Medicare Part D (Prescription Drug coverage) has been available to Medicare beneficiaries since 2006. Medicare Part D has benefited millions of Americans who have excessive prescription drug expenses. Federal retirees have good prescription drug coverage through the Federal Employees Health Benefits (FEHB) program. As a result, most federal retirees do not have a need to enroll in Medicare Part D. However, if at some time a federal retiree enrolled in Medicare Part A (or Medicare Part A and Medicare Part B) does incur excessive prescription drug expenses, then the retiree can enroll in a Medicare Part D prescription drug plan and will not be subject to a late enrollment penalty.
Until August 2022, Medicare Part D enrollment was of limited benefit to most federal retirees. This was because FEHB program drug coverage was as good as, or better, than what Medicare Part D plans offered. As explained above, if a federal retiree did incur at some during retirement catastrophic prescription expenses, the retiree could enroll in a Medicare Part D prescription drug plan and not be subject to a late enrollment penalty. This is because the FEHB program offers what is considered to be creditable prescription drug coverage.
As a result of the Inflation Reduction Act (IRA) of 2022, enrollment in Medicare Part D has gotten more attractive to federal retirees. Among the provisions passed into law following the IRA passage was a strengthening of Medicare Part D through several reforms. The most significant reform was an improvement to Medicare Part D catastrophic cost protection to an annual maximum out-of-pocket prescription drug expense of $2,000, lowered from $8,000 during 2024.
Since 2024, the Office of Personnel Management (OPM), has been strongly encouraging FEHB health plans to adopt the improved Medicare Part D prescription drug coverage as an alternative to FEHB prescription coverage for federal retirees enrolled both in an FEHB health plan and Original Medicare (Medicare Part A and Medicare Part B), or only Medicare Part A). These Medicare Part D plans associated with an FEHB health plan are called a Medicare Prescription Drug Plan Employer Group Waiver Plan (PDP EGWP).
This column explains what federal retirees enrolled in certain FEHB health plans and Medicare need to know and to do with respect to their automatic enrollment in a PDP EGWP.
Auto Enrollment in a Medicare Prescription Drug Plan Employer Group Waiver PlanPDP EGWP
OPM issued a carrier letter at the end of January 2023 highlighting the changes in Medicare Part D resulting from the IRA passage in August 2022. OPM also encouraged FEHB program carriers to offer more “federal-friendly” Medicare Advantage plans that benefit from the IRA reforms. Part of the OPM’s carrier letter was guidance regarding PDP EGWPs. One aspect of OPM’s guidance is that OPM will allow FEHB program carriers to offer PDP EGWP plans that feature automatic enrollment for FEHB program participants enrolled in Medicare.
This automatic enrollment feature is alarming because: (1) It may reduce an FEHB program participant’s prescription drug plan choice (see below on a PDP’s “formulary”); and (2) It could enroll a federal retiree in a PDP EGWP that may not be the right prescription drug plan given the participant’s prescription medication needs. An OPM spokesperson stated that auto-enrollment in PDP EGWPs is happening. However, under Medicare rules, “auto-enrollment” requires consumer protections. Consumer protections include transparency notifying potential enrollees if they will be auto enrolled in a PDP EGWP and provide a straightforward way to opt out of the enhanced Medicare Part D product, if they choose to do so. This “opting out” option of the PDP EGWP needs to be in accordance with the Center for Medicare and Medicaid Services (CMS) requirements as described in CMS’ PDP Enrollment and Disenrollment Guidance.
Like what happened during the 2024 and 2025 open seasons, many federal retirees will shortly receive notices from their FEHB program health plans with respect to automatic enrollment in the plan’s PDP EGWP. These retirees are enrolled in Original Medicare or Medicare Part A only, and in a FEHB program sponsored fee-for-service, preferred provider organization (PPO) consumer driven health plan (CDHP) or high-deductible health plan (HDHP).
The question becomes: How does a federal retiree enrolled in a FEHB program health plan and Medicare and who has been automatically enrolled in a PDP EGWP decide that the PDP EGWP prescription drug benefits are as good or better than the prescription drug benefits associated the retiree’s FEHB program health plan? In addition, are there additional costs associated with a PDP EGWP enrollment? To answer this question, it is important to explain how Medicare Part D works.
Understanding How Medicare Part D Works
Medicare Part D helps cover the cost of prescription drugs, including many recommended shots and vaccines. Plans that offer Medicare drug coverage are run by private insurance companies that follow rules set by the Center for Medicare and Medicaid Services.
In general, when a Medicare beneficiary enrolls in Medicare Part D, the beneficiary must choose a Medicare approved drug plan. Each plan can vary in premium cost and specific drugs covered. The specific drugs covered is called the plan’s “formulary.”
