Staying healthy and remaining active in retirement should be an important aspect of anyone’s retirement plan. Many folks who are currently planning their retirement from Federal service often wonder whether they will need or want coverage under Medicare. I’d like to share some information in this 4-part article that may prove useful to these individuals.
In Part 1, I’ll introduce you to some of the basics of Medicare, including enrollment opportunities. In the remaining articles, I’ll go into more detail of each part of Medicare and help you understand how each part may or may not be suitable to your needs under various circumstances.
Medicare is primarily health insurance coverage for retirees 65 or older. Although Medicare may be available to folks younger than 65 receiving disability payments from Social Security, this 4-part article is primarily focused on the “age-based” coverage for Federal retirees and their spouses.
There are 4 main parts to Medicare (including a few examples of what is covered under each):
-Part A (Hospital), helps pay for inpatient care, home health, hospice care, and prescriptions dispersed in a hospital or skilled nursing facility. Medicare taxes paid from earned wages (i.e. work) allow this to be “premium free” for most folks.
-Part B (Doctors), helps pay for outpatient hospital care, surgeries, durable medical equipment, ambulance services. Medicare Part B covers up to 80% of most Medicare approved services and includes an annual deductible. Monthly premiums are based upon adjusted gross income and marital status.
The combination of Medicare Parts A and B (above) is sometimes called “Original Medicare”.
-Part C (Advantage Plans), offered by private companies to supplement coverage for services that aren’t taken care of under Parts A and B. Plans & premiums may vary from state to state and you must enroll in Parts A and B to participate.
-Part D (Prescription Drugs), helps pay for outpatient prescription drugs. Various plans with premium rates based upon adjusted gross income and marital status.
In addition to the 4 main parts of Medicare, you may have heard of something called Medigap coverage. Just keep in mind, if you maintain FEHB coverage in retirement as your backup plan to Medicare Parts A and B, you will NOT need to purchase a Medigap policy as FEHB and Medicare will coordinate benefits to provide comprehensive coverage for a wide range of medical expenses.
When Do I Enroll into Medicare?
Keep in mind, if you retire from Federal service before you reach the age of 65 and you are eligible to keep your FEHB coverage in retirement, the FEHB coverage will continue to be your primary coverage until you enroll into Medicare. Between the date of your retirement up until the age of 65, you’ll have the same coverage (including co-pays and deductibles) that you had while you were employed, and you will continue to have Open Seasons and Qualifying Life Events (QLEs) to change your FEHB plan if desired. These retirees will have an initial opportunity to enroll into Medicare during a 7-month window surrounding their 65th birthday. Once enrolled into Medicare at 65, the FEHB coverage would become secondary to Medicare.
On the other hand, if you plan to continue working as a Federal employee beyond the age of 65, you will have a special 8-month window (from the date of your retirement) to enroll into Medicare without any penalty. Most employees who have reached the age of 65 don’t need to be concerned with Medicare coverage while they continue Federal employment as their FEHB coverage continues to provide the same health insurance benefits that any other employee at a younger age would have.
However, it wouldn’t hurt for these individuals to enroll into Medicare Part A at 65 since there isn’t a cost to enroll. When enrolling into Medicare Part A, you can opt out of Medicare Part B for now (which does have a cost). If this employee ever found himself in the hospital for any length of time, whatever FEHB doesn’t cover, Medicare Part A would help take care of the remaining out-of-pocket hospital expenses. Again later, once retired and enrolled in Medicare, the FEHB coverage would become secondary to Medicare. But while you’re working, any applicable Medicare coverage would be secondary to the FEHB plan.
If you are married to someone who has retired and has reached the age of 65 but is covered under your FEHB plan while you’re still working, your spouse will have this same 8-month window from the date of YOUR retirement (even if you aren’t eligible for Medicare yet). In this situation, since your spouse would be under your active employment FEHB plan, there wouldn’t be much need for your spouse to enroll into Medicare while you’re still working, although it also wouldn’t hurt for him/her to enroll into Medicare Part A during the initial enrollment period at 65 for the reasons mentioned in the previous paragraph.
In both situations above, since Medicare will eventually become your primary provider in retirement, this is a special opportunity that OPM allows you to change FEHB plans outside of a regular open season, if you have determined that a different FEHB plan is more compatible now that Medicare is the primary service provider. This is a one-time opportunity; otherwise you would just have to wait until the next FEHB open season to make a change, if desired.
Keep in mind; if you are married in retirement and your spouse is younger than 65 and covered under your FEHB plan, they aren’t eligible for Medicare yet. This means your FEHB plan is still their primary provider until they become eligible for Medicare, so in this situation, you might not want to change the plan yet. But once they reach the age of 65 and enroll into Medicare, you could use the one-time opportunity to make the FEHB change, if desired.
If you don’t take advantage of 1 of the 2 Medicare enrollment opportunities mentioned above, you would have to wait until a general enrollment period to enroll later, if so desired. The Medicare general enrollment sign-up periods begin on January 1st and end March 31st each year, and coverage wouldn’t be effective until July 1st of that year. FEHB cannot force you to enroll into Medicare, although you should be aware of how your FEHB coverage changes once you’re retired and age 65. Every FEHB plan has a brochure, and section 9 of each brochure explains what happens to coverage upon reaching the age of 65 in retirement (whether you enroll into Medicare or not). Just keep in mind, there is a 10% increase to the Part B premium (penalty) for each year that you delay this enrollment. I’ll talk about Part B in more detail in other parts of this article.
What Do I Do with my FEHB Plan in Retirement Once I Enroll into Medicare?
When enrolling into Medicare, the FEHB program continues to be a valuable back-up to Medicare for most Federal retirees. It’s possible that you may choose to keep the same FEHB plan as your back-up to Medicare, but it’s highly recommended that you research the various other plans that are available under the FEHB program at that time to determine what’s best for you and/or your family.
Once Medicare becomes your primary provider, it may not be necessary to keep the most expensive high option FEHB plan anymore. If Medicare Parts A and B are covering a majority of the initial medical bills, it’s in your best interest to identify the FEHB plan that is most compatible for you and your medical needs. There are tools on OPM’s website to assist you with this, and each FEHB plan will have folks you can call to discuss this issue at that time. Many folks find that some of the basic FEHB plans with lower premiums provide what they need and supplement Medicare Parts A and B very well. Remember, you can always switch to another plan later during a regular FEHB open season if it becomes necessary. It just depends upon your medical needs from year to year.
In retirement, you will also maintain the option to suspend your FEHB coverage for Medicare Part C if you determine that one of the Medicare Advantage Plans are more beneficial to you as your back-up to Medicare Parts A and B. When someone suspends FEHB coverage for Medicare Part C in retirement, this can continue for an indefinite period of time. However, if you ever wanted to unsuspend the FEHB coverage, you could do so in the future during any FEHB open season. Although I don’t personally see a lot of retirees suspending their FEHB coverage for Medicare Part C, I’ll cover Medicare Part C in more detail in Part 4 of this article and help explain why some people might do this.
Useful Web Links for Now:
OPM's Online Tool for Comparing FEHB Plans (within these tools, you will have the ability to compare Medicare coordination of benefits)
Consumers' Checkbook (another useful website for comparing FEHB plans)
Coming up… we’ll get into more details of each part of Medicare and I’ll help you understand how each part may or may not be suitable to your needs under various circumstances.
Cheers for now!
James Marshall is a federal retirement benefits specialist and the owner of Federal Retirement Planning LLC. For more information, please visit the Federal Retirement Planning LLC website.