Like all Americans, federal employees and retirees have to be concerned with the risk of high medical bills. Fortunately, federal employees and annuitants have access to excellent health insurance coverage offered through the Federal Employees Health Benefits (FEHB) program.
While most employees continue to be covered by the FEHB program once they retire from federal service and throughout their retirement years, all federal employees are eligible for Medicare once they become age 65.
In a series of columns explaining the relationship between the FEHB program and Medicare, this column explains the basics of Medicare, including what Medicare consists of, eligibility, enrollment and cost.
Understanding the Various Medicare Parts
Once a federal employee or annuitant becomes age 65, he or she becomes eligible for Medicare and cannot be denied coverage for pre-existing conditions. There are four parts of Medicare:
- Part A. Covers inpatient care in hospitals and skilled nursing facilities, hospice care and some home health care services.
- Part B. Covers services from doctors and other qualified health care providers, outpatient care, some home health care services, durable medical equipment and many preventative services.
- Part C. Also known as Medicare Advantage and is similar to a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO). It combines Parts A and B in one network of health care providers. Medicare Advantage plan typically also include costs for prescription drugs that are covered under Part D. They might also include extra coverage for services such as vision care, dental care, hearing aids and/or wellness services.
- Part D. Helps pay for the cost of prescription drugs. The program is run by Medicare-approved private insurance companies that follow rules set by Medicare.
Federal annuitants are eligible to keep their full FEHB insurance coverage that they had as employees, including full prescription drug coverage. They can also enroll in separate dental and vision insurance coverage through the Federal Employees Dental Vision Insurance Program (FEDVIP). There is therefore little reason for federal annuitants to enroll in Medicare Parts C and D. Annuitants can, however, enroll in Part D if they have too without penalty because the FEHB program is considered to have “creditable” prescription drug coverage. The rest of discussion will therefore focus on Medicare Parts A and B, known as the “original Medicare”.
Federal Annuitants and What They Need to Know About the “Original” Medicare (Medicare Parts A and B)
All federal employees have been paying the Medicare Part A (“hospital” insurance) payroll tax (equal to 1.45 percent of an employee’s wages and matched by the employee’s agency) since 1983. The rule is that if an individual has been employed for at least 10 years and during that period paid the Medicare Part A payroll tax, then the individual is eligible for Medicare Part A when he or she becomes age 65. In addition, by paying the Part A payroll tax for at least 10 years, the individual need not pay a monthly premium upon enrolling in Part A at age 65. But as long as the individual continues to work, the individual continues to pay the Medicare Part A payroll tax even though the individual is enrolled in Medicare Part A.
Being eligible for Medicare Part A makes an individual eligible for Medicare Part B. However, unlike Part A, there is a monthly premium for Part B. The amount that one pays for Part B depends on one’s income. The higher one’s income, the more monthly premium he or she pays for Medicare Part B. This is because ever since 2007, Medicare Part B has been a “means-tested” program. The following table summarizes the monthly premium cost for Medicare Part B recipients during 2019*:
Medicare uses one’s modified adjusted gross income (MAGI) from one’s tax return from two years ago to determine monthly premiums. In other words, for 2019, they’ll consider one’s MAGI from 2017.
Once a federal annuitant enrolls in Medicare Parts A and B, Medicare becomes “primary” coverage. But there are gaps in Medicare coverage due to the significant deductibles and copayments. Federal annuitants who keep their FEHB coverage in retirement will use their FEHB coverage as a Medicare supplemental plan. This means that their FEHB plan will pay most, if not all, of the expenses not covered by Medicare parts A and B. A federal annuitant therefore does not have to purchase a separate “Medigap” plan because his or her FEHB insurance plan acts as an adequate Medicare supplemental plan.
Determining When to Enroll in Medicare Parts A and B
There are many different rules and deadlines for enrolling in Medicare Parts A and B that federal employees and annuitants should be aware of. For example, if a federal employee or annuitant starts to receive his or her Social Security retirement benefit before age 65, then the employee or annuitant will be automatically enrolled in Medicare Parts A and B, effective at age 65. The individual will receive his or her Medicare card three months before his or her 65th birthday. At that point, the individual has the option to refuse to enroll in Part B since there is a monthly premium for Part B. But if the individual is a federal annuitant with FEHB coverage, this is not a wise choice as will be explained in the next MFR column. The only time it makes sense for an individual to delay signing up for Part B is when the individual continues to work past age 65 and is getting health insurance from another source, such as a group health insurance plan (for example, the FEHB program).
Those employees who retire from federal service before age 65 and who carry their FEHB health insurance coverage into retirement are encouraged to enroll in Medicare Parts A and B a few months before the month they become age 65. To avoid paying a late enrollment penalty for Part B, they must enroll in Part B no later than three months after the month they become age 65. Enrolling in Medicare and at the proper time is necessary even if an annuitant delays the start of Social Security retirement benefits past age 65. One enrolls in Medicare Part A and B by going to: www.socialsecurity.gov/medicareonly
Federal employees with FEHB coverage who work past age 65 in federal service are not required to enroll in Part B because they are still working. They can enroll in Part A (at no cost) and if they have to go to the hospital and incur inpatient expenses, then their FEHB plan will be considered as primary coverage and Medicare Part A will be considered secondary coverage.
With respect to Medicare Part B, an employee who retires from federal service after age 65 will need to enroll in Medicare Part B no later than eight months following their retirement from federal service. He or she would enroll in Part B by going in person to a local Social Security office and bring with them their last leave and earnings statement (LES). The final LES proves the employee was working past age 65 and was covered by an employer-sponsored group health insurance plan covering more than 20 employees, thus avoiding a late enrollment penalty for Part B.