Medicare and FEHB

Most federal employees or annuitants reaching age 65 are automatically entitled to premium-free Part A of Medicare, Hospital Insurance (HI), because they or their spouse paid Medicare payroll taxes for at least 40 quarters (10 years). Federal workers and their employer each pay 1.45 percent of earnings for Medicare payroll taxes. Medicare Part B Supplementary Medicare Insurance (SMI) and Part D prescription drug coverage are voluntary, and qualified individuals choosing to enroll must pay a monthly premium.

Generally, individuals who do not enroll in Parts B or D during their initial eligibility period are subject to a penalty, if they choose to enroll at a later date. However, for Part B, individuals covered by a FEHB plan either through their own or a spouse’s active employment (not annuitant coverage) may wait until either they or their spouse retires to enroll without incurring a delayed enrollment penalty. Upon retirement, individuals must enroll in Part B or be subject to a late enrollment penalty, if they choose to enroll at a later date.

For Part D, the prescription drug coverage included in FEHB plans is determined to be at least actuarially equivalent to Part D, on average. Therefore, if an individual maintains FEHB coverage and at a later date decides to enroll in Part D, there is no late enrollment penalty. The same rules for late enrollment penalties also apply in the private sector. As previously mentioned, annuitants or former spouses enrolled in Medicare Parts A and B may suspend FEHB enrollment to enroll in a Medicare Advantage plan (e.g., a Medicare HMO or regional PPO), with the option to re-enroll in FEHB during open season, or sooner, if they involuntarily lose coverage or move out of the Medicare Advantage plan’s service area.

For individuals who are covered under a FEHB plan through annuitant coverage (not active employment), any Medicare coverage they have would be the primary payer and FEHB would be the secondary payer. As the secondary payer, FEHB could cover a share of Medicare deductibles and coinsurance for any services that were covered by both Medicare and the plan. Enrollees may have to pay a share of the cost-sharing or deductibles. Additionally, the plan would continue to provide reimbursement for its covered services that were not covered by Medicare.

For retirees (or spouses) over the age of 65 who do not have either Medicare Part A or B or both, FEHPB plans are the primary payer, and the plan pays hospitals and physicians based upon Medicare rates. For these individuals, the FEHB benefit payment for inpatient hospital services is equivalent to the Medicare payment (the amount of the payment before the Medicare deductible, coinsurance and lifetime limits are applied), reduced by any FEHB deductible, coinsurance, copayment or readmission certification penalty. For these individuals, the FEHB payment for physician services is the lower of the amount which is equivalent to the Medicare Part B payment, or the actual billed charges. The payment is then reduced by any FEHB deductible, coinsurance or copayment that is the responsibility of the retired individual. Hospitals may not collect, from either FEHB or enrollees, more than the amount determined to be equivalent to the Medicare payment.

For physician services, (1) participating providers may not collect from either FEHB or retired enrollees more than the total Medicare payment under the Medicare participating physician fee schedule, and (2) nonparticipating providers may not collect from FEHB plans or retired enrollees more the Medicare limiting charge amount. (Under Medicare, nonparticipating physicians can balance bill up to 15 percent higher than the fee schedule amount, but they are paid a slightly lower amount by Medicare).