There are many federal employees who continue working in federal service past age 65. These employees may be seeking advice or guidance from their Human Resources or Personnel Offices as to how working past age 65 affects their benefits. Two of these benefits are receiving Social Security retirement benefits and Medicare coverage for health care.
A previous column discussed Social Security benefits including claiming considerations and strategies for those federal employees who continue working in federal service past age 65.
This column discusses Medicare issues facing federal employees who continue to work in federal service past age 65.
Some background information on federal employees and Medicare benefits will be helpful to the discussion.
The “original” Medicare was signed into law in July 1965 and consists of two parts, namely: (1) Part A (Hospital Insurance) which pays for inpatient hospital care including skilled nursing care, and (2) Part B (Medical Insurance) which pays for outpatient care, physician bills, laboratory tests and medical equipment expenses. Part C, originally called Medicare Choice and now called Medicare Advantage plans, was added in 1997 and allows private insurers to provide additional coverage beyond the original Medicare. Part D was added in 2006 and provides the framework for private insurers to cover prescription drug expenses. Some Medicare Advantage plans do in fact include prescription drug coverage.
Working individuals “prepay” Medicare Part A through the Medicare payroll (Hospital Insurance) tax. The rule is that if an individual has been working and paying the Medicare Part A payroll (Hospital Insurance) tax (currently equal to 1.45 percent of an individual’s gross wages and matched by the individual’s employer) for at least 10 years, then the individual is eligible to enroll in Part A at age 65 at no premium cost. If an individual is eligible for Part A, then the individual is automatically eligible to enroll in Medicare Parts B, C and D. But there is a monthly premium associated with Medicare Parts B and D. Federal annuitants need not be concerned about Medicare Part C and Part D and few enroll in those parts of Medicare. The rest of the discussion will therefore focus on Medicare Part A and Medicare Part B.
Federal employees have been paying the Medicare Part A payroll tax since Jan. 1, 1983. They and their spouses (if married at least 10 years) are therefore eligible to enroll in Part A at no monthly premium cost once they become age 65.
Most federal employees are also enrolled in the Federal Employees Health Benefits (FEHB) program and most employees continue their FEHB insurance throughout their retirement. The federal government continues to pay on average 72 to 75 percent of a federal annuitant’s FEHB premiums, as the federal government did when the annuitant was an employee. Some federal employees are military retirees and are enrolled in TriCare – TriCare Prime or TriCare Standard – both of which become TriCare-for-Life once a military retiree becomes age 65. There is no monthly premium for TriCare-for-Life provided that the military retiree, and spouse if married, is enrolled in both Medicare Parts A and B. This is because once a military retiree who has been enrolled in TriCare becomes age 65, Medicare becomes the military’s primary health insurance coverage and TriCare becomes secondary health insurance coverage.
Answers to Common Questions about Federal Annuitants and Medicare Parts A and B
With this background information, here are some common questions concerning Medicare enrollment for federal employees who continue to work in federal service past age 65.
Does OPM Require Federal Employees and Annuitants to Enroll in Medicare Once They Become Age 65?
Contrary what some employees and annuitants may have heard or read, the Office of Personnel Management (OPM) does not require a federal employee or annuitant once he or she becomes age 65 to enroll in Medicare as a condition of keeping his or her FEHB program health insurance coverage. But as will be explained below, there are several advantages for an annuitant to enroll in Medicare Parts A and B once he or she (and a spouse if over age 65 and included on the annuitant’s FEHB program coverage) is eligible to enroll.
Do Federal Employees Who Work Past Age 65 and Who Are Enrolled in a FEHB Health Insurance Plan Need to Sign Up for Any Parts of Medicare?
Post-age 65 federal employees enrolled in a FEHB program plan who continue to work in federal service need not enroll in any parts of Medicare. However, almost all employees at this stage of their working careers can get Medicare Part A at no cost. It therefore makes sense for an employee to enroll in Medicare Part A. The employee (and spouse if over age 65) enroll in Part A online at http://www.socialsecurity.gov/medicareonly and enroll only in Part A and not Part B. If the employee or spouse has to go to the hospital or to a skilled nursing facility requiring inpatient care, then the employee’s FEHB program plan is considered primary coverage and Medicare Part A is considered secondary coverage for the cost of the inpatient care.
