Are Federal Employees Being Auto-Enrolled in Medicare Part D?

If you’re enrolled in a Federal Employee Health Benefits (FEHB) plan that now offers Medicare Part D coverage, you might be automatically enrolled when eligibleeven if you didn’t actively sign up.

The question our advisors at Plan Your Federal Retirement are getting most often right now is:

“Do I even need Medicare Part D if I already have FEHB and Medicare?”

Let’s dive in.

Understanding Medicare and Its Many Parts (for Federal Employees)

When you reach age 65, you become eligible for Medicare, the federal health insurance program that primarily covers retirees and certain disabled individuals.

Medicare is funded through payroll taxes during your working years, meaning most people have already paid for Part A through paycheck deductions. That’s why most retirees don’t pay a monthly premium for Part A.

However, Medicare is made up of several parts, each covering something different and each with its own costs and rules.

Part A – Hospital Insurance

Covers: Inpatient hospital stays, skilled nursing, hospice, and some home health care.
Cost: Usually premium-free if you paid Medicare taxes while working.
Enrollment: At age 65 or within 8 months after you stop working, provided you had employer coverage such as FEHB.

Part B – Medical Insurance

Covers: Doctor visits, outpatient care, lab work, preventive services, and durable medical equipment.
Cost: Monthly premium based on income (known as IRMAA – Income-Related Monthly Adjustment Amount). The higher your taxable income, the more you pay. Most retirees have their premiums deducted from Social Security.
Enrollment: Optional, but timing matters. Late enrollment can trigger lifetime penalties.

Now, having FEHB doesn’t mean you must enroll in Part B. It means you need to evaluate whether it’s the right move for your family. Medicare is not one-size-fits-all.

Part C – Medicare Advantage

Private plans approved by Medicare that bundle Parts A and B (and often D).
Covers: Everything in A and B, sometimes including vision, dental, hearing, and prescriptions.
Cost: Varies by plan, and you still pay your Part B premium.

Part D – Prescription Drug Coverage

Covers: Outpatient prescription drugs.
Offered by: Private insurers approved by Medicare.
Cost: Monthly premiumsometimes with an additional IRMAA surcharge for higher incomes.

How Taxes Affect Your Medicare Costs

Many federal employees assume they’ll pay less in taxes after retiring, but that’s not always the case.

Your retirement income could come from multiple taxable sources:

• FERS Pension
  
  
• Social Security
  
  
• Thrift Savings Plan (TSP)
  
  
• Traditional IRA or 401(k) distributions
  
  

Each source impacts your Medicare IRMAA brackets, potentially increasing your Medicare premiums.

Designing a multi-year tax plan can help manage these costs. This is a cornerstone of the retirement planning we teach federal employees because lower income taxes in retirement aren’t guaranteed.

How FEHB and Medicare Work Together

You can continue your FEHB coverage in retirement, and it’s arguably one of your best benefits as a federal employee.

Eligibility Requirements

To keep FEHB after retirement, you must:

• Retire with an immediate pension (annuity).
  
  
• Be enrolled in FEHB for the five years immediately before retirement (or since your first opportunity).
  
  
• Be enrolled in FEHB on the day you retire.
  
  
• If you want your spouse to continue coverage after your death, they must be on your FEHB plan and receive a survivor annuity.
  
  

Note: OPM calls your pension an “annuity.” I call it what it is – a pension. Don’t confuse it with an investment annuity.

How FEHB and Medicare Coordinate

If You’re Still Working:
FEHB pays first; Medicare pays second (if you’ve enrolled).

If You’re Retired:
Medicare (Parts A and B) pays first; FEHB pays second, covering copays and gaps Medicare doesn’t.

This coordination often gives retirees robust coverage with very low out-of-pocket expenses.

Why Would FEHB Want You to Move to Medicare Part D?

Some FEHB carriersincluding Blue Cross Blue Shieldare now automatically enrolling eligible retirees into Medicare Part D Employer Group Waiver Plans (EGWPs).

Why? Because it saves money for both the federal government and the insurance carrierwithout reducing your benefits.

Here’s how:

• When your FEHB plan adds a Medicare Part D component, Medicare helps pay for your prescriptions.
  
  
• The FEHB carrier receives reimbursements and subsidies from Medicare for those drug costs.
  
  
• That lowers the plan’s overall expenses and helps stabilize premiums for all enrollees.
  
  

So, while it’s not “good” or “bad,” it’s a financial leveryour coverage stays similar, but the cost-sharing between FEHB and Medicare shifts.

The Catch: IRMAA and Part D Costs

Because Part D premiums are income-based (thanks again, IRMAA), high-income retirees may pay more for prescription coverage under this model.

That’s why it’s crucial to evaluate your personal situation and determine:

• Whether to stay in your FEHB’s new Part D option
  
  
• Or opt out and keep traditional FEHB drug coverage
  
  

Either way, understanding the tax and income ripple effects is key.

Making an Informed Decision

Like every other aspect of your federal benefits, this is one more puzzle piece.

As a federal employee or retiree, your FERS pension, TSP, Social Security, and FEHB all work together. A change in one area (like Medicare Part D) can affect your entire retirement plan.

We encourage all Feds to talk with a qualified federal benefits specialist before making any changes to Medicare or FEHB enrollment. Getting personalized guidance can prevent costly mistakes and keep your coverage aligned with your goals.

Official Government References

Office of Personnel Management. (n.d.). Medicare prescription drug plan. U.S. Office of Personnel Management. https://www.opm.gov/healthcare-insurance/healthcare/medicare/medicare-prescription-drug-plan/

Office of Personnel Management. (n.d.). Annuitant – Medicare. U.S. Office of Personnel Management. https://www.opm.gov/healthcare-insurance/healthcare/medicare/annuitant/

Office of Personnel Management. (n.d.). FastFacts: FEHB & Medicare. U.S. Office of Personnel Management. https://www.opm.gov/healthcare-insurance/fastfacts/fehbmedicare.pdf