Simultaneous Membership in Medicare and FEHB

By on October 20, 2016 in Pay & Benefits with 0 Comments

When you have the original Medicare Plan (Part A, Part B, or both) We limit our payment to an amount that supplements the benefits that Medicare would pay under Medicare Part A (Hospital Insurance) and Medicare Part B ( Medical Insurance), regardless of whether Medicare pays.

Section 9, page 143, 2016 Blue Cross booklet. RI 71-005

The Omnibus Budget Reconciliation Act of 1993 contained a provision affecting the FEHBP laws. It required most FEHBP plans to apply Medicare Part B limitations on payments for physician services to benefits provided to any retired FEHBP enrollee aged 65 or older who do not participate in Medicare Part B. In effect the plans must use the Medicare approved amounts instead of their own Plan Allowance amounts when basing payments for covered services. The intention was to protect those non-Medicare FEHBP enrollees from having to pay more out of pocket for the same benefits

Private email, union spokesperson, Dec 17, 2005

Billions in taxpayer dollars are apparently being wasted, or at least grievously misspent.

  • People with Medicare Part A (hospital) have their hospital bills, except for the $1,288 deductible, paid in full by Medicare. Depending on the size of the hospital bill, the Medicare payment generally is 97-99% of the total.
  • Retired Federal employees can opt for FEHB (Federal Employee Health Benefits) insurance coverage, and most of them do this.  FEHB covers hospital and doctor expenses. Most of the cost of this program – 72-75% – is subsidized by taxpayers.

In and of itself, neither of the above is a problem. The problem arises when they collide. That is, when a person is both a retired fed and on Medicare he can – and frequently does – carry both Medicare and FEHB. The technical term for this is “duplicate coverage.” When there is a claim, the consequences are:

  1. The direct Medicare payments go to the hospital and – if the insured has Part B – to the doctors.
  2. The periodic, scheduled premium payments by the U.S. Office of Personnel Management (OPM) go to the enrollee’s FEHB insurance carrier. Prior to age 65, the company used this money for paying hospital and doctor bills. After age 65, the payments continue unabated, even though hospital bills and – if the insured has Part B – doctor bills have for the most part been paid by Medicare.

Part B covers doctor and other non-hospital bills, and it is optional. If the retiree decides to add Part B to his portfolio, it will cost him at least $1,450 annually in premiums, as well as the $166 deductible in case he has any claims. If he is married and his spouse is also in Medicare A & B, the cost is double: $2,900 in premiums plus (possibly) $332 in deductibles if there are claims.

With excellent medical coverage included in the various FEHB plans, there is no apparent need for additional medical coverage, particularly when it costs the retiree hundreds of dollars extra.

Yet, incredibly, the Office of Personnel Management (OPM) actually promotes enrollment in Part B! But they do not do this directly; instead, they do it through annual “call letters” (aka: Program Carrier letters) to the FEHB insurance companies:

  • In recent years, an increasing number of carriers have adopted plan design changes or member education efforts to promote increased enrollment in Medicare Part B by those enrollees eligible for Medicare...As noted earlier, benefit enhancements that encourage Medicare participation do not require any offset by decreases in other benefits.    Letter 2016-03
  • Newly Medicare-eligible Federal retirees are enrolling in Medicare Part B in declining rates. In the past 15 years, the participation rate in Part B for newly eligible annuitants has declined by twenty percent among fee for service plans and by ten percent for HMOs. FEHB is experiencing declining participation rates because members often do not have a clear enough incentive to enroll.   Letter 2015-02
  • This year we are focusing on performance in several areas: 1) optimizing the delivery of prescription drug benefits; 2) enhancing wellness programs; 3) advancing quality of care; 4) ensuring mental health parity; 5) aligning the FEHB Program with the Affordable Care Act; and 6) continuing to encourage programs and benefits that promote enrollment in Medicare Part B. Letter 2014-03

Remarkably, the letters provide no reason, or incentive, for enrollees to buy Part B.  Just do it. What is going on here? These letters can be found on the OPM website.

  • Why does OPM want FEHB retirees to buy medical insurance from Medicare, when they (the retirees) already have fine, comprehensive medical insurance with FEHB?
  • The Part B purchase is welcomed by the FEHBP insurance companies, to be sure, because it cuts their medical reimbursements sharply, but what advantage is there for retirees? If there is, in fact, an advantage to retirees, why is it not mentioned in the above Program Carrier letters? Why is it not mentioned directly to benefit officers, retirees, HR offices, and others during open season?

With 1.9 million Federal retirees, retiree spouses, and survivors, age 65 or more, the Medicare Part A payments for their hospital expenses are in the billions, annually. Then there’s the 70%, or so, who have enrolled in Part B – more billions, in doctor expenses.

Despite Medicare paying these bills, the FEHB insurance companies continue collecting the same premiums and the same Government subsidies they collected prior to Medicare. In other words, the insurance companies are no longer paying the bills, but they are still collecting the money for… paying the bills! Note the law:

5 U.S.C. 8902 – Contracting Authority. Rates charged under health benefits plans described by Section 8903 or 8903a shall reasonably and equitably reflect the cost of the benefits provided. Para (i).

The above strongly suggests the FEHB insurance companies are taking without protest unearned taxpayer funds, while the Office of Personnel Management is failing to take action to plug this sizable loophole, resulting in the loss of billions of taxpayer dollars. Clearly, as far as prudent Government spending is concerned, simultaneous membership in Medicare and FEHB insurance is not working. It is beneficial only for the insurance companies

Would an outside review, by an independent actuary or GAO, be helpful?

© 2016 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.

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About the Author

Robert Benson served 35 years in various Federal agencies, as both a management analyst and IT specialist. He is a graduate of Northwestern University.

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