Cancel or Suspend FEHB? Which Option Keeps Your Coverage?

A recent column explained the options available to federal retirees enrolled in Medicare Part A and Medicare Part B who want a Medicare Advantage (MA) plan. Retirees can (1) enroll in an MA plan offered through the Federal Employees Health Benefits (FEHB) program, or (2) suspend their FEHB enrollment and join a private MA plan during the Medicare Annual Enrollment Period (AEP), held each year from October 15 to December 7.

This column discusses the consequences when a federal retiree suspends FEHB enrollment during open season. It also covers the consequences when a federal retiree cancels FEHB enrollment.

Federal retirees who want to cancel or suspend FEHB enrollment should download Form RI 79-9, Health Benefits Cancellation/Suspension Confirmation. The first page of the form is used to cancel FEHB enrollment, and the second page is used to suspend it. Excerpts of both pages appear in the sections below, along with the consequences of each choice.

FEHB Program Cancellation

Federal retirees who want to cancel FEHB enrollment check one of two boxes (Box A or Box B) on Form RI 79-9, depending on the reason for the cancellation.

Box A: Cancelling to Be Covered Under a Family Member’s Enrollment

A federal retiree who is cancelling FEHB enrollment in order to be covered under a spouse’s FEHB enrollment (the spouse is a federal employee) should check Box A. The retiree sends the signed and dated form to the Office of Personnel Management (OPM). The form asks for the spouse’s name and claim number, and OPM asks for a copy of the spouse’s Health Benefits Registration Form (SF 2809) showing the change to a family enrollment.

Why would a federal retiree cancel FEHB enrollment in order to be covered under a spouse’s enrollment? There are two possible reasons: (1) tax savings from premium conversion, in which FEHB premiums are deducted from an employee’s gross salary, a benefit not allowed for retirees; and (2) the ability to postpone enrollment in Medicare Part B. Both reasons are discussed below.

Premium Conversion Tax Savings

FEHB premiums are deducted every pay period from an employee’s gross salary before federal and state income taxes and before payroll taxes, including Social Security and Medicare Part A (Hospital Insurance) taxes under the Federal Insurance Contributions Act (FICA). This produces annual federal and state tax savings for the employee. Federal retirees must have FEHB premiums deducted after tax from their monthly Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS) annuity payments. Because employees and retirees pay the same share of FEHB premiums (on average 25 to 28 percent), the tax savings from premium conversion result in overall savings when a retiree is covered under a spouse’s employee FEHB enrollment.

Postponing Medicare Part B

The other reason to postpone enrollment in Medicare Part B (Medical Insurance) applies when the employee continues in federal service past age 65. When a federal retiree reaches age 65, the retiree is eligible to enroll in Medicare Part A at no premium cost and can postpone Part B enrollment until the employee retires from federal service.

A Medicare Part B beneficiary pays a monthly premium for Part B, and the higher the beneficiary’s income, the higher the premium. A beneficiary who continues working will most likely have more income than one who is fully retired. After retiring from federal service, the retiree will likely have less income. At that time, the retiree can enroll in Part B during a Special Enrollment Period without the Part B late enrollment penalty.

A retiree who changes course and enrolls in Part B later will most likely face a late enrollment penalty. The one exception is a married individual whose spouse is employed and enrolled in an employer-sponsored group health plan, with the retiree covered under the working spouse’s plan (such as the FEHB program). A federal retiree who cancels FEHB enrollment in order to be covered under a federal employee spouse’s FEHB plan does not have to enroll in Medicare Part B at age 65 and is not subject to a Part B late enrollment penalty. The retiree must enroll in Part B within eight months of when the employee spouse retires from federal service (the Special Enrollment Period).

Box B: Cancelling for Any Other Reason

A federal retiree who cancels FEHB enrollment for reasons other than those above will not be eligible to reenroll in the FEHB program. In addition, by cancelling, the retiree and any family members covered by the retiree’s enrollment will not be entitled to the free 31-day extension of coverage or to enroll in Temporary Continuation of Coverage.

FEHB Program Suspension

Federal retirees who suspend FEHB enrollment use the second page of Form RI 79-9 and check Box C, D or E, depending on the reason.

Box C: Suspending to Enroll in a Private Medicare Advantage Plan

Medicare Advantage plans are offered by private insurance companies that follow rules set by the Centers for Medicare & Medicaid Services (CMS). Each year, individuals enrolled in Original Medicare (Part A and Part B) can join an MA plan during the AEP, October 15 to December 7. During FEHB open season, a federal retiree enrolled in Original Medicare can suspend FEHB enrollment in order to join a private MA plan during the AEP.

By suspending FEHB enrollment to enroll in a private MA plan, a federal retiree keeps the option to reenroll in the FEHB program during a future open season.

Box D: Suspending for TRICARE, TRICARE for Life, Peace Corps or CHAMPVA

A federal retiree can suspend FEHB enrollment in order to use TRICARE, TRICARE for Life (enrollees must be enrolled in Original Medicare), Peace Corps coverage or the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA). For TRICARE and TRICARE for Life, the retiree must send OPM a copy of a Uniformed Services Identification card and a Medicare card showing enrollment in both Part A and Part B. The Medicare card is required for TRICARE for Life. To document eligibility for CHAMPVA, the retiree must send OPM a copy of the CHAMPVA Authorization Card (A-card).

Box E: Suspending Because of Medicaid Eligibility

A federal retiree can suspend FEHB enrollment because of eligibility for Medicaid or a similar state-sponsored program of medical assistance for the needy. To do so, the retiree sends OPM a copy of an enrollment card or a letter of eligibility showing the effective date of the Medicaid or similar state-sponsored coverage.

Cancelling vs. Suspending: Key Points

Federal retirees should keep the following points in mind when cancelling or suspending FEHB coverage:

• Suspending FEHB coverage: The federal retiree has the option to reenroll in the FEHB program.
• Cancelling FEHB coverage: The federal retiree does not have the option to reenroll in the FEHB program, unless the retiree is married to a federal employee and is joining that spouse’s FEHB enrollment.
• Choosing an MA plan through the FEHB program: A federal retiree who elects a Medicare Advantage plan accessed through the FEHB program does not have to suspend FEHB coverage.
• Reenrolling after suspending for a private MA plan: A federal retiree who suspends FEHB enrollment to join a private Medicare Advantage plan during the AEP can reenroll in the FEHB program during the next FEHB open season, or after a qualifying life event (QLE). QLEs are certain events, such as a change in family status, that allow a federal retiree to make changes outside open season, and the change must generally be made within 60 days of the event.