Coordinating Medicare with your FEHB Plan

One of the most cherished benefits we enjoy as Federal employees is our Federal Employees Health Benefits (FEHB) Program health insurance, a benefit we are allowed to continue into retirement (provided we retire on an immediate annuity). So what do we do when we turn 65 and become eligible for Medicare? Do we keep our FEHB policy or do we switch over to Medicare? Fortunately, as Federal employees, we have a choice. In the private sector, many employers either stop providing health insurance for annuitants or require annuitants to apply for Medicare when they reach 65, as a condition for continuing their private-sector health insurance. Medicare then becomes the primary insurer; the private-sector health insurance becomes the secondary insurer, essentially a “Medigap” type plan which picks up some or all of the portion of bills not paid for by Medicare. But as Feds, we have the option of keeping our FEHB plan even if we don’t sign up for Medicare.

Do we need BOTH FEHB and Medicare? This is one of the most critical decisions we make in retirement, both in terms of our long-term health and our pocketbook. So on May 12, AFSA brought back Paula Jakub, CEO of the American Foreign Service Protective Association (AFSPA), for her second AFSA encore of her popular seminar: “Medicare and the FEHB – Putting It Together.” (Note: AFSPA manages the Foreign Service Benefits Plan (FSBP), one of the most popular FEHB Plans for the Foreign Service.) As on the previous two occasions, the house was packed, with close to a hundred in the audience.

Bottom Line on Medicare Decisions. Members of the AFSPA team, including Paula Jakub will not tell an individual which decision to make; there are just too many factors unique to an individual for anyone but that individual to make this highly personal decision. But Ms. Jakub is able to lay out the issues which retirees must consider in making informed decisions on how to coordinate Medicare and FEHB Plans and she can describe prevailing trends among retirees. For example, signing up for Medicare Part A (hospitalization) is a no brainer because it is premium-free for almost everyone; most sign up for it as soon as they reach 65, even if still actively employed. Few Federal retirees sign up for Medicare Part C (Medicare Advantage) because they do better with their FEHB plans. Drug coverage is so good in most FEHB plans that few Federal retirees apply for Medicare Part D (which covers prescription drugs). For most Federal retirees, Medicare Parts A, C, and D are not difficult decisions. That leaves Medicare Part B.

Part B or not Part B; that is the Medicare question. Medicare Part B, which covers providers (doctors, outpatient hospital, lab, radiology, medical devices, etc.) and for which you must pay a premium, is more complicated. There are pros and cons, depending on a retiree’s unique situation. Ms. Jakub described those pros and cons in detail, along with the mechanics of signing up for Medicare and coordinating Medicare with your FEHB plan. Although most retirees are used to having “Self and Family” FEHB plans (or, more recently, “Self Plus One”), Medicare coverage and premiums are separate to each individual. (Caution: never terminate your FEHB Plan! You can suspend your FEHB Plan if you would like to try Medicare Part C, for example. But if you terminate your FEHB Plan, you can never get your FEHB benefit back again. If you merely suspend your FEHB plan (to try Medicare Part C, for example) you can get it back the next Open Season (or if you have a life qualifying event).) Let’s take a look at Ms. Jakub’s whole presentation.

“Medicare and the FEHB – Putting It Together”

(The following is a summary of the presentation offered by AFSPA's Paula Jakub at AFSA Headquarters on May 12, 2016. Click here to watch a video recording of this presentation.)

Ms. Jakub began by pointing out the many regulations applicable to both FEHB and Medicare and stressing that her presentation would focus exclusively on the situation for Federal employees and annuitants (although some portions would be applicable to any retiree). Right up front, she confirmed that the biggest single issue facing most Federal retirees when they reached 65 was simple: to enroll in Medicare Part B or not. She defined in advance key acronyms which she would use in her presentation:

  • FEHB – Federal Employees Health Benefits Program,
  • FFS – Fee-for-Service,
  • HMO – Health Maintenance Organization,
  • OOP – Out of Pocket,
  • OPM – Office of Personnel Management.

