Most federal retirees are eligible to enroll in Medicare at age 65. Almost all retirees are enrolled in Medicare Part A (Hospital Insurance) and many retirees are also enrolled in Medicare Part B (Medical Insurance). Federal retirees are also eligible to keep their Federal Employees Health Benefits (FEHB) program health insurance throughout retirement. For federal retirees enrolled in Medicare, Medicare is considered primary insurance, and FEHB health insurance is considered secondary insurance, or technically Medicare supplemental health insurance.
Since 2006, Medicare has offered prescription drug coverage through Medicare Part D (Prescription Drug Coverage). Medicare D was created by Congress to help those Medicare beneficiaries who have catastrophic prescription drug expenses. Those Medicare beneficiaries who do not incur catastrophic drug expenses have no reason to enroll in Medicare Part D. But like Medicare Part B, a Medicare beneficiary who does not enroll in Medicare Part D when they are first eligible will have to pay a late enrollment penalty if they enroll in Medicare Part D when they are older.
SEE ALSO: 10 Common Medicare Mistakes Federal Retirees Should Avoid
Over the years, many federal retirees who are Medicare beneficiaries have asked numerous questions about the Medicare Part D program including whether they need to enroll in Medicare Part D, deadlines for enrolling, and penalties for late enrollment. Until 2023, the Office of Personnel Management (OPM) who runs the FEHB program explained that those federal retirees who are not incurring catastrophic prescription expenses are not required to enroll in Medicare Part D. However, if at some time during his or her retirement a federal retiree enrolled in an FEHB program health insurance plan and enrolled in Medicare A only or Medicare Part A and Medicare Part B did incur catastrophic prescription drug expenses then the federal retiree could enroll in a Medicare Part D and not be subject to a Medicare Part D late enrollment penalty. The reason: All FEHB program health insurance plans have what is called creditable prescription drug coverage.
OPM Updates FEHB and Medicare Part D Coordination
Starting in late 2022, OPM encouraged FEHB program health insurance carriers to maximize value to federal retirees enrolled in the FEHB program and in Medicare. OPM pointed out that since 2020, a growing number of insurance carriers have offered a Medicare Advantage Prescription Drug Employer Group Waiver Plan (MA-PD EGWP) to FEHB program enrollees who are enrolled in Medicare Part A only or enrolled in Medicare Part A and Medicare Part B.
OPM points out that the coordination between an FEHB program health plan and its associated MA-PD EGWP allows FEHB program health insurance enrollees to benefit from the statutorily required manufacturer discounts required under Medicare Part D. The problem is that enrollment in Medicare Part D requires that a federal retiree enrolled in an FEHB health plan (that includes prescription drug coverage) has to pay a separate monthly premium for their Medicare Part D prescription drug coverage. Furthermore, the higher the federal retiree’s adjusted gross income, the more the retiree pays for Medicare Part D enrollment.
3 Ways FEHB Enrollees Benefit from Medicare Part D Eligibility
However, the Inflation Reduction Act (IRA) of 2022 (Public Law 117-169) redesigned the Medicare Part D benefit, making the environment for FEHB enrollees who are Medicare eligible to benefit from their Medicare Part D eligibility in the following three ways:
•Effective January 1, 2023, the IRA sets a $35 cap on the cost of insulin products and waives cost-sharing for Part D adult vaccines that are recommended by the Advisory Committee on Immunization Practices.
•Effective January 1, 2025, there is a $2,000 cap on a Part D enrollee’s out-of-pocket prescription drug expenses and a Medicare Part D enrollee may spread their out-of-pocket costs over the year.
•From 2024 through 2030, average basic Medicare Part D premium increases are capped at 6 percent per year.
OPM has emphasized the fact that Medicare Part D MA-PD EGWPs coordinate with FEHB health insurance plans and will provide federal retirees enrolled in Medicare the opportunity to take advantage of changes to the Medicare Part D program as described above. This coordination may make healthcare more affordable for federal retirees enrolled in a FEHB program health plan by incorporating the manufacturer discounts required by Medicare Part D.
Federal Retirees Have the Choice to Not Enroll in a Medicare Part D EGWP
A federal retiree enrolled in Medicare Part A or Medicare Part A and Medicare Part and is enrolled in an FEHB program health plan which offers a prescription drug plan has the option of declining Medicare Part D MA-PD EGWP prescription drug coverage. A reason a federal retiree would decline Medicare Part D MA-PD EGWP prescription drug coverage is because the retiree is satisfied with his or her FEHB health plan prescription drug coverage.
