The Medicare is government-sponsored program, signed into law by President Lyndon Johnson on July 30, 1965, has transformed health security for older and disabled Americans. Federal employees have been paying the Medicare payroll (hospital insurance) tax since Jan. 1, 1983. As will be discussed in this column, this means that all federal employees who have retired since 1993 have been eligible to enroll in Medicare.
There is unfortunately much confusion and questions among federal employees about Medicare. Among the most commonly asked questions about Medicare are:
- What is Medicare and why should federal retirees enroll in it?
- When (at what age) should federal retirees enroll in Medicare?
- How does one go about enrolling in Medicare?
- What is the coordination between Medicare and the Federal Employees Health Benefits (FEHB) Program or TriCare (the group health insurance program covering members of the military and military retirees)?
This column discusses Medicare basics, including eligibility and enrollment rules.
Medicare is a government-sponsored health insurance program for individuals:
- Age 65 and older; or
- Under age 65 and who are either receiving Social Security disability or Railroad Retirement Board disability benefits for 24 months or who have end-stage renal disease.
There are four parts to Medicare, namely:
- Part A — Hospital Insurance;
- Part B — Medical Insurance;
- Part C – Medicare Advantage — private plans designed to cover the same services as Part A, Part B and sometimes Part D; and
- Part D — prescription drug plans. Since most federal annuitants and employees will likely not benefit from enrolling in Parts C and D, these two parts of Medicare will not be discussed.
Medicare Parts A and B are called the “original” Medicare. Federal employees are eligible for Medicare Part A if they, or their spouse, worked in Medicare-covered employment for at least 10 years (40 credits), are 65 years or older, and are a citizen or permanent resident of the US. If an individual is eligible for Medicare Part A, then the individual (and the individual’s spouse) is automatically eligible for Medicare Part B.
Assuming an individual has at least 10 years (40 credits) in Medicare-covered employment, there is no monthly premium for Medicare Part A. Since all federal employees have been paying the Part A payroll tax since Jan. 1, 1983, all federal employees will be eligible to enroll in Part A when they are age 65 and there will be no monthly premium cost. Annuitants age 65 and employees who are working past age 65 are strongly encouraged to enroll in Part A within a few months of their 65th birthday. In so doing, this may help cover some of the hospital-related costs that a FEHB plan may not cover, such as deductibles, coinsurance, and charges that exceed the plan’s allowable charges.
Any federal retirees 65 and older enrolled in a fee-for-service (FFS) plan such as Blue Cross Blue Shield (BCBS), GEHA or Mail Handlers should seriously consider enrolling in Medicare Part B. Medicare Part B enrollment and one’s FFS plan may combine to provide almost complete coverage for all medical expenses. In other words, between the FEHB plan and Part B an annuitant would have minimum, if any, out-of-pocket expenses to pay. That includes no deductibles or copayments.
Those federal retirees who are enrolled in a HMO may not need to enroll in Part B. HMOs provide most medical services with small copayments. But some annuitants enrolled in HMOs may want to consider enrolling in Part B as it pays for costs involved with seeing doctors outside the HMO network. Part B also pays for costs for non-emergency care in the US if traveling is involved.
Those employees with FEHB coverage and who work past age 65 do not have to enroll in Part B when they become age 65. This is because their FEHB coverage will be primary for medical service (that is, doctor visits and laboratory services) and they can use their health care flexible spending account (HCFSA) to pay for out-of-pocket expenses. These individuals will have a special enrollment period (see below under “Medicare Part A and Part B Enrollment Periods” #3) when they retire or when their spouse retires to enroll in Part B without paying a penalty.
Unlike Medicare Part A which is free for most enrollees, there is a monthly premium for Medicare Part B. Most individuals will pay the standard monthly premium but some individuals will pay a higher premium based on their modified adjusted gross income. To review the latest Medicare premium costs, go here: https://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html
Enrolling in Medicare
Individuals already receiving monthly Social Security retirement benefits are automatically enrolled in Medicare Parts A and B in the month they become age 65. Individuals who are within a few months of their 65th birthday and not receiving monthly Social Security retirement benefits must apply for Medicare Parts A and B by contacting the Social Security Administration. They may do so by either calling at 1-800-772-1213 or going online at http://www.socialsecurity.gov.
Medicare Part A and Part B Enrollment Periods
An individual can enroll during one of the following periods:
- Three months before, the month of, or three months after the month the individual becomes age 65.
- Between Jan. 1 and March 31 of each year (with coverage becoming effective the following July 1).