First up, Ms. Jakub advised that Medicare doesn’t cover care outside the U.S. (except in extremely limited situations), so signing up for Part B and paying the monthly premiums may not be for you if you reside or plan to reside outside the U.S., depending on how often you travel back to the U.S. However, for the vast majority of retirees for whom Medicare Part A is premium free (because they have paid into it during their working careers), there’s no reason not to sign up for Medicare Part A. She introduced the four parts of Medicare:

  • Part A, hospital insurance, which is premium free (in most cases),
  • Part B, medical insurance, which is at least $121.80/month in 2016 for new enrollees, more depending on your modified adjusted gross income (for details, go to www.medicare.gov, click on “Your Medicare Costs,” and then on “Part B”),
  • Part C (Medicare Advantage), includes Part A and Part B coverage, but not from Original Medicare – different out-of-pocket (OOP) costs and rules apply,
  • Part D, prescription drug coverage with premiums varying by plan.

Medicare Part A Overview. Medicare Part A covers inpatient hospital care but not observation care, which is considered “outpatient” (outpatient is normally covered by Medicare Part B). This is important, because if you spend three nights in a hospital for observation and are never checked in as an “inpatient,” Medicare Part A will not pay. Further, Part A will cover up to 20 days of skilled nursing care received in a Skilled Nursing Facility (not custodial or long term care) only directly after release from an inpatient hospitalization of at least three nights. Additional requirements apply also. But Medicare won’t pay for the Skilled Nursing Facility if the inpatient hospitalization requirement was not met. And “held for observation,” even for three nights, doesn’t count as inpatient, so it doesn’t trigger Medicare coverage for the Skilled Nursing Facility.

How Do I Enroll in Medicare? If you already receive Social Security benefits, you will be automatically enrolled in Medicare Parts A & B and mailed your Medicare card about three months before your 65th birthday. The premium will be automatically deducted from your monthly Social Security payment. If you decide you do not want Part B you need to notify Medicare and return the card. But Medicare enrollment is not automatic for most Foreign Service retirees, few of whom may be receiving Social Security at age 65. In that case, you must enroll in Medicare. The easiest way is by visiting www.medicare.gov; clicking on “sign up,” then clicking on “Apply for Medicare online.” Since Medicare Part A is premium-free to almost all retirees (unless they have not had Medicare deducted from their pay checks during their working lives), Ms. Jakub advised that almost all Federal retirees sign up for Medicare Part A as soon as they turn 65, whether retired or still actively employed. There’s virtually no reason not to.

What about Signing up for Medicare Part B? Medicare Part B covers providers and many services other than inpatient hospitalization (Part A) and drugs (Part D): doctors, outpatient hospital (including observation care), lab, radiology, durable medical equipment, certain preventive and screening services, kidney dialysis, limited home health services if homebound, and a yearly “wellness” visit (but not a routine physical exam). Each Medicare Part B enrollee must pay a premium: in 2016, new enrollees pay $121.80 per month if your Modified Adjusted Gross Income (MAGI) is $85,000 (single) or $170,000 (joint return), more for those with higher MAGI’s (for details, go to www.medicare.gov, click on “Your Medicare Costs,” and then on “Part B”). Your Medicare Part B premium is based on your MAGI as shown on your Income Tax Return from two years prior. Some, particularly dual income couples, might easily exceed the $170,000 limit and pay a higher Part B premium. However, you can request a new determination in certain cases, such as marriage or divorce or, if you or your spouse have stopped working or reduced your working hours, by calling Social Security at 1-800-772-1213. You can enroll in Part B over a seven-month period, the three months before and the three months after the month you turn 65.

Am I Penalized if I Don’t Sign up for Medicare Part B? Not if you never sign up. But if you do not enroll in Part B when first eligible, your monthly premium increases 10 percent for each 12-month period you were eligible but not enrolled when you finally do sign up. You can delay signing up without penalty beyond 65 but only if you are still working and if you are covered by an employer’s group health plan. This is during a “Special Enrollment Period” which is 8 months after your employment ends or your current employment group health plan ends. You should obtain forms CMS 40B application and CMS L-564 proof of current employment coverage (signed by employer). So, start early and have HR fill out the paper work shortly before your retirement. For those retirees who return to work either as a WAE, a reemployed annuitant, or even to the private sector, if you receive your health coverage as an annuitant, then you are considered retired for the Medicare Part B late enrollment penalty and must make your Medicare Part B decision during the Special Enrollment Period, even though you are working.

