Health expenses are increasing with no real signs of slowing down any time soon. And for seniors, the costs can be astronomical. Of course, most employees and retirees when they turn 65, will see Medicare covering most of these expenses. It’s not a gift because they paid into the Medicare fund while they worked and had employer-matching contributions paid.
Before employees and retirees turned 65, the FEHB or Federal Employees Health Benefits program would pay up to 75 percent of the premium. What happens to the coverage when the person turns 65, and they are Medicare-eligible? Simply put, the FEHB coverage will end, and Medicare is now the primary payer. FEHB premiums will still go to the insurance companies even though Medicare is taking care of the majority of the bills.
In the yearly published “Guide to Health Plans for Federal Employees, there is information from the Medical Expenditure Panel Survey from the Health and Human Services Agency on Healthcare Research and Quality.
To use Blue Cross basic, which is a very popular FEHB option, the federal government pays yearly premiums of a little more than $17,000 to the insurance company for every couple – no matter what the age status is for either person.
Now, given that the yearly health expenses of a couple is more than 21,000, the $17,000 the government pays is not enough to cover a person 65 and older. The costs, however, are offset by the younger insureds’ costs. Don’t forget the Medicare payments for members 65 and older.
Medicare pays the majority of their bills. For instance, a $100,000 hospital bill is primarily taken care of by Medicare except for the $1,300 deductible. This amounts to 98.6 percent of the bill getting paid off. For non-hospital or doctor expenses, Medicare will pay 80 percent. Once Medicare makes payments, the costs for people 65 and older tend to decline significantly.
Age Group Average Yearly Expenses
55 and under $9,270
55 to 64 $17,700
65 and older $2,163 after payments made by Medicare
If 55 and under are over one-third, the total average is likely to be lower if the Medicare group is larger. For the 55 to 64 group to increase, it would have to increase the total overage but not near as much.
With every group being one-third, the $9,711 expenses are much less than what Blue Cross pays off the $17,233. The federal community knows that extra FEHB premiums are addressed by seniors through the Medicare dividend and is applied to the whole pool. Thus, every one attains a lower premium. The Office of Personnel Management completely supports this belief.
When looking at the $17,233 premium for self +1 against the basic Blue Cross $9,711 average net costs, it’s clear to see this isn’t going on. It appears the premium is much less. When the self +1 level began, there was some concern. However, it looks like the issue is the result of not applying the Medicare dividend to the premium decrease.