One nuance to this situation is for those federal employees who have health savings accounts (HSAs) and who want to continue contributing to their HSAs. HSA contributions are generally tax-deductible and HSA earnings (dividends, interest) are tax-free and continue to grow tax-free. Most importantly, HSA owners can withdraw HSA funds tax-free to pay out-of-pocket medical, dental, vision expenses and long term care insurance premiums. However, an HSA owner cannot contribute to an HSA if the owner has enrolled in any part of Medicare. That means that those employees who continue working in federal service past age 65 and who are determined to continue contributing to their HSA should not enroll in Medicare Part A at age 65 or later until they retire from federal service.
How Will FEHB Health Care Coverage Work for Post-Age 65 Federal Employees Who Enroll in Medicare Part A?
If a federal employee working past age 65 and who is enrolled in Part A has to go to the hospital or to a skilled nursing facility, then his or her FEHB insurance plan is considered primary insurance and Medicare Part A will be considered secondary insurance. Any non-hospital medical expenses including doctor bills and outpatient expenses are covered almost entirely by the employee’s FEHB plan with the usual deductibles, co-insurance and co-payments. The employee may also be enrolled in a health care flexible spending account (HCFSA) which helps pay for items not covered by the FEHB plan including co-payments, co-insurance, and deductibles.
Do Employees Working Past Age 65 and Enrolled in a FEHB Plan Have to Sign Up for Any Other Parts of Medicare?
When an employee continues in federal service past age 65 and is enrolled in a FEHB plan, there is little reason for the employee to enroll in Medicare Parts B, C and D. As a matter of fact, most federal annuitants do not enroll in Medicare Parts C and D. But once the employee retires from federal service, the annuitant (and spouse if over age 65) – while not required to enroll in Medicare Part B – is highly encouraged to do so.
The downside to enrolling in Medicare Part B is that unlike Medicare Part A in which federal annuitants do not pay a monthly premium, there is a monthly premium for Medicare Part B. The amount of the annuitant’s Part B monthly premium depends on the annuitant’s annual modified adjusted gross income (MAGI) which varies from year to year. As shown in the table below, the standard Part B premium amount in 2019 is $135.50. Most people will pay the standard Part B premium amount. If one’s modified adjusted gross income as reported on the individual’s federal income tax return from two years ago is above a certain amount, then the individual will pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium.
Perhaps the most important question facing federal annuitants with FEHB program coverage (especially those enrolled in fee-for-service or preferred provider organization health insurance plans) once they become age 65 and federal employees working past age 65 and then retire, is why would they want to enroll in Medicare Part B (and pay a monthly premium) when they have FEHB insurance (and also pay a monthly premium). The answer is that assuming the annuitant’s doctors accept Medicare (and most do, assuming a patient has Medicare supplemental coverage which the FEHB program is), the annuitant will most probably have no, or a minimum of, out-of-pocket expenses. This includes no deductibles, co-insurance, or cop-payments to pay. It is important that many federal employees enroll in the HCFSA to pay for these out-of-pocket expenses. But an annuitant is not allowed to be enrolled in a HCFSA. In a sense, Medicare Part B then takes the place of the HCFSA in retirement.
Medicare Part B Monthly Premiums During 2019
The important point for federal employees continuing to work in federal service past age 65 with FEHB insurance coverage is that they need not enroll in Part B until after they retire from federal service. The reason for this delay in enrolling in Part B is threefold: First, while continuing to work in federal service the employee’s FEHB insurance coverage will always be considered primary coverage and the employee has access to a HCFSA to help whatever is not paid or reimbursed through the FEHB health plan. Second, while working the employee’s MAGI will most probably be larger compared to the MAGI in retirement and the employee would likely pay much more for Part B. Third, the employee can enroll in Medicare Part B once he or she retires from federal service and not be subject to a late enrollment penalty provided the retired employee (and spouse if the spouse is over age 65 and on the retired employee’s FEHB insurance plan) within 8 months following the employee’s retirement from federal service.
