Medicare, Oh Medicare
Medicare can be a confusing, often daunting topic and it's no exception for federal employees & retirees. However, because feds have lifetime access to FEHB, their Medicare strategies and concerns are frankly different than other Americans. This lifetime benefit is no small thing, nor is the permanent 70% government subsidy built into your FEHB premiums. Compared to the private market, you are only paying a fraction of the cost for the same plan!
Given that Medicare is the default, primary insurance for the majority of Americans over age 65, most must ask themselves what Medicare, and any necessary supplemental insurance, will best handle their healthcare needs? Because of your comprehensive FEHB coverage, your questions are often different. Rather than asking if Medicare will be enough, you get to ask what parts of Medicare, if any, do you really need?
Some parts of Medicare have more straightforward answers than others. The first—Part A—is often referred to as “hospital insurance.” It is mandatory but free for everyone with over 10 working years. Part A covers things like inpatient care, skilled nursing facilities, home health care, and hospice. OPM’s website explicitly states that there’s “no reason” for federal employees & retirees not to pick up Part A¹, and it’s quite helpful and refreshing to see them provide such a clear, concise recommendation.
OPM makes an equally definitive statement about Medicare Part D. Part D is known as “prescription drug coverage.” Within your specific FEHB plan material, and even on OPM.gov itself, you’ll find a section mentioning that on average, FEHB pays out the same amount as Part D, so you do not need to enroll in Part D². Further, if you subsequently discover that your FEHB does not offer the drug coverage you need, you can enroll in Part D later down the line without facing late-enrollment penalties*.
The trickiest and most subjective piece of Medicare is typically Part B. This covers outpatient care like your doctor’s visits, ambulances, durable medical equipment, x-rays, and labs. FEHB participants, as part of the employer-group plan exception, are not required to enroll in Medicare Part B. However, whether or not you should enroll is another matter altogether. This decision tends to be FEHB plan-specific and heavily dependent on things like your anticipated future health and sensitivity to monthly premiums vs. out-of-pocket-expenses. When choosing whether or not to enroll in Part B, there are three key considerations: premiums, coverage level, and personal preference.
If you enroll in Medicare Part B, you will pay monthly premiums. For 2021, these premiums start at $148.50 per month and increase if your Modified Adjusted Gross Income (MAGI) is more than $88,000 per year filing single or $176,000 married filing jointly.
It is also important to know exactly how your FEHB plan will interact with Part B. Many plans will waive their annual deductible, copays, and coinsurance if you enroll in Part A & Part B (also known as ‘Original Medicare’). This tends to benefit individuals with serious concerns about high out-of-pocket costs, particularly those who are terminally ill, have a family history of certain conditions, or simply anticipate being at the doctor frequently and/or getting multiple procedures done.
Some, but not all FEHB plans, further incentivize participants by offering Part B premium reimbursement programs³. You’ll also encounter those who like to compare their FEHB’s maximum out-of-pocket costs to their yearly Part B premiums, electing to enroll in Part B if the sum of the annual premiums is less than their max out-of-pocket. This can sometimes make good sense, but this thought process also has its limitations, as you take a crystal-ball-approach in assuming you will pay the maximum out-of-pocket for your health services every year.
Unfortunately, there is no one-size-fits-all answer to Part B, and the right decision becomes even more bogged down by the 10% per year late-enrollment penalty you’ll face by delaying enrollment.
While we are retirement experts and not healthcare professionals, we are here to provide a sounding board for your healthcare concerns, providing pointers along the way to help guide you towards the right decision.
*In order to avoid Part D late-enrollment penalties, you must be enrolled in FEHB continuously from the first time you could have registered for Medicare up to the point you elect to turn on Part D.
¹United States, Congress, OPM.gov. Healthcare & Insurance, OPM, 2021. www.opm.gov/healthcare-insurance/healthcare/medicare/.
²United States, Congress, OPM.gov, The Federal Employees Health Benefits Program and Medicare, OPM, 2008. https://www.opm.gov/healthcare-insurance/healthcare/medicare/75-12-final.pdf
³United States, Congress, OPM.gov, “Blue Cross® and Blue Shield® Service Benefit Plan FEP® Blue Focus”, OPM, 2021. https://www.opm.gov/healthcare-insurance/healthcare/plan-information/plan-codes/2021/brochures/71-017.pdf