As healthcare costs continue to rise, it’s no surprise that federal employees nearing retirement have many questions surrounding Medicare. And while most are familiar with their Federal Employee Health Benefits (FEHB), many are not familiar with Medicare even though they’ll likely be eligible for the program at age 65. Hence, the topic of Medicare benefits is an important one, especially for those federal employees approaching retirement. So, this week we’ll do a quick review of the different parts of Medicare.
The Medicare program has four main parts: Parts A, B, C, and D. Medicare Parts A and B are called the “original” Medicare, and Part C is called Medicare Advantage. Like most Americans, federal employees who have worked for at least 10 years are eligible for Medicare since they paid into the Medicare system, earning at least (40 credits). For federal retirees, the decision to enroll in Medicare should be made by age 65 to avoid potential penalties. However, for active federal employees working past age 65, the choice can be made once they separate from service (more on this later).
Medicare Part A
Part A (Hospital Insurance): Helps cover inpatient hospital care, home health care, lab tests, surgery, hospice care, and prescriptions dispersed in a hospital or skilled nursing facility.
Now that you know what Part A covers, here’s the great news, it’s premium free, meaning you don’t pay anything for it. Since FERS employees contributed to Medicare Part A during their working years, the coverage is free at 65. Because it’s free, every eligible person should take advantage of this additional coverage that may cover some of the costs that FEHB does not, such as deductibles, coinsurance, and costs that exceed the plan’s allowable charges.
Note: IRS state that you cannot contribute to a Health Savings Account (HSA) if you are receiving Medicare benefits. Hence, you might want to delay enrolling in Part A if your FEHB coverage is HSA-qualified and you wish to continue contributing to your HSA.
Medicare Part B
Part B (Medical Insurance): Covers health care provider services, outpatient hospital services, durable medical equipment, ambulance services, some preventative services, and many other health services and supplies that are not covered by Part A. Part B does not pay for most routine dental care, eyeglasses, hearing aids, most immunizations, or most prescription drugs.
Unlike Medicare Part A, which is free, there is a monthly premium for Medicare Part B. Most people will pay the standard monthly premium, which in 2021 is $148.50 per month per person. Still, some individuals will pay a higher premium if their modified adjusted gross income (MAGI) from two years prior was above the threshold ($88k for single and $176k for married couples in 2021). If a person’s MAGI is above the threshold, they will pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA).
The annual deductible for all Medicare Part B beneficiaries is $203 in 2021, increasing $5 from $198 in 2020.
Although most federal employees and retirees are not excited about paying another premium in addition to their FEHB premium, the combination of FEHB and Part B coverage can potentially limit your out-of-pocket expenses, including deductibles, copayments, or coinsurance.
Medicare Part C
Part C (Medicare Advantage Plans): Is an HMO-style program made up of plans offered by private companies that are approved by Medicare. These plans often have networks, meaning only certain providers and hospitals can be visited for care. To enroll in Medicare Part C, you must enroll in Part A and B coverage.
Although Medicare Advantage plans typically provide the same coverage as Medicare Part A and Part B, they can include additional benefits such as dental, vision, and prescription drug coverage.
Because Medicare Advantage Plans offer similar benefits to the FEHB Program, for many, there’s no need to enroll in a Part C plan.
Medicare Part D
Part D (Prescription Drug Plans): Helps pay for outpatient prescription drugs. These plans are approved by Medicare but are managed by private companies. Different plans cover different drugs and may be offered only in specific areas of the country.
Like Part B, there is a monthly premium for Part D coverage. Most federal employees do not need to enroll in the Medicare drug program since all FEHB plans will have prescription drug coverage equal to or better than Part D.
When To Enroll
When should a federal retiree enroll in Medicare Parts A and B? If you are already receiving Social Security benefits, then typically, enrollment in Part A and B is automatic
However, suppose you are within a few months of your 65th birthday (the “initial enrollment period,” the three months before the month you turn 65, the month of your birthday, and the three months after) and are not receiving Social Security benefits. In that case, you’ll have to be proactive if you want to enroll in Medicare Parts A and B by contacting the Social Security Administration.
Part B Penalties
First, Medicare is optional, and there is no requirement to enroll (unless you have Tricare). However, there are some penalties if you don’t enroll when initially eligible and later decide to do so. If you do not enroll in Medicare Part B during your initial enrollment period, you must wait for the general enrollment period (January 1- March 31 of each year), and Part B coverage will begin July 1.
If you wait 12 months or more after first becoming eligible, your Part B premium will go up 10 percent for every 12-month period that you could have had Part B but didn’t take it. You will pay the extra 10 percent for as long as you have Part B. This penalty only applies if you were not an active federal employee during this period.
As an active federal employee, you can delay your Part B decision beyond the age of 65 with no penalty if you are enrolled in FEHB. Once you retire or drop FEHB, you have eight months to enroll in Part B without incurring the 10 percent penalty.
Note: For those of you enrolled in TriCare, you’re required to enroll in Medicare Parts A and B to retain TRICARE at 65 (known as TriCare for Life). There is no monthly premium cost for TriCare for Life.
Since all FEHB Program plans are considered “creditable” prescription drug coverage, federal employees/retirees can enroll in Part D at any time without the usual penalty. The Medicare Part D “open season” is October 15 to December 7 of each year.
There’s a lot to think about concerning Medicare and your FEHB plan. Such as your health, both today and in the future, and of course, the cost. For most federal employees and retirees, this decision will center around Medicare Parts A and B, since there is usually little benefit in combining FEHB with Parts C and D. And although this can be a complex topic, taking the time to understand whether you can use both systems to create an efficient health care plan for your specific needs, is a worthwhile investment. As always, you should consult with a qualified financial planner if you don’t feel confident in creating your financial plan or want a professional opinion.
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2023 Legislative Change Notice
The SECURE ACT 2.0 passed and impacted many of the articles on this website. While the articles were correct when written, it’s impossible to re-write every article. Please consult a qualified professional (i.e., CFP®, CPA, or attorney) before implementing any strategy.