Medicare coverage deserves a second look during open season, experts say

This year's Federal Employees Health Benefits Program open season runs through Dec. 13. Many federal retirees and those planning for retirement have asked, "Why do I need Medicare if I already have health insurance under FEHBP?" The fact is, in many cases it makes sense to have both FEHBP and Medicare coverage. That might involve switching to a different FEHBP plan in retirement that better matches with Medicare and your health care needs. Let's take a closer look at how Medicare might fit into your planning.

First of all, just so we're clear, Medicare is health insurance for Americans age 65 and older and some other groups. It's been around since 1965, but federal employees have been covered only since 1983, when they first began paying the Medicare tax.

If you're a retired federal employee over 65 and enrolled in Medicare, then it becomes the primary payer unless you're covered by other health insurance through current employment (not retired). For example, if you're covered by your spouse's FEHBP and your spouse is still working, Medicare would be the secondary coverage. If you're 65 or older and enroll in Medicare while still working in a federal job, FEHBP remains the primary payer until you retire.

When Medicare becomes the first payer of medical expenses, the amount that needs to be covered by your FEHBP plan goes way down. And when FEHBP plans save money, they can hold down premium increases for all enrollees. Some of the original high-option FEHBP plans (such as Blue Cross high option) have faded away over the years because they were heavily used by older retirees who had not paid the Medicare tax during their careers and relied solely on FEHBP to cover their medical expenses.

Medicare comes in several parts:

• Part A is hospital insurance, primarily covering inpatient care.
• Part B covers many outpatient expenses, including lab work; physical therapy; outpatient surgery; and durable medical equipment such as walkers, canes and wheelchairs.
• Part C, known as Medicare Advantage, was created in 1997 to give Medicare beneficiaries the option of receiving their benefits through private health insurance plans, instead of through Parts A and B.
• Part D covers outpatient prescription drugs.

Who Needs It?

Federal employees and retirees already have coverage through FEHBP for both inpatient and outpatient care and prescription drugs. So if you choose not to enroll in Medicare, your FEHBP insurance will continue to cover you. (But by law, your insurance plan must limit its payments for inpatient hospital care and physician care to what you would be entitled to if you had Medicare.)

So does this mean you don't need Medicare? Not necessarily. Every FEHBP plan features incentives if you take Medicare Parts A and B as your primary coverage as a retiree over 65. Some plans, for example, offer a waiver of your annual deductible and co-insurance for outpatient services if you are enrolled in Part B as your primary insurance. Other benefits include reduced co-payments for prescription drugs. Check your plan's brochure for specific information for your health plan. The savings can be significant if you rely heavily on medical care and incur high out-of-pocket expenses.

Remember, even if you're in excellent health at 65, as you get older, your medical needs might increase significantly. In many cases, when Medicare pays first and FEHBP pays second, you can end up paying nothing out of pocket, other than your monthly premiums for Part B and FEHBP.

Before you jump at the chance to enroll in Medicare, though, be sure to think it through. Part A is available to most people at no charge, but Part B has a premium that can be more costly than some of the FEHBP plans. This year, it ranges from $96.40 to $353.60 per month, depending on your income. I encourage everyone to enroll in Part A at 65, but Part B is a more personal decision.

Can You 'C'?

I'll admit, I'm not an expert on Medicare Part C, except to know that a federal retiree has the option of suspending FEHBP coverage and enrolling in a Part C plan. Chuck Newkirk, secretary of the New York Chapter of National Active and Retired Federal Employees, recently shared the following thoughts with me on that option:

• Using Part C instead of FEHBP could save you money. Some of these plans charge no premiums and only require enrollment in Parts A and B. They could be attractive to someone who is having a difficult time affording the FEHBP premiums.
• The research required could be a daunting task for some, because in most areas you'll have a variety of plans to choose from.
• You're allowed to un-suspend FEHBP coverage, so you can try out a Part C plan and return to FEHBP during the following open season if you don't like it.

In general, Newkirk said, two groups of people might benefit from enrolling in Part C and suspending FEHBP: those who are in generally good health and looking to save on monthly premiums, and those who are financially strapped.

Paying for Prescriptions

What about prescription drug coverage under Medicare Part D? According to the Office of Personnel Management, "Most federal employees do not need to enroll in the Medicare drug program, since all FEHBP plans will have prescription drug benefits that are at least equal to the standard Medicare prescription drug coverage."

I'll add that if you find yourself with extensive out-of-pocket expenses each month because you're filling numerous prescriptions, a Part D plan might be an option to supplement your FEHBP prescription benefits. This could be the case if you're enrolled in a low-option FEHBP plan that doesn't have the same level of drug benefits as some of the high-option plans.

If you don't opt for Part D right away, you can add it later. You won't incur a late enrollment penalty as long as you're covered by a qualified plan, and all FEHBP plans are qualified.

What's New

There's a new pilot program in 2011 to help with paying Part B premiums, available through the GEHA high-option plan and Mail Handlers Benefit Plan's standard option. Participants in the GEHA pilot will get $75 per month from the insurer, up to a maximum annual subsidy of $900, to help pay Part B premiums. The MHBP program will contribute an amount equal to the regular Part B monthly premium for every month you participate. These plans are not the least expensive FEHBP plans, so the incentives shouldn't be the only reason for choosing one of these plans.

The purpose of the pilots is to encourage retirees to enroll in Medicare as soon as they are eligible. The benefit to you as an enrollee is avoiding the penalty for enrolling in Part B after your initial seven-month enrollment period that begins three months before you turn 65 and lasts until three months after your 65th birthday. Those still working at 65 and covered by health insurance through current employment (or retired and covered by the insurance of a spouse who is still working) have a special enrollment period lasting until eight months after retirement (or your spouse's retirement if you're under their insurance while they are working). For every 12-month period you delay enrollment in Part B, there's a 10 percent surcharge on the premium.

Don't Forget

Here are some final thoughts and tips to remember about Medicare this open season:

• Look for the least expensive plan that waives out-of-pocket expenses for both inpatient and outpatient care when Medicare Parts A and B are your primary coverage. But be sure you also look at prescription benefits if you fill multiple prescriptions every month.
• If you're retired, consider suspending your FEHBP plan to enroll in Part C if you're having trouble affording your FEHBP and Part B premiums, or if you're in very good health and just want to save some money.
• If either you or your spouse is not qualified for Medicare, you should choose the health plan that works best for the spouse who is not yet eligible for Medicare.
• Medicare Parts A and B alone are not adequate health insurance because they do not offer catastrophic protection and have gaps in coverage that can result in large out-of-pocket expenses. If you have to make the choice, FEHBP alone is a better bargain than Medicare alone.
• If you're enrolled in a health maintenance organization, you can use Medicare to go outside your plan's network without a referral from your HMO. Check your plan brochure to see if there are other incentives offered for joining Medicare A and B.
• If Medicare is not your primary insurance because you are covered by insurance through current employment (yours or your spouse's), you can delay enrollment in Part B until Medicare becomes primary.
• If you're enrolled in the military health plan, TRICARE for Life, you will have to enroll in Medicare A and B. If you're a federal retiree, it would make sense to suspend your FEHBP coverage, since the combination of Medicare A and B and TRICARE for Life would provide adequate coverage.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.