In his recent Medicare and FEHB coordination article, Walton Francis helps clarify an issue that is in desperate need of clarification. Separately, Medicare and FEHB each offer excellent, comprehensive health coverage, but they do not “pair well.”
Together, they are not a good value, except to the health insurance companies. For the rest of us, they are a Procrustean fit.
In various places, Francis refers to:
- “an otherwise bizarre arrangement”
- “this massively wasteful extra spending”
- “this badly flawed and confusing system”
He is 100% correct, on all counts.
Francis goes on to say, “So why is Medicare even in the picture?”
Medicare Part A is in the picture because you bought it. It belongs to you. You can’t give it back. Over your working career you contributed 1.45% of your salary to Medicare, matched by your employer. When you turn 65 Medicare starts fulfilling its part of the contract by paying your expenses. You cannot decline Medicare coverage.
How much is Medicare Part A worth? In 2019, a person who has not earned it through work must pay $422 per month. Most of us already paid.
When a retiree has Medicare and FEHB, Medicare becomes what is known as “the primary payer,” meaning Medicare pays full benefits with no regard to any other insurance the person may have. This is referred to, misleadingly, as “coordination of benefits.”
The other bookend in the Francis article is, “So why is the FEHB still in the picture?” FEHB is still in the picture because nearly all fed employees had it throughout their careers, and to even think of dropping it is worrisome. It is especially worrisome when OPM – the honest broker we all trust – is silent about the true value of Medicare.
OPM wants retirees with Medicare Part A to keep FEHB coverage, because Medicare pays expenses that would otherwise have to be paid by the FEHB companies; for the same reason, OPM wants annuitants to buy Part B (or retain it if they already have it): again, Part B pays expenses that would otherwise have to be paid by the FEHB insurance companies. This money is called the “Medicare dividend.”
Finally, the FEHB insurance companies also want you to have Medicare Part A and Part B, because then (surprise!) they make more profit. Incredibly, although it is widely believed the Medicare dividend is used to reduce FEHB premiums for all, there is no known, objective data confirming this! (The OPM media office was asked about this and they had “no comment.”)
Part B penalty? We are told – by almost everybody – if you do not enroll in Part B within 8 months of becoming eligible, you must pay a 10% penalty for each year you could have joined, but did not. However, note the below, from page 17 of Medicare’s “Medicare and You”:
If you didn’t sign up for Part B when you were first eligible because you’re covered under a group health plan based on current employment…, you can sign up for Part B anytime you’re still covered by the group health plan… Usually , you don’t pay a late enrollment penalty if you sign up during a Special Enrollment Period. (as opposed to Initial Enrollment Period)
Although It is not 100% clear, It strongly appears from this citation (and other sources) FEHB medical coverage is treated as being as “equivalent” to Part B; thus there is no penalty for signing up “late,” i.e., after the first 8 months of eligibility.
Those retirees who did not opt for Part B at the outset may consider this good news, but remember: when you buy Part B, it is not a supplement to your FEHB coverage – it becomes your primary payer and replaces your FEHB coverage – please check Section 9 of your FEHB insurance booklet. You may be shocked.
The FEHB then becomes the supplement, and the “wraparound” benefits of FEHB are marginal, not to say modest, compared to total costs. Thus your net gain is rarely worth the additional premium Part B premium. That’s why this is called “chasing dimes with quarters.”
If you are a fed retiree 65 or over, you might want to review “Medicare and You.” You will find that Medicare has a lot to offer.
KISS proposal:
Upon reaching age 65, a fed retiree is offered a “buyout.” In lieu of FEHB insurance, OPM pays for Medicare Parts B and D. If the retiree declines, he continues to be insured by FEHB, with no change.
Either way, Medicare will be unaffected – Part A benefits will be paid just as they are now, and Part B and D benefits will also be the same as they are for non-feds.
Winners:
- Medicare retirees will pay -0- Medicare premiums and -0- FEHB premiums.
- Taxpayers will fund less than $400 monthly for Medicare couples, and less than $200 for Medicare singles. This will be a large savings over the status quo. Example: under Blue Cross basic (by far, the most popular plan), self + 1, the current monthly subsidy is $1,066.59. For singles it is $479.21.
- For OPM, life will become simpler and more honest, because they will be serving their customers better and saving a good deal of money for taxpayers.
Losers: The FEHB insurance companies will no longer receive generous, unearned subsidies to insure Medicare recipients who are already insured. Boo hoo.
Current non-Medicare employees and annuitants. No change. There is a virtually universal belief that the Medicare dividend is used to lower FEHB premiums for all, but there is no known, objective evidence supporting this. Thus, there will be no effect.
Again, appreciation to Walton Francis, for his much needed view. It may lead to reform.
