Retiring and Changing Health Insurance at the Same Time? Good Luck.

I recently received an email from “Bill,” who retired on Dec. 31, 2020. Bill was over 65 at his retirement and shared his story of enrolling in Medicare and also changing his Federal Employees Health Benefits Program coverage at the same time as his retirement application was being processed.

When you become eligible to enroll in Medicare, there are three periods in which to do so. The initial enrollment period is three months before, the month of, and three months after your 65th birthday. If you are still covered by current employment health insurance at age 65, Medicare will be the secondary payer.

Workers and spouses covered by a worker’s current employment health plan also have a special enrollment period to sign up for Medicare after retirement. If you miss the initial or special periods, you’re left with an annual general enrollment period that runs from January through March.

If you don’t sign up for Medicare Part B when you're first eligible, your monthly premium may go up 10% for each 12-month period you could've had the insurance but didn't sign up. In most cases, you'll have to pay this penalty each time you pay your premiums, for as long as you have Part B. And the penalty increases the longer you go without Part B coverage.

When a federal employee or spouse of an employee who is covered by current employment health coverage turns 65, it makes sense to enroll only in the hospital part of Medicare, Part A. There is no premium for Part A, since it’s financed by the payroll taxes paid by employees and employers. Part B, on the other hand, has a standard premium of $148.50 per person per month.

Bill’s story provides some important details that employees who are planning to enroll during their SEP should be aware of. In addition to enrolling in Medicare, Bill also submitted a request to change his health insurance plan during the 2020 FEHBP open season so he could be covered by a plan that would provide better coordination with Medicare. He chose a plan to cover himself and his spouse that would waive copays, deductibles and coinsurance—and would also reimburse part of his Part B premiums.

Changing health plans and retiring at the same time is fairly common, because open season and the end of the leave year, when many employees like to retire, happen around the same time. Still, it can be unsettling to do both at the same time. 

Bill said his insurance change wasn’t processed by the Office of Personnel Management until late February. This was likely due to processing delays caused by the current maximum telework situation.

Bill was covered by his new plan as of Jan. 1, 2021. But he didn’t know this until he received a notice from OPM. In the meantime, Medicare was denying claims from his providers because according to their records, the FEHBP plan he was enrolled in while he was still working was active and should have been billed as primary payer. Bill called to verify that his old health plan was no longer active, and was told that his account was deactivated at the end of February but was retroactively effective midnight on Dec. 31, 2020.

Bill’s new plan was activated on Feb. 25, 2021, and was effective retroactive to Jan. 1. If Bill had incurred medical expenses during the time between his retirement and Feb. 25, he could have submitted those claims through his old insurance plan. But it likely would have involved a lot of effort and anxiety.

Bill said the most important lesson of his experience is that if federal employees submit an open season change with their retirement application when retiring at the end of the year, they should not assume OPM or their FEHBP carrier will notify Medicare. And they can’t make corrections to Medicare until OPM processes their change in coverage.

Just when Bill thought his issue was resolved, Medicare began denying claims from his health care providers because Medicare’s records showed his old FEHBP plan was still active and should have been primary payer. Yet those records indicated his new coverage was active, too. Bill called Medicare’s Benefits Coordination and Recovery Center and was able to get the situation resolved. 

Bill wanted to pass his experience along to future retirees as a cautionary tale of what they might experience if they plan to coordinate retirement with signing up for Medicare Part B and changing FEHBP insurance, too.