As a financial planner for federal employees, you can imagine that I get to help answer many retirement questions. But one of the most frequent questions I get from Feds approaching retirement is whether to enroll in Medicare.
This makes sense; since Medicare offers various coverage options, making the question of whether there is any benefit to combining Medicare with FEHB complicated. So, in this article, we will explore the factors to consider when making this decision and provide insights to help FERS employees make an informed choice.
What Age Is Medicare A Factor?
For active federal employees working past age 65, the Medicare decision can be delayed until they separate from service. However, federal retirees should make the decision by age 65 to avoid potential penalties. You can read this article to learn more about the late enrollment penalties.
The timeline moves up even more for higher-income Feds due to a two-year lookback period for the Income Related Monthly Adjustment Amount (IRMAA). This surcharge is added to the normal part B premiums for married couples whose modified adjusted gross income (MAGI) is above $194k ($97k for single filers). The IRMAA makes it essential for these higher-income earners to start their Medicare planning before age 63.
Lastly, those receiving Social Security retirement or disability benefits typically qualify for Medicare, even under age 65.
Do You Need Medicare When You Have FEHB?
Now that we understand the timeline for making the Medicare decision, we can review what factors should be considered. When evaluating whether there is any benefit to enrolling in Medicare, you should consider your coverage need and the costs of combining Medicare with FEHB. With those two points in mind, let’s review the coverages and costs associated with each Medicare part.
Medicare Parts
The Medicare program has four parts: A, B, C, and D. Medicare Parts A and B are called the “original” Medicare, and Part C is called Medicare Advantage.
Medicare Part A (Hospital Insurance)
Coverage
Part A helps cover inpatient hospital care, home health care, lab tests, surgery, hospice care, and prescriptions dispersed in a hospital or skilled nursing facility.
Costs
Here’s the great news, Part A is free! Since FERS employees paid Medicare taxes during their careers, they’re eligible to receive the benefit without paying a premium. Therefore, every eligible Fed 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.
Planning Insight
Since the IRS doesn’t allow individuals enrolled in Medicare to contribute to a Health Savings Account (HSA), 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 (Medical Insurance):
Coverage
Part B Covers healthcare provider services, outpatient hospital services, durable medical equipment, ambulance services, and some preventative services. Part B does not pay for routine dental care, eyeglasses, hearing aids, immunizations, or prescription drugs.
Costs
Unlike Part A, Part B does come with a monthly premium. The standard Part B premium amount in 2023 is $164.90. Most Feds will pay this standard premium; however, as we covered earlier, if your MAGI from two years prior is above the threshold, you’ll be subject to the IRMAA surcharge in addition to the standard premium.
Planning Insight
While FEHB plans and Medicare cover many of the same expenses, Medicare may provide more extensive coverage for orthopedic and prosthetic devices, durable medical equipment, home healthcare, medical supplies, and chiropractic care. Conversely, FEHB plans cover emergency care received outside the United States, which Original Medicare does not.
Hence, when it comes to coverage, Feds will need to review their individual FEHB plans to decide whether Medicare can fill any gaps in coverage. A great place to start is on your health insurer’s website, where they often have brochures on how their plans combine with Medicare.
When reviewing the costs of Medicare, the monthly premium may not represent your additional costs. The reason is that many FEHB plans waive their deductibles, copayments, or coinsurance when a federal retiree enrolls in Medicare Part B. In many cases, the Part B premium minus the waived FEHB out-of-pocket expenses is a more accurate representation of your increased healthcare costs.
Medicare Part C (Medicare Advantage Plans)
Coverage
Part C This is an HMO-style program made up of plans offered by private companies that Medicare approves. These plans often have networks, meaning only certain providers and hospitals can be visited for care. You must enroll in Part A and B coverage to enroll in Medicare Part C.
Costs
Because private insurers provide these plans, the costs vary widely.
Planning Insight
Because Medicare Advantage Plans offer similar benefits to the FEHB program, for most, there’s no need to enroll in a Part C plan.
Medicare Part D (Prescription Drug Plans)
Coverage
Part D 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.
Costs
Like Part C, because private insurers offer these plans, the monthly premium for Part D coverage can vary widely from one provider to another.
Planning Insight
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.
FEHB and Medicare
Determining whether federal retirees should enroll in Medicare requires careful consideration of required coverage and costs. For most Feds, this decision will center around Medicare Parts A and B since there is usually little benefit in combining FEHB with Parts C and D.
Given the complexity of the decision, federal employees must research and evaluate their options thoroughly. Start by reviewing the official Medicare publications and guidelines, such as the “Medicare and You” handbook and the Medicare website (medicare.gov).
Additionally, it’s always a good idea to consult with a fee-only Certified Financial Planner™ to help you make the best decision for your individual needs. Ultimately, deciding whether to combine your FEHB coverage with Medicare should be based on your unique situation.
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