How does Medicare Work with your FEHB Plan? While many private sector insurers require retirees to sign up for Medicare Part B at age 65 as a prerequisite for continued coverage in their health plans (if they offer them at all to retirees), federal annuitants have a choice. If you are covered under Part B as an annuitant, Medicare becomes your primary insurance; your FEHB policy becomes your secondary insurance. For example, Medicare pays 80 percent of the Medicare-approved amounts for physicians or other providers who accept assignment of benefits. Your FEHB policy generally covers the remaining 20 percent, often leaving retirees with no outstanding balance. Medicare and your FEHB plan seamlessly coordinate payment (“electronic crossover”), virtually sparing you paperwork, another benefit retirees love. For providers who participate in Medicare but do not “accept assignment,” Medicare still pays its portion and your FEHB policy still coordinates with Medicare. But your FEHB plan might not pick up the full difference, leaving you with a higher out-of-pocket. You should check with your FEHB plan on how they handle this.

Medicare Part B – Pros and Cons. Medicare coverage is, with extremely rare exceptions, only good in the United States; it will not work for those who retire overseas or plan to spend a lot of time living overseas. Your Fee-for-Service FEHB Plan continues to provide coverage for covered services you receive overseas. With Medicare Part B, your FEHB plan will virtually cover all outstanding Part B expenses, and with virtually no paperwork. So if you anticipate declining health, increasing medical bills, are risk averse, and if you don’t love paperwork, Medicare Part B may be perfect for you. But the benefits of Part B are not so salient for FEHB HMO enrollees, because you may not recover the cost of Part B premiums for the benefits received. (Note: Part B will pay costs for seeing providers outside of the HMO network or area of coverage.)

But the greatest exposure for you if you sign up for Part B – is if your doctor (or provider) does not participate in Medicare (an “opt out” or “private contract” provider). In that case, Medicare will not pay for the services. Your FEHB plan, per federal regulation, will pay up to what it would have paid had you gone to a provider that participates in Medicare (about 20% of the approved Medicare charge), leaving you to pay the balance of the actual billed charge. So it always is a good idea to check if your doctors participate in Medicare before deciding on whether or not to sign up for Part B. If your key doctors or other providers are “opt out” or “private contract”, Medicare will pay nothing and your FEHB plan’s payment will be limited, leaving you the entire balance of the bill to pay out of pocket.

Out-of-Pocket Costs Under Medicare: The 2016 Medicare Part A deductible is $1288 for inpatient hospital stays from 1 through 60 days. After that, from day 61 through day 90, the patient must pay $322 as the daily copay. The daily copay goes up to $644 for days over 90. Skilled Nursing Care (following an inpatient hospitalization of at least 3 nights) and only for skilled, not custodial, care is covered 100% from day 1 through day 20. For days 21 through 100, there is a $161 daily copay. For Medicare Part C (Medicare Advantage), you minimally pay the Part B premium to a private insurer (you may pay a higher premium) and in exchange, you may get lower cost-sharing and/or additional benefits (e.g. vision, dental, podiatry). Your FEHB out-of-pocket costs are stipulated in each case by your plan’s brochure. Again, few retirees who have an FEHB plan find Medicare Part C to be more advantageous, but if you do decide to try Medicare Advantage, do not terminate your FEHB plan; once terminated, you can never regain your FEHB benefit. Instead, suspend your FEHB plan. If not satisfied with Medicare Advantage, you can change back to FEHB during the next open season or during a specific Qualifying Life Event (QLE).

