Debunking 10 Myths About Federal Employee Health Benefits & Medicare

Debunking 10 Myths About the Federal Employees Health Benefits Program and Medicare

Medicare will likely become a part of a federal employee’s or retiree’s life once the employee or retiree becomes age 65. In the United States today, most health insurance plans – including the Federal Employee Health Benefits (FEHB) program and TriCare – pay secondary to Medicare. While federal retirees when they become age 65 are encouraged to enroll in Medicare, they are not required to. Unfortunately, there are several myths about Medicare and the FEHB program which has resulted in many Federal retirees not enrolling in Medicare. This column debunks 10 of those myths.

Myth #1. Medicare is free.

This is partly true. Federal employees who have paid the Medicare payroll tax (Hospital Insurance Tax equal to 1.45% of an employee’s wages) for at least 10 years during their working lifetime are eligible at age 65 to enroll in Medicare Part A (Hospital Insurance) at no premium cost. But there is a monthly premium cost for Medicare Part B (Medical Insurance) which begins during 2023 at $164.90 per month. As a Medicare Part B enrollee’s income increases so will the enrollee’s Medicare Part B monthly premium.

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Federal retirees are not required and are not advised to enroll in Medicare Part D (Prescription Drug Coverage) unless they have catastrophic prescription expenses. If they do enroll in Medicare Part D, they will pay a monthly premium which varies by plan and income level.

Myth #2. Medicare has no deductibles.

Medicare Part A and Part B pays about on average 60 to 80 percent of a Medicare enrollee’s total medical costs. A Medicare Part A and Part B enrollee is responsible for Medicare Part A and Part B deductibles together with other charges Medicare may not pay. But those federal retirees who enroll in Medicare Parts A and B, together with their Federal Employees Health Benefits (FEHB) program health plan (“Medicare supplement” plan) will likely pay not pay the deductibles or other expenses not paid by Medicare. This is because an FEHB program health plan (as a Medicare supplement plan) pays the Medicare deductibles and the other 20 to 40 percent of the medical expenses not paid by Medicare.

Myth #3. A federal retiree is automatically enrolled in Medicare at age 65.

This is partially true. If a federal retiree applies for and starts receiving his or her Social Security monthly retirement benefit before age 65 (anytime between ages 62 and 65), then the Social Security Administration will automatically enroll the federal retiree in Medicare Part A when the retiree becomes age 65. However, the retiree is responsible for enrolling in Medicare Part B, Medicare Advantage, or Medicare Part D.

Myth #4. Federal retirees are encouraged to enroll in a private Medicare Supplement or Medigap health insurance plan.

This is absolutely not true. Those federal employees who are eligible to retain their FEHB program in retirement need not enroll in any Medicare supplement or Medigap insurance plan (offered by private insurance companies) when they enroll in Medicare. The FEHB insurance is considered as Medicare supplement insurance. FEHB health plans coordinate well with Medicare, most often paying whatever Medicare does not pay in doctor, hospital, laboratory, and medical equipment expenses of a federal retiree. Most importantly, the cost of the FEHB program health insurance is far cheaper than the cost of a private Medicare supplement or Medigap plan.

Myth #5. Federal enrolled in Medicare and in an FEHB program health plan are “over-insured.”

This is also absolutely not true. If a federal retiree is enrolled in the Original Medicare (Medicare Part A and Medicare Part B) and enrolled in an FEHB program health plan (Medicare supplement insurance), then assuming the retiree’s doctors, laboratory clinics, and hospitals accept Medicare (the majority do accept Medicare Parts A and B, assuming patients have Medicare supplement insurance), Medicare is considered the retiree’s primary health insurance, (paying on average 60 to 80 percent of the patient’s doctors, laboratory and hospital bills, and the FEHB program health insurance (the secondary insurance) pays the other 20 to 40 percent) leaving the patient almost nothing to pay. If a Medicare supplement plan (including the FEHB program health plan) does not pay in full the difference between what the doctor, laboratory or hospital charged and received from Medicare, then the patient cannot be billed for that difference (called “balance billing” which is not allowed by Medicare). Finally, since Medicare is primary insurance and FEHB program health insurance is secondary insurance, a federal retiree is advised to change their FEHB program health plan to something less expensive. For example, they should look into changing from “low deductible” to “high deductible,” or from “standard” to “basic.” In so doing, their premium cost for the FEHB health insurance will likely be less.

Myth #6. Federal retirees who want to enroll in Medicare Advantage must suspend their FEHB program health insurance and enroll in a private Medicare Advantage plan.

Each year the Centers for Medicare and Medicaid Servies (CMS) conducts an “open season” (the Annual Enrollment Period or AEP held between October 15 and December 7) for Medicare enrollees to enroll in a Medicare Advantage plan offered by private insurance companies. Federal retirees enrolled in an FEHB program health plan and Medicare Part A and Part B can suspend their FEHB program enrollment in order to participate in the AEP. However, they need not participate in the AEP because the FEHB program offers Medicare Advantage plans. Any federal retiree enrolled in Medicare Parts A and B can enroll in a FEHB program-sponsored Medicare Advantage plan during the OPM benefits “open season,” held every year from the second Monday of November through the second Monday of December.

One significant difference between FEHB program sponsored Medicare Advantage plans and private Medicare Advantage plans. The federal government pays on average 72 to 75 percent of FEHB program-sponsored Medicare Advantage plans. If a federal retiree were to enroll in a private Medicare Advantage plan, he or she pays the full premium cost with no federal government contribution.

Myth #7. Original Medicare includes prescription drug coverage.

This is not true. Retirees who are enrolled in Original Medicare (Medicare Parts A and B), together with FEHB program health insurance likely have adequate prescription drug coverage through their FEHB program health insurance. But if at some time they do incur catastrophic drug expenses during their retirement, then they can enroll in Medicare Part D with no late enrollment penalty. The “open season” for enrolling in Medicare Part D is held every year between October 15 and December 7.

Myth #8. Medicare Does Not Cover Dental, Vision and Hearing Benefits.

This is partially true. Under Original Medicare (Medicare Part A and Medicare Part B) Medicare pays for medical care including hospital care. However, many Medicare Advantage plans cover dental and vision expenses, in addition to medical services.

Myth #9. Federal retirees can enroll in Original Medicare at any time.

This is also not true. There are two main enrollment periods for Medicare Part A and Medicare Part B. They are: (1) The initial enrollment period (IEP) and (2) the special enrollment (SEP).

The IEP is for anyone who will be enrolling in Medicare at age 65. The IEP starts three months before an individual becomes age 65 and ends at the end of the third month after the month an individual becomes age 65.

Federal employees enrolled in the FEHB program and who continue to work in federal service past age 65 can enroll in Medicare without any late enrollment penalty if they enroll during the SEP. The SEP is an eight-month period, starting on the effective date of an employee’s retirement – the first day of the month following the month an employee retires – and ends at the end of the eighth month following that first month.

If the IEP or the SEP are missed, then the only time of the year an individual can enroll in Original Medicare is during the General Enrollment Period which is conducted every year from January 1 through March 31. Late enrollment penalties may be added.

Myth #10. Medicare pays for medical expenses in a foreign country.

False. Original Medicare does not pay for medical expenses incurred by retirees when they travel in a foreign country and need care. Federal annuitants should be sure to check that their FEHB program health plans cover medical expenses (including hospital expenses) incurred when they are living or traveling in a foreign country. Many FEHB program fee-for-service and preferred provider organization plans will reimburse for medical expenses incurred in a foreign country.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.