One major concern facing individuals who are within 10 to 20 years of their anticipated retirement date is with respect to incurring potentially large medical expenses during their retirement years. Their concerns about potentially large medical bills are certainly legitimate. The cost of health care is one expense item in an individual’s budget that dramatically increases during the retirement years as the individual ages.
Fortunately for federal employees who are enrolled in the Federal Employees Health Benefits (FEHB) program (in which the federal government pays on average 72 to 75 percent FEHB program premiums) employees are eligible to keep FEHB program coverage into and throughout their retirement years.
The federal government pays on average 72 to 75 percent of the FEHB program premiums for annuitants just as the federal government does for employees. The fact that the federal government subsidies nearly 75 percent of the premiums in health insurance in retirement is a “godsend” to federal annuitants. Very few individuals who work in private industry are entitled to keep their employer-sponsored group health insurance plan in retirement.
However, even with their FEHB program insurance benefit that they keep in retirement, federal annuitants are still highly encouraged to enroll in Medicare which they can do when they become age 65.
This column is the first of five columns presenting what federal annuitants need to know about Medicare.
Medicare choices for retirees have changed immensely over the past 20 years. Among other things, it is important for federal employees and annuitants to understand how Medicare coordinates with the FEHB program. If an annuitant makes the right choices with respect to choosing the right FEHB plan given their specific needs and makes the right Medicare enrollment choices, then it is likely that the annuitant’s out-of-pocket medical expenses will be minimized during the annuitant’s retirement years.
This column discusses the various basic Medicare options that federal employees are eligible for.
Understanding the Eligibility Rules for the Basic Medicare Options
While in federal service, every federal employee pays the Medicare Hospital Insurance Tax (HIT) payroll tax, equal to 1.45 percent of an employee’s salary (and matched by the employee’s agency). Assuming an employee has paid the Medicare payroll tax for at least 10 years, the employee or annuitant (if retired) becomes eligible to enroll in Medicare Part A (hospital insurance) at age 65. Once enrolled in Part A, there is no premium cost for Part A. Being eligible for Medicare Part A makes the employee automatically eligible to enroll in the other parts of Medicare, which includes Medicare Part B (Medical Insurance), Medicare Part C (Medicare Advantage) and Medicare Part D (Prescription Drug Program). Any individual eligible for Medicare cannot be denied coverage in Medicare for pre-existing conditions.
It is important for employees to review the four parts of Medicare and what they cover:
1 – Medicare Part A (hospital insurance) covers inpatient care in hospitals, skilled nursing facility care, hospice care and some home health care services.
2 – Medicare Part B (medical insurance) covers services from doctors and other qualified health care providers, outpatient care, some home health care services, durable medical equipment and many preventable services.
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3 – Medicare Part C (Medicare Advantage, previously called Medicare Choice) are expanded health plan options (such as an HMO or PPO) approved by Medicare and offered by private companies that combine Part A and Part B in one network of health care providers. Medicare Advantage Plans are approved each year by Medicare. Many Medicare Advantage Plans offer separate dental and vision insurance coverage in an HMO or PPO setting. Some Medicare Advantage Plans have provider networks. In some Medicare Advantage plans, an enrolled individual can only see doctors who belong to the Medicare Advantage plan or go to certain hospitals to get covered services. Medicare Advantage Plans also include prescription drug coverage under Medicare Part D usually at an extra cost. Medicare Advantage plans are not considered as Medicare supplemental insurance
4 – Medicare Part D (prescription drug coverage) helps pay for the cost of prescription drugs. The Part D program is run by Medicare-approved private insurance companies that follow rules set by Medicare. Any individual who has Medicare supplement health insurance (like the FEHB program or TriCare) and has access to prescription drug coverage (or is enrolled in Medicare Part C) usually does not need to buy a separate policy for Part D benefits.
Understanding “Original” Medicare and How it Coordinates with the FEHB Program and TriCare
“Original” Medicare consists of Medicare Part A and Medicare Part B. Federal employees are eligible to enroll in “original” Medicare when they become age 65. Those employees who continue working in federal service past age 65 and are enrolled in an FEHB program health insurance plan are advised not to enroll in Part B until right after they retire from federal service.
Federal employees (and annuitants) need not pay a monthly premium for Part A once they enroll in Part Al at age 65. Annuitants who are enrolled in Part B need to pay a monthly premium for Part B which is $148.50 per month for most annuitants during 2021. The monthly premium cost increases every year. Annuitants with higher adjusted gross incomes pay a higher monthly premium for Part B.
Those federal employees who are military retirees, either for active duty or for reserve duty, are eligible to enroll in TriCare, which is the group health insurance plan covering active-duty members of the uniformed service and retirees of the uniformed services. There are some TriCare plans in which a military retiree must pay a minimum monthly premium. But once a military retiree becomes age 65, he or she needs to enroll in the “original” Medicare in order to be covered by “TriCare-for-Life” in which the enrollee pays $0 premium. This is because at age 65, the “original” Medicare is considered “primary” coverage for a military retiree and TriCare-for-Life is considered “secondary” coverage for a military retiree.
For federal annuitants who enroll in the “original” Medicare and who are enrolled in the FEHB program during retirement, Medicare is considered “primary” coverage and their FEHB insurance plan is considered as “secondary” coverage. There are gaps in Medicare coverage, including deductibles and items that “original” Medicare will either not pay if full or not at all. This gap can amount to thousands of dollars. As a result, most individuals who elect “original” Medicare also buy a separate Medicare supplemental insurance plan, sometimes they buy “Medigap” plan. These Medicare supplements or Medigap plans pay for most, and in many cases, all, of the expenses not covered by “original” Medicare. Individuals must pay a monthly premium for these plans, in addition to the Medicare Part B monthly premiums explained above. These supplemental or Medigap plans can be costly, especially as an individual gets older.
Fortunately for federal annuitants who are eligible and do continue their enrollment in the FEHB program throughout their retirement and have enrolled in the “original” Medicare, they do not have to shop for a Medicare supplement plan because the FEHB program serves as a Medicare supplement insurance plan, paying for whatever “original” Medicare (“primary “coverage) does not pay. These FEHB plan payments are typically for deductibles, copayments or for items not covered by Medicare. The overall result is that for annuitants who are enrolled in “original” Medicare together with a fee-for-service or PPO FEHB plan, the annuitants will have virtually nothing to pay out-of-pocket for doctor and hospital services as well as other medical services including lab tests and medical equipment.
In terms of cost, federal employees should realize that annuitants pay on average 25 to 28 percent of the FEHB premiums. The federal government pays the other 72 to 75 percent of the premiums. The fact that the federal government subsidizes a federal annuitant’s health care expenses should relieve the distressing fact among many federal annuitants that they have to pay a monthly premium for Part B and for their FEHB insurance.
Finally, one critical advantage about being enrolled in “original” Medicare and being enrolled in a FEHB program plan is that it allows a federal annuitant to self-refer to health care providers who accept Medicare reimbursement. The terminology for these health care providers is they accept assignment from Medicare. The result is that between what Medicare pays a health care provider and what the annuitant’s FEHB plan pays the health care provider, all hospital and medical will likely be paid, leaving nothing for the annuitant to pay including no deductibles, no copayments and no coinsurance will have to be paid. Moreover, it gives the annuitant some degree of freedom when choosing health care providers that one may not have when enrolled in a Medicare Advantage plan (discussed in the next column). This is an important consideration if an annuitant wants to have the widest possible access to medical professionals and specialists.