Every year savvy Federal employees and annuitants check out their plan options and decide whether or not to change plans. But these annual plan decisions do not usually consider longer-term strategic decisions by OPM, by plans, and by enrollees.
Several of the key variables in these plan decisions are Medicare status and plan cost-sharing for those with Medicare. It turns out that which plans are better in what circumstances varies heavily depending on such factors as the exact details of plan coordination with Medicare (many plans have “wraparound” coverage but not all wraparounds are the same), FEHB plan premium, Medicare Part B premium (which varies with income), Part B premium rebates (where present), and Medicare Advantage plans as alternatives. What you’ll read below analyzes the strategic choices resulting from the key findings, advice, and recommendations implicit or explicit in Checkbook’s 2021 Guide to Health Plans for Federal Employees.
Medicare and FEHB Coordination
Despite more than 50 years since both programs were created, Congress has not devised a simple or sensible system for coordination of Medicare and the FEHBP.
Unlike most private retirees, federal annuitants carry into retirement a first-class insurance package that makes Part B (or for that matter Part A) unnecessary. Nonetheless, about seven out of 10 federal annuitants enroll in Part B which means that they are in essence paying for two duplicative insurance programs. In 2021 the average enrollee share of an FEHB self only premium is about $2,540 and the standard Part B enrollee premium is about $1,780, so this decision almost doubles premium costs. Since the average FEHB plan covers more than 90 percent of hospital and doctor costs, and has a solid ceiling on maximum out-of-pocket costs, this is a dubious decision on an insurance basis alone.
On a sane planet, enrolling in two duplicative health insurance systems and having to pay two hefty sets of premiums would not be sensible even as an option. That same FEHB plan that worked so well at age 64 did not get worse at age 65. So why is Medicare even in the picture? Alternatively, the federal government could supplement Medicare Advantage plans through a subsidy (for example, $1,000 per person annually into a Health Savings Account), provide catastrophic expense protection (such as $5,000 per person including both medical and drugs) and get rid of the Medicare late enrollment penalty. Under that alternative, annuitants in Parts A and B would pay less for just one plan with better benefits than they have under both programs together. So why is the FEHB still in the picture?
Regardless, OPM and the plans have to live with the costs of the Congressional failure to deal with the past and present wasteful and expensive duplicative plan scheme. Coping decisions by OPM and the plans offer multiple strategies for annuitants with Parts A and B. What are those strategies, and which are best?
Strategic FEHB and Medicare Options
1. Wraparound Strategy.
First, OPM has historically encouraged plans to offer “wraparound” benefits that reduce out-of-pocket cost for hospital and doctor benefits (but not drugs or dental costs) to zero or close to zero for enrollees in Parts A and B. This does not produce savings for most enrollees in most years that cover as much as a third of the extra cost of the Part B premium. But at least it provides something of value to enrollees in an otherwise bizarre arrangement. Unfortunately, as plans have improved their FEHB benefits over the years, the extra benefits of Medicare wraparound have gotten less and less valuable. What is the point of paying almost double the premium (an extra $18 thousand dollars and more over the next ten years) to get coverage that is only likely to save you a few hundred dollars a year, or at most to save as much as the extra premium in just one of those 10 years?
These wraparound benefits, however, usually extend to providers who are not in the plan network (Blue Cross Basic is a big exception because it limits wraparound to plan providers). So, there is a “freedom of choice” benefit valued by many enrollees. In reality, preferred provider networks are so broad these days that the extra choices are of little practical value to most.
2. Pay Only One Premium (for MA only) Strategy.
Second, OPM has long offered a “pay only one premium” option by allowing suspension of FEHB coverage for those have both Parts A and B who elect to enroll in a Medicare Advantage (MA) plan. These are plans that are very similar to FEHB plans and that are highly popular in Medicare—attracting more than one third of all those covered by Medicare nationally—about 25 million seniors. Their maximum out-of-pocket benefits are separate for medical and drug costs, and in total not quite as good as those in the FEHB, but fill a huge hole in original Medicare.
Choosing the MA option lets the federal annuitant return to the FEHB every Open Season or stick with MA and choose among dozens of MA plans in his or her geographic area in Medicare’s annual open season. This strategy is currently little known and rarely used by annuitants with Parts A and B.
3. Rebates for Part B Premiums Strategy.
Third, in the last several years OPM has allowed FEHB plans to reimburse enrollees for part of the Part B premiums while remaining in their FEHB plan and getting whatever “wraparound” benefit the plan provides for anyone in Parts A and B. Only a half dozen plans have elected to do this, however. Most notable in this group are Blue Cross Basic and Aetna Direct. In effect, this reduces the wastefulness of paying two full premiums for a wraparound benefit that has relatively little dollar value.
4. Pay Only One Premium (for FEHB only) Strategy.
Fourth, also in the last few years OPM is now allowing plans to offer another “pay only one premium” option through dual enrollment in a carrier’s own special MA plan as well as its FEHB plan. Under these arrangements, you actually remain enrolled in the FEHB plan, but simultaneously enroll in the unusually generous MA plan sponsored by the carrier. You pay the regular FEHB premium, and get a Part B premium rebate for most or all of the cost of Part B. In 2020 and 2021, some of the Kaiser options, all the UnitedHealthcare “Choice” options, and Aetna Advantage rebate all or almost all of the Part B premium on top of a generous wraparound.
About the Author
Walton Francis is a health insurance expert and a member of the National Academy of Social Insurance. He is the principal author of Checkbook’s Guide to Health Plans for Federal Employees. Individuals can subscribe to the online version for $11.95 and also see a listing of the many agencies that provide free Guide access to their employees at www.guidetohealthplans.org. My Federal Retirement readers get a 20-percent discount and should use the promo code MyFederal at checkout.