from an insurance perspective, using the Wraparound Strategy by enrolling in both and FEHB plan and Parts A and B is an inferior option, but until recent years was the only appealing option for those who didn’t trust (or even know about) suspending FEHB enrollment. Even with the additional wraparound benefits, it just didn’t make sense to enroll simultaneously in two duplicative insurance plans, particularly when one of them is a top-notch system with many strengths not found in the original Medicare, notably catastrophic expense protection and drug coverage.
Even when Medicare Advantage became available, and the Pay Only One (MA only) Premium Strategy would preserve FEHB rights by suspending enrollment with a return to the FEHBP never more than a year away, FEHB plans were (and for the most part remain) better insurance plans than almost all MA plans.
In particular, FEHB plans have better catastrophic cost protection than MA plans, which operated (and mostly still operate) under a clumsy system with separate catastrophic protection limits for medical and drug costs that taken together are in almost all cases several thousand dollars a year higher than the protection limits in FEHB plans for self only enrollments.
With the introduction of the Rebates for Part B Premiums Strategy, the situation began to change. It was now possible for direct subsidies to those enrolled in Part B to offset much of the extra premium cost. But for reasons that are unclear, only a handful of plans have chosen to offer such rebates, which have been in the range of $600 to $900, or only about one-third to one-half of Part B premium costs. Of these, only Blue Cross Basic, Aetna Direct, and a few Kaiser plans were and are serious contenders as good buys.
The situation has changed radically, however, with the introduction of the Pay Only One (FEHB only) Premium Strategy starting last year. The key to these arrangements is the coupling of premium rebates with the unusually generous Medicare Advantage plans offered by Kaiser and United only to federal annuitants. An important part of the best of these offerings is the payment of all or most of the Part B premium. The FEHB plan now serves as a shell through which the new and unusually generous MA plan is made available for “free.”
Checkbook has found that these new MA plans have better benefits than virtually all existing FEHB and MA plans. For example, the United MA plan charges zero for any inpatient or outpatient benefit and doesn’t even bother to put an out-of-pocket maximum on medical costs other than drugs. It promises that you will pay nothing (subject, of course, to the usual restrictions on paying only for medically necessary care).
Moreover, it also charges zero cost-sharing if you use non-network providers, so long as they are Medicare-participating. It almost matches these zero cost medical benefits with one of the most generous drug benefits we have seen. The Kaiser MA plans are scarcely less generous and are three-tiered depending on whether you join through Kaiser High, Standard, or Basic option, but with the Kaiser High option plan medical cost-sharing is close to zero, also with generous drug benefits. (Some Kaiser MA options including those for the D.C.-area Standard and Basic options do not receive Part B premium rebates and in practice are just wraparound plans.)
To offset the cost of enrolling in two different insurance systems, these carriers pay from one-third to all the Part B premium in most plans. The only national plans in this group, United’s Advantage plan and Aetna’s Advantage plan, rebate only $600 (United) or $900 (Aetna) towards your Part B premium, but the other United plans (those with “Choice” in their plan names) pay up to $1,740 for full year premium rebates, and most of the Kaiser plans High option plans are equally generous, with a full year rebate for the entire Part B premium of $1,780. One or more United Choice plans are available in about half the states including the D.C. metro area, and the Kaiser plans in the states where Kaiser operates, notably the D.C. metro area and the West Coast states.
It is fair to say that in these plan offerings, those that pay most or all of the Part B premium give you a Pay Only One option with unusually high benefits even by FEHB standards. While FEHB premiums vary among these options, most are less than $2,000, and Part B is essentially free after the rebate in many of these plans.
It now appears that the “political insurance” of enrolling in Part B has paid off, not by preventing some disastrous change, but by finally adding a benefit change that makes enrolling in Part B a clearly winning financial decision for many — provided, of course, that you are willing to join one of these Kaiser, United, or Aetna plans.
Income-Tested Part B Premiums
Annuitants with adjusted gross income (AGI) of $88,000 or more (single) or $176,000 or more (married couple) will pay higher Part B premiums in 2021 and future years. How much higher depends on the AGI amount, but can rise to more than $500 a month, or more than $6,000 a year, per person. Even an income just barely above these threshold amounts will add more than $700 a year per person in additional Part B premium cost.
Some of the Medicare Part B rebates will pay slightly more than the standard Part B premium, but none come close to matching the income-tested premium. Every family’s situation is unique, but for those subject to these higher premiums, the case for enrolling in Part B is far weaker under any of the four strategies.
Researching MA Plans and Making the Change
To see the Kaiser website regarding its special MA plans, go to www.kp.org/feds and follow the links to that information. To see the UnitedHealthcare and Aetna information, start at www.uhcfeds.com or www.aetnafeds.com and do the same. In these cases, you will need to talk to plan representatives to arrange for enrollment in the special MA plan and to have some of the details of these options explained.
The Final Verdict
Despite these older and newer Medicare options, there is still a lot to be said for sticking with a traditional FEHB plan in retirement and leaving Medicare Part B and Medicare Advantage to others. This alternative doesn’t get you all the dollars you can save under the fourth strategy but does make life simpler while providing excellent insurance options. You could think of it as a fifth strategy: Tried and True.
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About the Author
Walton Francis is a health insurance expert and a member of the National Academy of Social Insurance. He is the principal author of Checkbook’s Guide to Health Plans for Federal Employees. Individuals can subscribe to the online version for $11.95 and also see a listing of the many agencies that provide free Guide access to their employees at www.guidetohealthplans.org. My Federal Retirement readers get a 20-percent discount and should use the promo code MyFederal at checkout.