Mike Causey

Medicare, Who Needs It?

You\'re a federal worker and you will be able to keep your federal health insurance when you retire. Senior Correspondent Mike Causey asks: do you need Medicare...

Federal News Network Staff

August 11, 2008 4:00 am

5 min read

Benefits expert Edward A. Zurndorfer says feds often ask him if their federal health benefits (FEHBP) will continue when they retire, and if so, will they need Medicare coverage?

The answer: You can keep your FEHBP for life provided you’ve been enrolled in any of its plans for the 5-years prior to your retirement.

So what about the relationship between the FEHBP and Medicare?

Two related issues to retirement and FEHBP are a retiree’s eligibility for Medicare and the coordination between FEHBP and Medicare. It is particularly important for employees and retirees who are currently 65 or older, or who will turn age 65 in 2008, to realize that changes may have to be made to one’s FEHBP coverage as a result of Medicare eligibility.

Medicare is a government sponsored insurance program that started in 1965. All employees pay into Medicare Part A through a payroll tax, currently 1.45 percent of an employee’s wages, and matched by their employers. Medicare has four parts:

Part A (Hospital Insurance) which pays for inpatient hospital care, skilled nursing facility care and hospice care.

Part B (Medical Insurance) which pays for doctors’ services, outpatient hospital care, x-rays and laboratory tests, durable medical equipment and supplies, home health care (only if one does not have Part A), certain preventive care, limited ambulance transportation and other outpatient services.

Part C (Medicare Advantage Plans) provides all the benefits Medicare covers in a health maintenance organization (HMO) setup that serves only Medicare enrollees

Part D (Medicare Prescription Drug Coverage) helps reduce the costs for most prescription drugs.

Note that Medicare does not cover routine or yearly physical exams or long-term care- whether it is for nursing home, assisted living or home care. Nor does it cover most dental care, routine foot care, hearing aids, routine eye care, cosmetic surgery and some vaccinations.

An individual who has worked in Medicare-covered employment for at least 10 years is eligible to enroll in Medicare Part A within three months of the individual’s 65th birthday. Since all federal employees have been paying the Part A payroll tax since Jan. 1, 1983, all current and future employees are eligible for Part A. They will not have to pay any monthly premiums for Part A because they have paid the Medicare Part A payroll tax for at least 10 years.

Enrollment in Part A will automatically enroll the individual in Medicare Part B. Part B, unlike Part A, has a monthly premium. In 2008 the monthly premium is $96.40 per month. FEHBP plans and Medicare Parts A and B cover the same types of expenses. If a federal employee/retiree health insurance coverage through an FEHBP plan, then why does the individual also need Medicare coverage?

Since there is no monthly premium for Part A for federal employees, it makes sense for employees or retirees to enroll in Part A as soon they are age 65. This will help cover some of the hospital expenses that one’s FEHBP plan may not cover, such as deductibles, coinsurance and charges that exceed the FEHBP plan’s allowable charges.

Although enrolling in Part B is voluntary and Part B requires a monthly premium, enrolling in Parts A and B, along with a “fee-for-service” (FFS) FEHBP plan provides comprehensive coverage of total medical services. Parts A and B are the primary payer of one’s medical expenses and a lower cost FEHBP FFS plan would be the secondary payer (the Medicare supplement or “Medigap” plan).

As a result of enrolling in Parts A and B, and being covered by a FEHBP fee-for-service (Medigap or a Medicare supplemental plan), one’s medical expenses – including hospital and doctors’ visits – will be paid in full. Many FEHBP plans will in fact waive their deductible coinsurance and co-payments when Medicare is the primary payer of one’s medical expenses.

One could delay signing up for Part B. Medicare always has an open enrollment from January through March of every year, with coverage taking effect the following July 1st. However, one’s Medicare premium will be increased by ten percent for each 12 month period that the individual could have enrolled in Part B but did not. An exception to the penalty is a federal employee who is working for the federal government at age 65 and covered by a FEHBP plan. In that case, the employee can delay enrollment in Part B until retirement. The retired employee would have to enroll in Part B within eight months of his or her retirement date in order to avoid penalty

Individuals who become eligible for Medicare need not wait for an FEHBP open season to switch FEHBP plans or to change their coverage (for example, high option to low option). They may do so within 30 days of their becoming eligible for Medicare.

Most federal employees and annuitants have little reason to enroll in Part D. FEHBP plans offer sufficient prescription drug coverage, usually with a small co-payment, that does not justify the need to enroll in Part D, which also has a monthly premium.

Unfortunately, many federal employees and soon-to-be retirees are not aware of the coordination between FEHBP and Medicare. Federal retirees are among the few employees in the U.S. who get to keep their health insurance for retirement. Moreover, retirees pay the same premiums for the same coverage (type of plan) and type of coverage (self or self and family) as employees pay. Federal employees should therefore look forward to their “golden years of retirement” when practically all of their hospital and doctor expenses will be paid in full through Medicare Parts A and B and their FEHBP “medigap” insurance. Few retirees in this country can brag about the fact that they get to keep their employed-sponsored and mostly paid for health insurance.

While there is a monthly premium for Medicare Part B (usually deducted from one’s Social Security check), a federal annuitant enrolled in Medicare can probably save some money by enrolling in a less expensive FEHBP plan (for example, enroll in low option versus high option or basic coverage versus standard coverage).

Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, Maryland. He is also a registered representative with Multi-Financial Securities Corporation (Branch A9X), member FINRA/SIPC, also located in Silver Spring, Maryland

Nearly Useless Factoid

The peak of this year’s Perseid meteor shower should be sometime between 2 am and dawn. According to Stardate, you know it’s dark enough to see meteors when you can see each star of the Little Dipper.

To reach me: mcausey@federalnewsradio.com