During March 2022, both the House of Representatives and the Senate passed the Postal Service Reform Act of 2022. President Biden signed the legislation into law during the first week of April 2022.
While the legislation mainly addresses the finances and operations of the US Postal Service (USPS), the legislation has a provision that could in the not-too-distant future affect current and future federal retirees.
In particular, the legislation requires USPS retirees enrolled in the Federal Employees Health Benefits (FEHB) program to also enroll in Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) when they are first eligible (for almost all retirees, when they become age 65). Those USPS employees who work past age 65 will not be required to enroll in Medicare until right after they retire from the USPS.
It is important to emphasize that all current federal and postal service retirees have a choice as to whether they want to enroll in Medicare Parts A and B when they become age 65. While most federal retirees do enroll in Medicare Parts A and B when they become age 65 (or immediately after they retire from federal service if they retire from federal service after age 65), enrolling in Medicare Part B is somewhat of a challenging question.
This is because a retiree must pay (together with their FEHB monthly premium) a monthly premium for Medicare Part B enrollment. The monthly Medicare Part B premium is dependent each year on the retiree’s income. The higher the retiree’s modified adjusted gross income (MAGI) in any year, the higher the retiree’s Medicare Part B monthly premium in the following year.
During 2022, Medicare Part B enrollees pay a minimum $170.10 per month, and as much as $578.30 per month, depending on the enrollee’s MAGI. Almost all federal retirees pay no monthly premium for Medicare Part A because they have paid the Medicare Hospital Insurance payroll tax (1.45 percent of salary) for at least 10 years.
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Many health insurance professionals recommend that federal retirees enroll in both an FEHB health plan together and in the “original” Medicare (Medicare Parts A and B). In so doing, they will minimize -and for most federal retirees – eliminate any out-of-pocket medical expenses. This means no deductibles, no co-insurance, no co-payments.
The downside to this arrangement is that a federal retiree has to pay a monthly premium for both the FEHB insurance and the Medicare Part B premium. It should be emphasized that FEHB enrollees pay on average 25 to 28 percent of their FEHB plan premiums (no matter which FEHB plan they are enrolled in) with the federal government pay the other 72 to 75 percent. This is in itself a significant benefit to a federal retiree, almost unheard of in private industry.
The Postal Reform Act provides for the coordinated enrollment of postal service retires under the FEHB program and Medicare. Current USPS retirees who are not enrolled in Medicare (perhaps enrolled in Medicare Part A but not in Medicare Part B) will have a special period during which they can choose to enroll in Medicare Part B with no late enrollment penalty. They can choose not to enroll in Medicare Part B and continue with FEHB coverage alone. But if they later decide to enroll in Medicare Part B, they will then be subject to a late enrollment penalty.
While the Postal Service Reform Act has no effect on current federal retirees with respect to FEHB program participation and cost, chances are good that both current and future federal retirees will be affected by similar reforms in the near future.
Currently, federal retirees are not required to enroll in Medicare once they are eligible. But there have been, and likely will continue to be, indications that a federal retiree’s enrolling in Medicare is to their advantage.
The following are some reasons:
• FEHB premium costs are likely to increase significantly in the coming years due to the recent surge in inflation. In recent years, FEHB premium costs have not risen as much as they had been prior to the COVID pandemic in 2020.
• Those retirees who are enrolled in Medicare together with their FEHB insurance pay next to nothing with respect to their out-of-pocket medical expenses. With Medicare Parts A and B as primary insurance (paying on average 60-80 percent of doctor and hospital costs) and FEHB insurance as secondary insurance paying the other 20-40 percent, a federal retiree will likely pay nothing out-of-pocket for the doctor and hospital bills.
• While a retiree who is enrolled in Medicare has to pay both FEHB premiums and the Medicare Part B premiums, there are some FEHB plans in which the plan will reimburse the retiree for the monthly premium cost of Medicare Part B. In addition, since Medicare is considered to be the “primary” payer and the FEHB plan insurance is considered to be “secondary” payer of medical expenses, a federal retiree may want to consider enrolling in less expensive FEHB insurance. For example, switching from a “low deductible” to a “high deductible” or from a “standard” to a “basic” health insurance plan.
• The mere fact that in recent years OPM has permitted some FEHB insurance carriers to offer Medicare Advantage Plans is an indication that OPM is encouraging retirees over age 65 to enroll in “original” Medicare (Medicare Parts A and B). Note that Medicare Advantage offers the normal HMO arrangement (all-encompassing health care provided through a network of doctors and hospitals in a particular geographic or service area) together with expanded dental and vision benefits. By enrolling in a Medicare Advantage Plan, a federal retiree could save significantly by not having to enroll in separate dental and vision insurance. But in order to enroll in Medicare Advantage, a retiree must be enrolled in Medicare Parts A and B. Medicare Advantage Plans (Medicare Part C) are also offered outside the FEHB program. Federal retirees could choose to participate in an outside Medicare Advantage Plan in a particular year by suspending their FEHB enrollment and later returning to the FEHB program if they choose. Once again, the federal retiree would have to be enrolled in Medicare.
The FEHB insurance program is likely to go through some changes over the next few years. The question will likely be just as future USPS retirees will be required to enroll in Medicare Parts A and B at age 65, will that requirement be extended to all federal employees? Given the strong possibility of future above-average costs in health care, it is likely that the requirement for enrolling in Medicare A and B will be extended to federal retirees.
It should be noted that retired members of the Uniformed Services who are eligible to be enrolled in TriCare (a group health insurance program similar to the FEHB program) are required to enroll in Medicare Parts A and B when they (and their spouses) become age 65 in order to be covered by TriCare-for-Life.
If a retired member of the Uniformed Services does not enroll in Medicare Parts A and B, their TriCare enrollment will suspended. There is no monthly premium cost for TriCare-for-Life (considered to be secondary coverage to Medicare which is considered primary coverage for a Uniformed Services retiree and a spouse).
Federal employees who plan to retire from federal service within the next 5 to 20 years are advised to prepare and understand the issues related to their future enrollment in Medicare. Among the items they should understand is the coordination between Medicare and FEHB enrollment and what to do between now and when they enroll in Medicare in order to minimize their Medicare Part B monthly premiums.
Since Medicare Part B monthly premiums will depend on a future retiree’s MAGI, employees are advised to make some moves between now and the time they are eligible to enroll in Part B in order to decrease their future MAGI. One suggestion to minimize future MAGI is for employees to contribute more to the Roth TSP and to Roth IRAs. All qualified distributions from the Roth TSP and Roth IRAs will not be included in income and MAGI, and therefore will have no effect on Medicare Part B premiums.
