Expert's View

Here’s an issue that keeps coming up. If you are covered by Medicare, do you still need to be covered by the Federal Employees Health Benefits program? After all, Medicare Part A is free – you paid for that coverage while you were employed – and the premiums for plans in the FEHB continue to rise.

First, we need to get one thing straight. Medicare Part A only covers hospital costs. In order to get coverage for physicians’ services, you’ll need to enroll in Medicare Part B, whose premiums continue to rise with inflation. This year the monthly premium is $88.50, up from $78.20 in 2005, and nearly double what it was in 2000.

So, the question becomes, is the combination of Medicare Part A and B enough? Or, looked at another way, is FEHB coverage coupled with Medicare Part A enough? Let’s see.

Typical of the way our squirrelly health insurance system works, neither FEHB plans nor Medicare cover the same things or at the same levels. On top of that, each has deductibles or copayments that further blur the picture. And Medicare doesn’t provide any prescription drug coverage unless you enroll in Part D, another expense that will grow over time.

It takes a lot of research to learn what combination of coverage will give you the greatest protection for the least amount of money. One traditional school of thought is that retirees covered by fee-for-service plans—as the vast majority are–should enroll in Medicare Parts A and B. Lately, it is also a good idea for those enrolled in HMOs to enroll in Medicare Parts A and B, in part because of the restrictions they place on the use of non-group doctors and hospitals.

Medicare-covered retirees have often complained that their premiums are the same as those for employees, yet they should be less expensive to cover because Medicare pays a lot of their bills. This falls into the category of “be careful what you ask for, because you might get it.”

The fact of the matter is that on balance older people are less healthy and cost more to cover under FEHB even when enrolled in Medicare. If separate premiums were set for them, they would be higher than those of active employees even if the status of Medicare as first payor were taken into account. Putting all employees and retirees in one risk pool carries out the principle that the healthy should underwrite the less healthy. And it results in more reasonable premiums for the latter.