Identical to employees who work in private industry, federal employees pay the Medicare Part A (Hospital Insurance) payroll tax each pay period. The payroll tax is equal to 1.45 percent of an employee’s wages (with no annual upper wage limit) plus a matching contribution of 1.45 percent of the employee’s wages from the employee’s agency. After paying the Medicare Part A payroll tax for at least 10 years of employment, an individual becomes eligible for Medicare at age 65. In particular, the individual can enroll in Medicare Parts A, B, C, and D.
This column is the first of several discussing the programs offered by Medicare, the type of expenses paid by Medicare and how federal retirees and annuitants can benefit by being enrolled in Medicare together with their Federal Employees Health Benefits (FEHB) program insurance.
Medicare-eligible beneficiaries may enroll in the “original” Medicare (Medicare Part A – Hospital Insurance and Medicare Part B – Medical Insurance) or choose from an array of Medicare Advantage Plans (Part C). Depending on where an individual lives, Part C options may include Medicare Advantage plans that are approved by Medicare but run by private companies. Medicare Advantage plans offer Medicare HMO’s, Medicare PPO’s and Medicare Medical Savings Account (MSA) plans.
The Medicare Prescription Drug Improvement and Modernization Act (MMA) established a voluntary outpatient prescription drug benefit program called Medicare Part D, effective January 1, 2006. Medicare enrollees can receive prescription drug coverage by enrolling in a Medicare Part D plan.
What type of expenses are covered by Medicare?
Medicare has four parts or programs which are:
Medicare Part A (Hospital Insurance)
Medicare Part A helps pay for: (1) inpatient hospital care; (2) critical access hospitals; (3) skilled nursing facility care; (4) some home health care; and (5) hospice care. Most enrollees do not pay a monthly premium because they have prepaid the premiums through the Medicare Part A payroll tax.
Medicare Part B (Medical Insurance)
Medicare Part B helps pay for: (1) doctor’s services; (2) ambulance services; (3) outpatient hospital care; (4) x-rays and laboratory tests; (5) durable medical equipment and supplies; (6) certain preventative care; (7) other outpatient services; and (8) some other medical services Part A does not cover, such as physical and occupational therapy. Enrollees pay a monthly premium, usually deducted from their monthly Social Security check.
Medicare Part C (Medicare Advantage)
An individual enrolled in a Medicare Advantage Plan generally gets all of his or her Medicare benefits, which may include prescription drugs, through one of the following types of plans: (1) Medicare HMO’s; (2) Medicare PPO plans; (3) Medicare Special Needs Plans; (4) Medicare Private Fee-for-Service Plans; or (5) Medicare Medical Savings Account Plans.
Medicare Part D (Medicare Prescription Drug Coverage)
Under this program, private companies provide prescription drug coverage. Enrollees must pay a monthly premium, usually deducted from their monthly Social Security check.
Federal annuitants already have access to excellent prescription drug coverage through participation in the Federal Employees Health Benefits (FEHB) program. For most retiring federal employees enrolled in the FEHB program, it will almost always be advantageous to keep FEHB coverage for retirement without any changes. The exception is for those annuitants with limited incomes who may qualify for Medicare’s extra help with prescription drug costs. This is especially true for spousal survivors of federal annuitants who may be on limited incomes.
It is important for federal annuitants to understand that the FEHB program prescription drug coverage is an integral part of an annuitant’s total FEHB health benefits package. An annuitant cannot suspend or cancel FEHB program prescription drug coverage without losing FEHB plan coverage in its entirety for hospital and medical services. Furthermore, since all FEHB program plans have as good or better prescription drug coverage than Medicare Part D, FEHB plans are considered to offer “creditable prescription drug coverage”.
In short, this means that if an annuitant or a survivor annuitant decides not to join a Medicare Part D drug plan initially but changes his or her mind later while enrolled in a FEHB health insurance plan, the annuitant or survivor annuitant may do so without being subject to a late Medicare Part D enrollment penalty.
Any annuitant or survivor annuitant enrolled in a FEHB health insurance plan may enroll in a Medicare prescription drug plan during the annual Medicare Part D “open season” (October 15 through December 7 of every year) and not have to pay a late enrollment penalty. But if an annuitant or survivor annuitant loses FEHB program coverage and wants to join a Medicare prescription drug program, the annuitant or survivor annuitant must join within 63 days of losing FEHB coverage. Otherwise, the monthly premium for Part D will permanently include a late enrollment penalty.
Federal annuitants and the “original” Medicare (Part A and Part B)
In general, most individuals are eligible for Medicare at age 65, including federal employees. Federal annuitants automatically qualify for Part A and do not pay any monthly premium when they enroll. This is because they have been working for at least 10 years in Medicare -covered employment. Annuitants must pay a monthly premium for Medicare Part B. The amount of the monthly premium depends on the annuitant’s income and is generally withheld either from their monthly Social Security check or their CSRS or FERS monthly annuity check.
Generally, plans under the FEHB program help pay for the same kind of medical expenses as Medicare Parts A and B (that is, hospital and medical expenses) pays for. FEHB plans also provide coverage for emergency care outside of the United States which Medicare does not provide. Some FEHB plans also provide coverage for dental and vision care, which Medicare Part B does not generally pay for.
This is one of most often asked questions: If a federal annuitant age 65 and older is enrolled in the FEHB program, is the annuitant required to enroll in Medicare? The answer is absolutely not; however, enrolling in Medicare can be financially advantageous to the annuitant and, if applicable, his or her spouse, as is now explained.
With respect to Medicare Part A – since federal annuitants do not pay monthly premiums for Part A, they are encouraged to enroll in it. In so doing, some of the hospital costs that one’s FEHB health plan may not cover such as deductibles, coinsurance and charges that exceed the plan’s allowable charges will be paid by Medicare Part A.
With respect to Medicare Part B, it needs to be emphasized again that a federal annuitant is not required neither by OPM nor his or her FEHB program plan to enroll in Part B. There is a monthly premium for Medicare Part B. The premium for Part B coverage is determined by Medicare. The amount of the Part B monthly premium varies from year to year and depends on the Part B enrollee’s modified adjusted gross income (MAGI). The higher the enrollee’s MAGI, the higher the enrollee’s Part B monthly premium that year.
But even with monthly premiums charged by Medicare Part B, there are some advantages to enrolling in Medicare Part B, including:
· The advantage of coordinating benefits between Medicare Part B and a FEHB health insurance plan (especially a PPO plan in which the PPO participating doctors accept Medicare patients), reducing – if not eliminating – out-of-pocket costs (that is, no deductibles, no co-insurance, no co-payments).
· Some services covered by Medicare Part B may not be covered or are only partially covered by one’s FEHB health insurance plan such as orthopedic and prosthetic devices, durable medical equipment, home health care, and medical supplies.
· Annuitants enrolled in a FEHB HMO may go outside of the HMO network for Medicare Part B services and receive reimbursement by Medicare (when Medicare is the primary payer).
It should be emphasized that the discussion here has focused on whether federal annuitants enrolled in the FEHB program are encouraged to enroll in Medicare Part A and Part B. With respect to federal employees age 65 and older who are enrolled in the FEHB program and who continue to work in federal service, the issues are different with respect to enrolling in Medicare. These issues will be discussed in an upcoming column.