Unfortunately, Medicare Part D is complex and can come with pitfalls – most significantly, the plan terms and costs change every year. What that means is that a Medicare Part D plan with low premiums when first chosen could become much less affordable in the year a Part D beneficiary re-enrolls in it in a future year..
Prescription drug plans offered vary by zip code. More than two dozen drug plans can be offered by zip code, involving a hodgepodge of premiums, deductibles, drug costs and copayments. The purpose of choosing the right drug plan is that the plan will pay for most of the beneficiary’s drug prescription expenses. This is especially important if the prescription drug expense is significantly large.
The following table schematically summarizes a Medicare Part D beneficiary’s out-of-pocket cost during 2026:
Medicare Part D Beneficiary’s Out-of-Pocket Cost During 2026
Medicare Part D beneficiaries should be aware that Medicare Part D beneficiary costs are capped each year. In 2026, annual out-of-pocket costs will be capped at $2,100. This cap includes what a beneficiary pays in deductibles, copays, and coinsurance for covered drugs. After meeting the cap, the individual pays $0 out-of-pocket for the rest of the year. Also, insulin and vaccines out-of-pocket costs are limited as follows:
•Insulin. Copays for insulin for all Medicare Part D beneficiaries are limited to $35 per month. This applies to all insulin covered by a beneficiary’s Medicare Part D plan or Medicare Part B.
•Vaccines. Medicare beneficiaries will pay no copays or deductibles for vaccines covered by their Medicare Part D plan, including the shingles and RSV vaccines.
It is important for potential enrollees in a PDP EGWP to understand how particular prescription drugs are placed in a PDP EGWP. The brand and generic medications that are available are called the PDP’s formulary.
PDP companies use a panel of professionals to evaluate the medications in each therapeutic category. Also, PDP companies often develop their “tiers” in different ways. Usually, they have Tier 1,2,3 and 4 and the medications are listed based on cost. Tier 1 is often the companies’ Preferred Generics. Tier 2 is other Generics, etc. Plans have created special Tiers for their no cost vaccines and for the $35 co-payment for insulin. The higher the Tier, the more the cost to the PDP enrollee.
Federal retirees enrolled in a PDP EGWP should be enrolled in a PDP EGWP which covers their (and their spouse’s if married) prescription medication needs as cheaply as possible. However, the best option for an individual may still not cover some or all of their medication needs. When a PDP does not cover an enrollee’s medication or does not cover the medication at a higher Tier, the enrollee’s doctor can request a formulary exception. This could occur for example when a doctor prescribes a brand when a generic is also available.
Federal retirees enrolled in a PDP EWGP and who have higher adjusted gross incomes may be paying more monthly for their PDP EGWP as a result of being subject to Income-Related Monthly Adjustment (IRMAA). As is the case with Medicare Part B, Medicare Part D monthly premiums are subject to IRMAA.
The following is some additional information and recommendations relevant to the Medicare Part D PDP EGWP and actions that federal retirees who will be likely enrolled in PDP EWGP during the forthcoming FEHB open season need to take:
1. Contact his or her FEHB health plan and find out more about the plan’s PDP EGWP associated with Medicare Part D.
2. It is usually to a federal retiree’s advantage to keep their current FEHB coverage without any changes.
3. A federal retiree is not allowed to drop only their FEHB program health plan drug coverage without also dropping FEHB program- health plan coverage for hospital and medical coverage.
4. A federal retiree who incurred significant annual out-of-pocket prescription drug expenses during 2025 is advised to check with their FEHB program plan and find out how much coverage the FEHB program plan offers in prescription drug expense relief during 2026. The retiree must be specific with his or her particular prescription drug information (and if married) for their spouse who is also in need of prescription drug coverage. If their FEHB program health plan prescription offers a sufficient amount of prescription drug coverage to the extent that out-of-pocket annual prescription expenses are expected to total less than $615 during 2026, then the retiree should inform the FEHB program health plan to not enroll the retiree in the health plan’s PDP EGWP prescription drug plan.
5. If the retiree’s expected annual out-of-pocket expense using their FEHB health plan drug coverage is more than $2,100 during 2026, then it may make sense for the retiree to enroll in the FEHB health plan’s PDP EGWP prescription drug plan. But that depends in part on which prescription drug(s) the retiree is using and whether the PDP EGWP formulary includes those prescriptions and to what extent (Tier 1,2.3,4, Generic, Specialty, Select Care Drugs).
6. If a retiree joins the FEHB health plan’s PDP EGWP prescription drug plan, then the retiree will have no prescription drop coverage through their FEHB health plan.
7. A federal retiree enrolled in a PDP EGWP prescription drug plan during 2026 may be subject to an income related monthly adjustment amount (IRMAA). This is a result of having modified adjusted gros income exceeding $206,500 during 2024. IRMAAs are normally deducted from a monthly Social Security benefit check or paid directly to Medicare.