Like federal employees enrolled in the Federal Employees Health Benefits (FEHB) program, federal retirees (annuitants receiving a CSRS annuity or a FERS annuity) can reduce their FEHB program health insurance plan out-of-pocket expenses. One way is by enrolling in a preferred provider organization (PPO) FEHB program health insurance plan and utilizing hospitals, doctors and pharmacies which are network providers. The issue is somewhat different when a federal retiree or annuitant is enrolled in Medicare Part A (hospital insurance) and Medicare Part B (medical insurance).
This column discusses some FEHB program cost saving suggestions for federal annuitants, including:
(1) FEHB program health plan premium savings in which both spouses of a married couple are federal annuitants;
(2) Possible savings for annuitants who are not enrolled in Medicare Part B;
(3) FEHB program health insurance plan savings in which an annuitant is enrolled in Medicare Part A and Medicare Part B; and
(4) Why federal annuitants should not elect out of the FEHB program.
Premium Savings for Married Couples in Which Both Spouse Are Federal Annuitants
Married couples in which both spouses are federal annuitants (with no children eligible to be enrolled on their FEHB health insurance) are advised that both spouses elect “self only” FEHB enrollment rather than one “self plus one” enrollment. This is because the combined premium cost of two “self only” enrollments is usually less expensive than the premium cost of one “self plus one” enrollment. The option of two “self only” enrollments can also be valuable if each spouse prefers to enroll in a different FEHB health plan.
One word of caution for two “self only” enrollments: Each spouse will have to meet a single deductible and a separate catastrophic limit rather than one single deductible and one catastrophic limit associated with “self plus one” enrollment. The one arrangement in which the risk exposure is low with respect to the catastrophic limit is when both spouses are enrolled in Medicare Part A and Medicare Part B. This is because when an annuitant is enrolled in Medicare, Medicare is considered “primary coverage”, and the risk exposure is low with an FEHB health insurance plan (the Medicare supplement plan) as the “secondary coverage”. Most FEHB program health insurance plans (in which there are no catastrophic limits) are considered as a Medicare “wrap around”.
An exception to choosing two “self only” FEHB enrollments is when one spouse is a federal annuitant, and the other spouse is a federal employee. In that case, the “self plus one” enrollment, in which the employee spouse carries the insurance (as the “self”) and the annuitant spouse is included on the insurance (as the “one”), will be a better choice for two reasons, namely:
(1) The employee spouse will have FEHB program health insurance plan premiums deducted from his or her gross salary (“premium conversion”). This arrangement results in tax savings – the actual premium net cost will be reduced on average approximately by one-third; and
(2) If the annuitant spouse is Medicare eligible, then that spouse would not be required to enroll in Medicare Part B until the employee spouse retires. At that time, the annuitant spouse could enroll in Medicare Part B with no late enrollment penalty during the “special enrollment period”.
Savings for Annuitants Over Age 65 Who Choose Not to Enroll in Medicare Part B
When a federal annuitant reaches age 65, a special rule applies whether the federal annuitant enrolls in Medicare Part B or not. That rule is that it is illegal for doctors who accept patients enrolled in Medicare Part B and that if a patient has Medicare supplemental insurance (like the FEHB program insurance) coverage, to charge patients no more than a “limiting charge”. Under this provision, an annuitant will not be exposed to high charges that neither Medicare nor an annuitant’s FEHB health plan recognizes as reasonable. This is the case whether the annuitant is enrolled in Medicare Part B or not.
The “limiting charge” that applies to annuitants aged 65 and older means that annuitants can use non-preferred providers without being subject to substantially higher charges that Medicare and the FEHB health insurance plan recognize as reasonable. But the annuitant not enrolled in Medicare Part B may have to pay higher deductibles and coinsurance if the health care provider is not in the annuitant’s FEHB program health insurance plan network.
Premium Savings for Annuitants Enrolled in Medicare Part A and Medicare Part B
For those annuitants who are enrolled in both Medicare Parts A and B (the “Original Medicare”), there are potential premium savings and utilization of using all hospitals, doctors and labs, whether they are network providers or non-network providers. There are two reasons for premiums savings:
(1) Original Medicare as the “primary” payer of medical services pays on average 60 to 80 percent of hospital, doctor and lab charges with the remaining 20 to 40 percent being paid by the FEHB program health insurance plan. Even if the FEHB program health insurance plan does not pay the full portion of what Original Medicare pays, the medical provider cannot bill the annuitant any balance due after Original Medicare and the FEHB program health plan have paid their shares. This is called “balance billing” and not allowed under Medicare rules; and
(2) Since Original Medicare is the “primary” payer and the FEHB program health insurance plan is the “secondary” payer (paying on average 1/3 to 1/2 less of what Original Medicare is paying), the annuitant is advised to switch enrollment within the FEHB program from a more expensive FEHB program health insurance plan to a lesser expensive health insurance plan. For example, switching from “standard” coverage to “basic” coverage. But annuitants who are considering the switch of FEHB program enrollments are advised to first check with their medical providers – doctors, hospitals and pharmacies) to make sure they accept a different FEHB program health insurance plan.
Maintaining FEHB Enrollment After Age 65
Annuitants have the option of dropping their FEHB enrollment once they enroll in Original Medicare and adding Medicare Part D (Medicare Prescription Drug Plan). They are strongly advised not to drop their FEHB enrollment for two reasons:
(1) They cannot reenroll in the program once they have dropped enrollment; and
(2) Medicare Part B requires a beneficiary to pay 20 percent of the cost of doctors’ fees after an annual deductible has been met.
There is no catastrophic limit for individuals enrolled only in Original Medicare. The total annual premiums cost for Medicare Part B and Part D is approximately $2,500 per year per individual. The annual premium cost is higher than in most FEHB health insurance plans. Being only enrolled in Medicare provides no protection against catastrophically high medical expenses. An individual enrolled in Original Medicare only would have to purchase a separate “major medical” insurance plan. A federal annuitant who is enrolled in Original Medicare can only lessen their risk of major out-of-pocket expense by enrolling in a private “Medigap” plan. But Medigap plans could be far more expensive compared to the FEHB program health insurance plans (which are considered to be Medicare supplement plans). Also, a Medigap plan’s cost can increase significantly as the annuitant gets older.
In summary, the FEHB program together with Original Medicare enrollment will most likely result in the most savings for a federal annuitant over age 65. Enrollment in a FEHB program health plan alone is a far better bargain than Original Medicare and a Medigap plan enrollment. The other option is for an annuitant to “suspend” FEHB program enrollment and to enroll in a private Medicare Advantage plan. This may not be the best choice in terms of premium savings because the FEHB program offers Medicare Advantage plans in which the federal government pays on average 72 to 75 percent of the Medicare Advantage plan’s premiums.