Federal annuitants over age 65 have choices with regard to Medicare. There are four parts to Medicare. They are: (1) Medicare Part A – Hospital Insurance; (2) Medicare Part B – Medical Insurance; (3) Medicare Part C – Medicare Advantage; and (4) Medicare Part D – Prescription Drug program. Most federal annuitants enroll in Medicare Part A because there is no monthly premium cost. The premiums were prepaid by the annuitant through the Medicare Hospital Insurance Tax (HIT) which the annuitant paid for a minimum of 10 years as an employee.
For those annuitants who are eligible to keep their Federal Employees Health Benefit (FEHB) program during retirement, a challenging question is whether to enroll in Medicare Part B. Unlike Medicare Part A in which annuitants pay no monthly premium, there is a monthly premium for Medicare Part B. In fact, the higher a Medicare Part B beneficiary’s adjusted gross income (AGI), the higher will be the beneficiary’s monthly premium.
Many federal annuitants question the need for Medicare Part B when they are enrolled in an FEHB program health insurance plan. OPM encourages but does not require enrollment in any part of Medicare. However, it needs to be emphasized that enrollment in an FEHB health plan and Medicare Part A and Part B (the “Original Medicare,” started in 1965) does not constitute the annuitant being “overinsured.” Medicare Parts A and B are considered “primary” insurance’ while an FEHB health plan is considered “secondary” insurance – more commonly, an FEHB plan is considered a Medicare supplement – paying for most federal annuitants whatever Medicare does not pay in full. A federal annuitant enrolled in Original Medicare together and an FEHB program Medicare supplement plan and who frequents doctors and hospitals who “accept Medicare assignment” is usually left with nothing to pay out-of-pocket including no deductibles, no coinsurance, and no copayments.
Over the last five years, Medicare Advantage plans have become popular among Medicare beneficiaries. Medicare Advantage plans offer medical, dental and vision benefits in a Health Maintenance Organization (HMO) or a Preferred Plan Organization (PPO) setting. During 2024, there are 43 private Medicare Advantage plans available nationwide for individuals aged 65 and older to enroll in. An individual has to also be enrolled in Medicare Part A and Medicare Part B in order to enroll in a Medicare Advantage plan.
Until 2021, if a federal annuitant aged 65 and over and who wanted to enroll in a Medicare Advantage Plan, the annuitant had to suspend their FEHB program enrollment and join a private Medicare Advantage Plan during Medicare’s Annual Enrollment Period (AEP) held annually between October 15 and December 7. But starting in 2022, the FEHB program offered its own Medicare Advantage Plans. Therefore, there was no need for a federal annuitant to suspend their FEHB program enrollment in order to enroll in a Medicare Advantage Plan.
Medicare Advantage Plans offered in the private insurance market have improved over the years, offering extra benefits including free gym memberships and transportation services to doctor and dentist appointments. In some plans, the premiums were as low as $0.
Most Medicare Advantage Plans offer minimum prescription drug coverage. Medicare Advantage plan beneficiaries with above average prescription drug expenses need to enroll in Medicare Part D. Medicare Part D was designed to help retirees with catastrophic drug expenses - out-of-pocket expenses exceeding $8,000.
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OPM has also reported that most federal employees do not need to enroll in Medicare Part D. This is because all FEHB health plans have prescription drug benefits that are at least equal to the standard Medicare Part D prescription drug coverage. However, if a federal annuitant enrolled in Medicare Parts A and B incurs catastrophic drug expenses (defined as exceeding $8,000 during 2024) the federal annuitant can enroll in Medicare Part D with no late enrollment penalty. This has been the rule until now.
However, starting January 1, 2025, as a result of the passage of the Inflation Reduction Act (IRA) of 2022, Medicare Part D will lower its catastrophic prescription drug expense limit to $2,000 per year. The lower catastrophic limit could result in more Federal annuitants enrolling in Medicare Part D. Those annuitants who are not currently enrolled in Medicare Part D, but who are enrolled In Medicare Parts A and B, and who have out-of-pocket prescription drug expenses exceeding $2,000 a year, may want to consider enrolling in Medicare Part D during the AEP (October 15 through December 7, 2024), with prescription drug coverage taking effect January 1, 2025.