Medicare Part D covers prescription drugs. Premiums vary by plan, as do deductibles, copays and coinsurance, and premiums increase as your Modified Adjusted Gross Income (MAGI) increases. A late enrollment penalty is applied for individuals who do not enroll during their initial enrollment period if they do not have creditable coverage. But all FEHB plans offer creditable coverage, so no penalties are incurred as long as you have an FEHB Plan. Because FEHB plans offer such good drug coverage, there is virtually no benefit for a Federal retiree with an FEHB plan to pay extra for Medicare Part D. The only exception might be retirees with limited resources if they qualify for extra financial help under Part D.

Part B or not Part B: a Huge Difference in Out-of-Pocket Costs (OOP’s). There are three different types of Part B providers (think “doctors”) and their effect on your OOP’s can be huge. First are providers who participate in Medicare and accept Medicare assignment (in other words, they agree to the amount Medicare approves for their services, the Medicare-Approved-Amount (MAA). They further agree to charge the patient only the deductible and the 20% coinsurance not paid by Medicare. Second are providers who do not accept Medicare assignment. These physicians can charge more than the Medicare-approved amount, but there is a limit (limiting charge); usually about 15% more. Medicare will pay the 80% of the MAA and your FEHB plan will pay the regular cost, (about 20% of the MAA). Some FEHB plans pay the balance of the Limiting Charge, also. It is important to check with your FEHB plan.

But there is a third type of provider – “private contract” or “opt out” – that does not participate in Medicare. So Medicare pays nothing for treatment you receive from these providers. As explained above, your FEHB plan will pay what it would have paid had you gone to a provider that participates in Medicare (about 20% of the Medicare Approved amount), leaving you to pay the balance of the actual billed charge. (That’s why it’s so important to make sure that any key providers you rely on participate in Medicare, because if they are “opt out” providers, you could end up with a huge bill. Nationally, only 2-3% of physicians opt out of Medicare; in the DC area, it’s twice that rate. However, although many providers will not take new Medicare patients, many of them will continue serving current patients when they turn 65 and go onto Medicare. Again, if you sign up for Medicare Part B, be sure to confirm that your provider participates in Medicare before proceeding with a procedure.

What Happens if I Don’t Sign up for Medicare Part B? Nothing. Your FEHB Plan will continue to pay as it always has, with the same deductibles, co-pays and co-insurance. And although your FEHB plan becomes the secondary insurer if you sign up for Medicare Part B, FEHB remains the primary insurer if your spouse, for example, is not covered by Medicare Part B. So you’ll still get the same excellent FEHB coverage, but without coordination of benefits with Medicare. By law, FEHB fee-for-service plans must limit their payments for inpatient hospital care and physician care to those payments you would have been entitled to under Medicare. But by the same law, your physician cannot bill you for more than they would have if you had had Medicare.

Conclusion – Should I or Should I Not Enroll in Medicare? Ms. Jakub stressed that only you can make this very personal decision, based on your own unique circumstances. Since Medicare Part A is premium-free to virtually every current or future FS retiree, there’s really no reason not to sign up. Medicare Part C (Medicare Advantage) provides almost no advantage to those who already have FEHB coverage. And all FEHB plans provide excellent, “creditable coverage” for drugs, so few retirees would benefit from signing up for Part D. Part B or not Part B is indeed the Medicare question. Part B benefits are probably not worth the premiums if you reside or spend a lot of time outside the U.S., or if your FEHB Plan is an HMO. You must weigh the benefit of virtually 100% of your provider costs being covered by Medicare in coordination with your FEHB plan, as well as almost zero paperwork, against the risk of having to pay your FEHB plan’s coinsurance/copays for increasing visits as your health changes with age. “Are you confused?” asked Paula Jakub in conclusion. “You’re in good company.” She provided the following resources to help you research the issue so you make the right decision for you.

Ms. Jakub stayed for a further hour to answer over two dozen questions, many confirming aspects of her presentation with a few covering new ground. To see the entire presentation, including the Q&A session, see AFSA’s video of Paula Jakub’s May 12, 2016 seminar on, “Medicare and the FEHB – Putting it Together”. And remember, AFSA is just an e-mail away at retiree@afsa.org.