Do You Really Need Both Medicare and FEHB?

At the age of 65, federal employees are eligible to enroll in Medicare. In most cases, feds don’t express as much interest in Medicare as they are happy enough with their Federal Employee Health Benefits (FEHB) coverage. However, Medicare requires enrollment and slaps those who don’t subscribe with penalties. Unfortunately, this means that feds must decide if they want to enroll in Medicare just to avoid penalty fees.

But, are Medicare penalties really that scary?

If you are still covered by “active employment coverage” then Medicare penalties do not apply. While still employed by the federal government, FEHB is considered active employment coverage. At retirement, FEHB is then considered “annuitant coverage.”

This point has a few essential branches:

• Federal employees who are still at work at age 65 and covered by FEHB would not receive penalty fees for refusing Medicare, so there is no threat while still covered by active employment coverage.

• For those who are retired and still covered under FEHB, or other employer plans from their working spouse, would still be considered as “covered by active employment coverage,” and therefore would not receive penalties for refusing Medicare.
There is not a late penalty Medicare Part A (even if you enroll late) and for most Americans, Part A is free.

That inspires the question “If Part A is free, why not enroll immediately?” Even though “free” sounds great, there are potential drawbacks.

Enrollees contributing to a Health Savings Account, or HSA, are precluded in Part A. HSA is similar to a flexible spending account, but offers more desirable benefits, including:

• Higher contributions limits:
o $3,450 for self-only health plan enrollees
o $6,900 for Self Plus One or Family Plans (2018 limits) enrollees.

• For anyone over age 55, $1,000 additional “catch-up” contribution is allowed.

• No “use or lose”

• No limits on account

• Account can be invested

• A broader range of qualified expenses can be paid for with HSA money. This can include long-term care insurance premiums, premiums for Medicare Part B, and non-prescription drugs/services.

• HSA money can be accessed in retirement.

These benefits of an HSA can be translated into thousands of dollars of annual savings. Because enrollment in Medicare (Part A or B) precludes participation in HSA, there necessarily be a rush to enroll in the Part A coverage even though it’s free. This is especially true because, again, there is no late penalty for Part A enrollment.

There are only penalties for LATE enrollment in Medicare as opposed to non-enrollment. The penalty wouldn’t have to be paid if you don’t enroll!

So herein lies the issue: Do you need both Medicare and FEHB?

There are a few ways to approach this:

Answer #1 —You don’t necessarily need both. Just like there are differences between each plan in FEHB, there are also some differences between FEHB and Medicare. OPM says, “generally, plans under the FEHB program help pay for the same kinds of expenses as Medicare.”

FEHB proves to be, in many cases, more comprehensive. It often includes dental and vision as well as emergency international (outside the U.S.) care, which you will not find with Medicare. Since FEHB offers a wide variety of plans, you have the option of switching to a “better” plan, if you find you are unhappy with yours, during Open Season whether you’re still an employee or a retiree.
Why should you pay for both if the coverage of FEHB and Medicare is typically the same?

Answer #2 —There are benefits that can be found to having both, even though the previous answer suggests that both are not required. Many plans under FEHB have a “coordination of benefits” to work with Medicare. This means that these select FEHB plans can waive their deductibles, co-pays, and co-insurance and, in a sense, pick up the secondary tab from Medicare. The result could potentially mean no out of pocket costs!

In this case, an FEHB enrollee who pays for both FEHB and Medicare could end up with no out of pocket expenses.
Is that the wisest choice? If you weren’t enrolled in Medicare what would those out of pocket expenses be?

Overall, the comparison between Medicare costs as well as the out of pocket costs you would face without is what would form the ultimate decision.

Here are some examples:

Example #1: The maximum out-of-pocket expenses of A FEHB Self-Plus-One Plan would be $6,500. The premiums of Medicare Part B for a couple, based on joint income, also costs roughly $6,500. So, in this case, would it be worth spending $6,500 in Part B premiums in an attempt to avoid a potential $6,500 loss in the event of a tragedy? Probably not.

Example #2: The maximum out-of-pocket expenses of An FEHB Self-Plus-One-Plan would be $12,000. The premiums of Medicare Part B for a couple, based on their joint income, costs about $3,000. So, in this case, is it worth spending $3,000 in Part B premiums to avoid a potential $12,000 loss in the event of a tragedy? This example demonstrates how each person could have different thoughts about assuming the risk of their out-pocket-expenses. While some may not feel comfortable with such expenses like this, others may feel that if there are no tragic events for four years then ultimately they will have saved $12,000 of Part B premiums since $3,000 x 4 years = $12,000.

Considering all these points, we may find that our FEHB coverage can provide protection from the cost of illness as well as protect us from threats from Medicare!

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