If you are nearing 65 years of age, you may be wondering if you should sign up for Part B of Medicare. That is the question that many folks nearing the age of 65 want to have the answer for. In fact, it was the top "vote-getter" in the list of things that FedSmith readers wanted to know about retirement.
Complicating any choice we face is the fact that we can carry our federal employee’s health insurance (FEHB) into retirement. Many private sector employers do not allow their employees to carry their health insurance into retirement, let alone past the age of Medicare eligibility.
Let’s begin the article with a word of caution. The Medicare Trustees say that Medicare will become insolvent in 2019 if changes are not made to the program. They state that the payroll tax would have to double (1.45% to 2.9%) or that benefits would have to be cut by more than half (51% to be exact). If you were born in 1954 you will turn 65 and become eligible for Medicare just at the time it becomes insolvent.
We can expect Congress to act sometime before insolvency hits, but we don’t know when and we don’t know how they will change Medicare. It’s entirely possible that Congress will simply increase the tax and be done with it, but your guess is probably as good as mine as to how Medicare will look in 2019.
Therefore, this article deals with how Medicare is now and how it may be for the next few years. Laura Bush, Nolan Ryan and I will turn 65 on the same day in 2011, and this article is likely to apply to us and the many others who are near our age.
The answer to the question of whether we should elect Medicare Part B or not is "it depends". Let’s look at the two major items on which it depends.
First, it depends on your ability to afford carrying both Part B and your FEHB. For example, Blue Cross/Blue Shield Standard Option (the most popular of the FEHB plans) costs $134.66 per month for self-only. Add that to the $96.40 per month for Part B and you come up with $231.06 per month for one person. Using the self and family monthly premium of $314.47 and two Part B enrollments and you’re facing a monthly bill of $507.27. OUCH!
Of course these are the premiums in 2008, premiums in future years are likely to be higher.
Part B premiums are higher for high-income retirees. For example, a retiree with an income of greater than $164,000 (joint filing status) would pay $122.20 per month per person for Part B. The income levels are high enough that it is unlikely that they would hit too many federal retirees.
Second, it depends on your usage of medical services. Almost all FEHB plans will waive their deductibles and co-pays if you sign up for Part B. They will also pay your share (deductible and co-pay) of Medicare. Individuals who use a lot of medical care might come out ahead financially by selecting both Part B and the FEHB even if they are paying premiums for both of them. What is difficult is determining your need for medical care in future years. We also have to consider the penalty for late enrollment in Part B (more on that later).
If you are curious about whether or not your plan waives all deductibles and co-pays, read the section on coordination of benefits in your FEHB plan’s brochure. Some plans have additional information that can be helpful to the Medicare eligible federal retiree, but the average representative may not be aware of it. Blue Cross/Blue Shield has such a booklet (entitled Pre-Retirement Seminar), but several calls to BC/BS representatives turned up not one who was aware of the booklets existence; this included the representative whose name was listed on the same web link as the booklet was.
The question of whether or not to choose Part B often comes up in the Q&A section of the NARFE magazine, Retirement Life. Until recently, they have advised that if you could afford it, the best possible coverage was under both Part B and FEHB. However, a NARFE official was recently quoted in the Chicago Tribune as saying that healthy retirees might want to wait to enroll in Part B for a few years.
The problem with delaying enrollment in Part B is that, for each year you delay, there is a 10% late enrollment penalty tacked on to the premium. For example, if a 67 year-old enrolled in Part B now, their premium would be $115.69 per month due to the $19.28 late enrollment penalty.
We have not yet addressed the issue of the Medicare eligible military retiree who has Tricare for Life. Tricare for Life requires that you elect Medicare Part B. Having Tricare for life also allows federal retirees to suspend their FEHB while covered under Tricare.
I am sorry to disappoint the readers who were expecting a yes or no answer to the question of whether or not to take Medicare Part B. This truly is a situation that depends on the two items discussed above; ability to pay and expected health care utilization.
John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. Order your copy at shoplrp.com. Ask your human resources office to contact Federal Career Experts about pre-retirement training.