What Steps Should Employees Working Past Age 65 Take with Medicare Once They Retire from Federal Service?
Given that most federal employees working past age 65 are already enrolled in Medicare Part A, it is recommended these employees once retired enroll in Medicare Part B. To avoid a late enrollment penalty, they need to enroll in Medicare Part B within eight months following their retirement date from federal service. In particular, they must do the following:
(1) Make sure that they and their agency have filled out and completed the Centers for Medicare and Medicaid Services Form CMS-L-564 (Request for Employment Information) (https://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/Downloads/CMS-L564E.pdf); and
(2) keep their last leave and earnings statement (LES). They need to call Social Security (1-800-772-1213) to make an appointment. They should take to the appointment both forms and enroll in Medicare Part B at a local Social Security office. They cannot enroll in Part B online.
If they miss the eight month deadline, then they will have to wait until the following Jan. 1st to enroll in Part B during the Medicare Part A and Part B “open-season”. Medicare Part A and Part B has an “open-season” for enrolling in Parts A and B each year between January 1st and March 31st. Medicare coverage then becomes effective the following July 1st. However, by enrolling after the eight month period following the retiree’s retirement date from federal service, the annuitant will be subject to a late enrollment penalty.
The penalty applied to the Medicare Part B monthly premium is permanent and is equal to 10 percent per year for every year the annuitant has not been in enrolled in Part B and could have been. The penalty period starts from the month the annuitant should have been enrolled in Medicare Part B but was not enrolled and ends on the last day of the last month the annuitant was not enrolled in Part B.
Would There Be Any Exceptions for a Federal Employee to Delay Enrolling in Part B If They Continue in Federal Service Past Age 65?
The one exception for a federal employee who reaches age 65 and continues to work in federal service and to enroll in Medicare Part B is an employee who is enrolled in TriCare. A military retiree enrolled in TriCare must enroll in Medicare Part A and Part B upon reaching age 65 in order to be enrolled in TriCare-for-Life in which there is no premium. But the military retiree has the option of suspending TriCare and enrolling in a FEHB health insurance in which he or she would not be required to enroll in Medicare Part B.
Would There Be Any Exception to a Federal Annuitant Having to Enroll in Medicare Part B after Retiring from Federal Service at Age 65 or Older?
There is an exception for a federal annuitant age 65 or older having to enroll in Medicare Part B. Take the example of a married couple in which both spouses are federal employees and both spouses can enroll in a FEHB health insurance plan. The older spouse, age 65 or older, retires from federal service. The other spouse continues to work in federal service. If the older and retired spouse elects to become part of the other spouse’s FEHB health insurance plan (as part of “self plus one” or “self and family” coverage, then the older would not have to enroll in Part B until the younger spouse retires from federal service. The following example illustrates:
Example. Carla, age 65, will retire from federal service on Dec. 31, 2019 and has been enrolled in the FEHB program her entire career (“self only” coverage). Carla is married to Ken, also a federal employee and who is also enrolled in the FEHB program (“self only” coverage). Ken intends to retire from federal service at age 67 on Dec. 31, 2022. During the next FEHB “open season” (November 11, 2019 – December 16, 2019), Carla will elect to become part of Ken’s FEHB coverage (“self plus one” coverage), effective January 5, 2020. In so doing, Carla will not have to enroll in Medicare Part B until Ken retires (Dec. 31, 2022). She will have 8 months from the time Ken retires (Dec. 31, 2022) (that is, Jan. 1, 2023 – Aug. 31, 2023) to go to a Social Security office to enroll in Medicare Part B without incurring a late enrollment penalty. In so doing, Carla will avoid paying three years’ (2020, 2021 and 2022) worth of Medicare Part B premiums.