Note that a federal retiree who is enrolled in a Medicare Part D MA-PD EGWP loses access to his or her FEHB health plan prescription drug coverage. Another reason for declining Medicare Part D EGWP prescription drug coverage is because a Medicare Part D MA-PD EGWP has an annual deductible before the Medicare Part D MA-PD EGWP pays any of an enrollee’s prescription drug expenses. That annual deductible increases from one year to the next; for 2025, the annual deductible is $591. Therefore, a federal retiree expecting prescription drug expenses to be less than $591 during 2025 should have declined Medicare Part D MA-PD EGWP prescription drug coverage.
Those federal retirees who choose not to be enrolled in a Medicare Part D MA-PD EGWP need to contact their FEHB health insurance company during the FEHB program “open season” and formally decline enrollment in the health insurance company’s Medicare Part D MA-PD EGWP for the upcoming plan year that begins the following January 1.
Reasons Why a Federal Retiree Should Decline Medicare Part D (MA-PD EGWP)
There are three reasons why a federal retiree enrolled in Medicare Part A or Medicare Part A and Medicare Part B should decline enrollment in a Medicare Part D MA-PD EGWP:
• Medicare Part D beneficiaries whose adjusted gross income (AGI) exceeds certain limits are subject to “income-related monthly adjustment amounts” (IRMAA). However, Medicare Part D IRMAA is less than Medicare Part B IRMAA. For example, the “first income tier” Medicare Part D IRMAA of $13.70/month is far less than the “first income tier” Medicare Part B IRMAA of $74/month. A federal retiree is advised to determine whether the improved prescription drug benefits with the Medicare Part D MA-PD EGWP will offset the Medicare Part D IRMAA.
• Some retirees use prescription drug discount cards from drug manufacturers (for example, Good RX). If a retiree is enrolled in a Medicare Part D MA-PD EGWP, then the retiree loses access to drug manufacturer discount programs. Retirees who receive drug manufacturer assistance through discount cards should weigh their current discounts against the prices from the Medicare Part D MA-PD EGWP and the additional coverage that the Medicare Part D MA-PD EGWP provides.
• If a federal retiree spends time overseas, a Medicare Part D MA-PD EGWP will not provide prescription drug coverage while the retiree is overseas. For example, Federal Employees Plan (FEP) Blue Cross Blue Shield states: “Members enrolled in FEP Medicare Part D Prescription Drug Program have no coverage for drugs obtained and/or purchased overseas.” Federal retirees who travel overseas usually have emergency care while overseas. However, the portion of any medical bill associated with prescription drug costs would have to be paid out-of-pocket. Those federal retirees who travel overseas are advised to purchase separate travel insurance for health care expenses not covered by their FEHB program health insurance plan.
Federal retirees enrolled in Medicare are reminded that if they are currently not enrolled in a Medicare Part D MA-PD EGWP can join a Medicare Part D MA-PD EGWP during a future FEHB open season and will not be subject to a Medicare Part D late enrollment penalty. This is because FEHB program prescription drug coverage is considered creditable coverage.
What Federal Retirees Enrolled in Medicare and FEHB Need to Know and Do with Respect to Their Prescription Drug Coverage
1. Contact their FEHB health insurance plan and find out more about the plan’s prescription drug plan associated with Medicare Part D.
2. A federal retiree cannot drop only their FEHB program prescription drug coverage without also dropping FEHB program plan coverage for hospital and medical coverage.
3. It is always to a federal retiree’s advantage to keep their FEHB health insurance coverage throughout their retirement.
A federal retiree who is incurring significant annual out-of-pocket prescription drug expenses should check with their FEHB program health insurance plan and find out to what extent the FEHB health insurance plan offers in prescription drug expenses relief. The retiree should be specific with their prescription drug information (and for their spouse if applicable). If the FEHB program plan offers a sufficient amount of prescription drug coverage to the extent that annual out-of-pocket expenses total less than $591 (the 2025 Medicare Part D deductible; will most likely increase in 2026), then the retiree should be advised by their FEHB program health plan to not enroll in the health plan’s Medicare Part D MA-PD EGWP.