- Within eight months of losing health insurance coverage provided by an employer or union, or retiring from an employer providing health insurance in retirement such as the federal government through the FEHB program.
The following examples illustrate:
Example 1. Larry retired from federal service on January 3, 2015 and became age 65 in July 2015. Larry is enrolled in FEHB and will be throughout his retirement. Larry needs to enroll in Medicare Part A and Part B between April 1, 2015 and Oct. 31, 2015.
Example 2. Fran, age 66, is a federal employee and intends to retire from federal service on Dec. 31, 2016 at the age of 67. When Fran became age 65 in 2014, she enrolled in Medicare Part A but did not enroll in Part B. This is because she continued to work in federal service and is enrolled in a FEHB plan. When Fran retires on Dec. 31, 2016, she must enroll in Medicare Part B between Jan 1, 2017 and Aug. 31, 2017. She will do so in person at a local Social Security office, bringing with her two items as proof that she continued to work past age 65 and had health insurance through her employer. She needs to bring her last statement of earnings and leave, and Center for Medicare and Medicaid Services Form CMS L564. This form is downloadable from http://www.cms.gov and is completed by Fran’s Personnel Office.
Medicare Late Enrollment Penalty
If an individual did not sign up for Part B when he or she was first eligible, then the Part B monthly premium may be higher. In particular, the cost of Part B may go up 10 percent for each 12 month period that an individual could have been enrolled in Part B but did not sign up for it. The individual will have to pay this extra monthly premium as long as the individual has Part B, except in special cases.
Which Is “Primary” Coverage — Medicare or FEHB?
A FEHB plan must pay benefits first when an individual is an active federal employee or rehired annuitant and either the individual or the individual’s spouse has Medicare. Medicare must pay benefits first when an individual is an annuitant, unless the individual is a reemployed annuitant and either the individual or the individual’s covered spouse has Medicare.
FEHB premiums will not be reduced when an employee or annuitant enrolls in Medicare. Annuitants pay the same FEHB premium for the same FEHB plan as active employees. However, once Medicare becomes the primary payer of an individual’s healthcare related expense, the individual may find that a lower cost FEHB plan is adequate for their needs, especially if the individual is currently enrolled in a FEHB plan’s high option. Also, some FEHB plans waive deductibles, coinsurance, and copayments when Medicare is primary.
Since enrolling in Medicare is considered a “life event’, an annuitant or employee can change their FEHB plan to any available plan or option at any time beginning 30 days before becoming eligible for Medicare and ending 30 days after the day the individual becomes eligible for Medicare. Changes to one’s FEHB plan can also be made during the annual FEHB open season.
FEHB and Medicare Primary Payer Chart
Some Medicare Part B Enrollees May Overpay for Premiums
Even with the monthly premium for Part B, federal annuitants are encouraged to enroll in Part B. In so doing, they will minimize – most likely eliminate – any out-of-pocket medical expenses such as co-payments and deductibles that they incur. This is because Medicare Part B is the primary payer of an annuitant’s medical expenses while the annuitant’s FEHB health insurance plan is the secondary payer of the annuitant’s medical expenses. Note that the Affordable Care Act of 2010 (ACA) froze the income threshold levels for Part B income-related premiums at the 2010 levels through 2019.
It is important to note that MAGI consists of wages/salary, interest and dividend income, capital gain income,pension income, rental income, 50 percent or 85 percent of Social Security retirement benefits, and “other” income. Tax-exempt interest and tax-free dividends are also included in the calculation of MAGI.
MAGI can obviously vary from one year to the next. If the MAGI is more than $85,000 per individual or $170,000 per couple, individuals will pay more for Medicare Part B based on a five tier MAGI cliff bracket hierarchy. Having even $1 less MAGI may put an individual in the next lower bracket which can result in monthly savings. What this means is that the greater an individual’s income, the more the individual can potentially pay in Part B premiums.
Many Medicare Part B participants are not aware of an often overlooked opportunity to save money on Part B premiums through the Social Security Administration’s (SSA) “income-related monthly adjustment amount” (IRMAA). When an individual’s income decreases because of certain life-changing events, the individual may be eligible for an IRMAA reduction which can add up to thousands of dollars in savings of Part B monthly premiums.
It is not uncommon for individuals to qualify for an IRMAA because their income decreases by more than one bracket as a result of a major “life event”. The problem is that the SSA who sends out Part B premium notices each December for the next calendar year to individuals age 65 and older is not aware of an individual’s eligibility for an IRMAA reduction unless the individual notifies the SSA.
Individuals have two opportunities to request the Medicare Part B IRMAA reduction from the SSA, namely:
- When they enroll in Medicare Part B for the first time; and
- When they subsequently receive their annual Medicare Part B premium in December each year for the following calendar year.