As discussed below, Medicare beneficiaries have to be aware of the changes coming to Medicare Part D and the Medicare Advantage resulting from the passage of the 2022 IRA legislation. These changes will be reflected in a Medicare beneficiary’s Annual Notice of Change, which are being sent out by the Centers for Medicare and Medicaid Services (CMS) to all Medicare beneficiaries during the last two weeks of September 2024.
What Is a Medicare Annual Notice of Change?
An Annual Notice of Change from a Medicare Part D beneficiary’s Medicare D prescription drug plan or a private insurer’s Medicare Advantage plan Annual Notice of Change presents how the beneficiary’s deductibles and co-payments will differ in the year ahead and whether the plan will be offered.
An Annual Notice of Change from a Part D prescription plan also states whether a Medicare Part D beneficiary’s prescription will be covered during 2025. And if so, how much the Medicare Part D beneficiary will pay? A Medicare Advantage Annual Notice of Change will tell whether the Medicare Advantage plan beneficiary’s doctors and hospitals will remain in the plan’s network. Federal annuitants enrolled in an FEHB program-sponsored Medicare Advantage plan will need to read the changes that their Medicare Advantage plan starting in January 2025. They have to make sure that doctors and hospitals will remain in the plan’s network. Many federal annuitants enrolled in an FEHB-sponsored Medicare Advantage plan are also enrolled in Medicare Part D. These annuitants should make sure that their prescriptions will be covered. If not covered, then these annuitants will need to switch their Medicare Part D plan.
How the $2,000 Medicare Part D Prescription Drug Cap Affects Medicare Beneficiaries
The major Medicare change coming in 2025 in the form of a $2,000 cap of out-of-pocket prescription drug costs, will affect both Medicare Part D and Medicare Advantage beneficiaries in the following ways:
- Medicare Part D health insurers will be responsible for paying more of a Medicare Part D beneficiary’s prescription costs due to the $2,000 cap; these insurers will be looking for ways to compensate for this change in the cap. That could mean higher Part D premiums (currently averaging $43 a month for stand-alone plans according to the Kaiser Family Foundation), higher deductibles and copayments, possibly substantially higher than during 2024. The prescription drug change in 2025 could also lead to Part D beneficiary’s plan no longer covering certain medications that the beneficiary takes or raising the prices of one’s prescriptions.
- Some of the Medicare Advantage plans might be facing a profit squeeze. Currently, Medicare Advantage plans often require Medicare Part D coverage. These Medicare Advantage Plans may respond to the $2,000 prescription drug cap by eliminating, or decreasing, benefits that keep the $0 monthly premiums intact. The result is that several benefits that Medicare Advantage benefits that the Original Medicare (Medicare Part A and Medicare Part B) cannot offer, such as dental, vision, hearing and gym membership, could be less attractive or possibly gone entirely, starting January 1, 2025.
Reading and Understanding the Medicare Annual Notice of Change
Only 36 percent of Medicare beneficiaries surveyed by eHealth.com said their Annual Notice of Change letter is “readily understandable”.
It should take about 30 minutes of close reading the Annual Notice of Change to understand what will be different in 2025, and whether a beneficiary should switch plans on coverage during 2025.
During the AEP, a Medicare beneficiary can switch their current Part D plan to another Part D plan, from one Medicare Advantage plan to another, from Medicare Advantage to Original Medicare, and from Original Medicare to a Medicare Advantage plan. The AEP starts October 15, 2024, and ends December 7, 2024.
Federal annuitants enrolled in a private Medicare Advantage and/or Medicare Part D should carefully read their Annual Notice of Change in order to determine whether they want to stay in their current Medicare Advantage plan, switch their plan, or go back to Original Medicare and they resume their coverage through the FEHB program. The latter will be done during the FEHB program “open season” to be held from November 11,2024 through December 9, 2024.
Federal annuitants who are not enrolled in Medicare Part D should add up their out-of-pocket prescription drug expenses during 2024. If they expect their total expenses to exceed $2,000 then they should enroll in a Medicare Part D plan with coverage taking effect January 1, 2025. They will have to be enrolled in Medicare Part A and Medicare Part B. In choosing a Part D plan, they will need to be sure that their prescription drugs are covered in the plan they choose.
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Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
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.