What is a Life Changing Event?
The SSA will consider granting an individual’s IRMAA request if the individual’s changes in circumstances results in the individual’s shift to a lower MAGI bracket than they were two years before. The qualifying events that may result in lowering an individual’s and if applicable the individual spouse’s MAGI: (1) Cessation of work-related income or the reduction of work-related income; (2) Loss of income-producing property because of a disaster or other occurrence beyond their control; (3) A scheduled cessation/termination or reorganization of an employer’s pension plan; (4) Receipt of a settlement from a current or former employer because of the employer’s closure, bankruptcy or reorganization; or (5) A personal change such as marriage, divorce or death of a spouse.
To apply for a Medicare IRMAA reduction, an individual needs to: (1) Determine if a qualifying event has occurred and resulted in a lower IRMAA-related bracket; or (2) Make an appointment at the local Social Security office to discuss the reduction process, or file Form SSA-44 (Medicare IRMAA Life-Changing Event) (downloadable from http://www.socialsecurity.gov) and associated documentation. Note that if Form SSA-44 is filled out together with associated documentation, then the form and associated documentation must be filed in person at a local Social Security office. The SSA does not accept U.S. mail or other delivery services.
Individuals who file for a Medicare IRMAA reduction need to respond within 60 days of receiving the Medicare IRMAA notice. If the SSA does not grant an individual’s request for the IRMAA reduction, then the individual can appeal the decision by filing Form SSA-561 (Request for Reconsideration ) which can be downloaded from http://www.socialsecurity.gov.
Under certain circumstances, an individual will have to repeat the IRMAA process in the subsequent year because the tax return on file does not reflect that individual’s current income-related circumstances.
Higher Income Federal Retirees Will Face Larger Medicare Part B Premiums Starting in 2018
higher income Medicare Part B beneficiaries have been paying more for Part B since 2007 (when Medicare Part B became a “means-tested” program; that is, the higher a Part B recipient’s modified adjusted gross income, the more the Part B recipient pays in Part B monthly premiums) in the form of income-related monthly adjustment amounts (IRMAAs). As a result of recently passed legislation that sailed through Congress with bipartisan support and that was signed into law by President Obama in April 2015, costs for upper income Medicare beneficiaries will increase in the near future.
The legislation that will increase Part B premiums for upper income beneficiaries starting in 2018 is officially called the “Medicare Access and CHIP Reauthorization Act of 2015”, also known as the “Doc Fix” law. The major focus of the “Doc Fix” legislation is to permanently repair the Medicare method of paying doctors under Medicare, secure permanent funding for low-income Medicare recipients, and to ensure that children will be able to get access to health care insurance coverage.
A portion of the “Doc Fix” legislation includes provisions to change the brackets for setting Medicare Part B IRMAAs starting in the year 2018. Before discussing the change in these brackets, it is important to note that a Part B recipient’s modified adjusted gross income (MAGI) – as obtained by the Social Security Administration (SSA) in any particular year – is determined from the recipient’s federal income tax return two years prior. For example, what Medicare Part B recipients are paying in monthly premiums during 2015 was determined from their 2013 MAGI. This means that while the “Doc Fix” new MAGI brackets go into effect in 2018, the individual’s 2016 federal income tax return will be used to determine their MAGI and subsequently their 2018 IRMAA Part B monthly premiums.
In particular, starting in 2018 there will be significant changes in the top three MAGI “tiers” or brackets starting in 2018. The current structure sets the upper limit of tier 3 as $160,000 for single/head of household tax filers and $320,000 for married filing jointly tax filers. Effective Jan. 1, 2018, $160,000 and $320,000 will be the beginning of the top income tier or bracket. This means that starting in 2018 more Part B beneficiaries will be paying more in Part B premiums. All of the current (2015) and future (starting in 2018) tiers or brackets, together with current Part B monthly premiums, are shown and summarized below in the table.
What this means is that using current Part B monthly premium costs, starting in 2018 a single person with MAGI over $160,000 will pay $335.70 monthly or $4,028.40 per year in Part B premiums (an increase of $125.90 monthly or $1,510.80 annually paid in 2015) while a married couple in which both spouses are over 65 and with MAGI exceeding $320,000 will pay a total of $671.40 monthly or $8,056.80 annually in Part B premiums (an increase of $251.80 monthly or $3,021.60 annually paid in 2015).
It is important to emphasize that the increased costs for Part B monthly premiums will not take effect until 2018, based on an individual’s 2016 MAGI.