Many federal retirees wonder whether enrolling in Medicare Part B at age 65 is necessary if they already have Federal Employees Health Benefits (FEHB) coverage. While it might seem like Medicare Part B is not required, there are crucial differences between the two programs that could significantly affect healthcare costs in retirement.
How FEHB and Medicare Part B Work Together
FEHB plans provide excellent health coverage for federal employees and retirees. However, once you turn 65, Medicare becomes available. Medicare Part B covers doctors’ visits, outpatient care, and some preventive services, while FEHB plans may cover similar services, though not always in the same way.
There is a lot of overlap between FEHB and Medicare Part B, but they are not identical. After age 65, many healthcare providers expect Medicare to be the primary payer. If you do not have Medicare Part B when it is expected, you may face significant out-of-pocket costs because your FEHB plan might not cover the full amount.
A Real-World Example
Consider the story of “Bob,” who kept his FEHB Blue Cross Blue Shield plan but did not enroll in Medicare Part B at age 65. After a surgery at age 65, his FEHB plan covered the costs. However, five years later, Bob needed another surgery. This time, the hospital told him he would have to pay $15,000 out of pocket before the surgery because he did not have Medicare Part B. His FEHB plan now considered Medicare Part B as the primary payer, so it did not pay the full cost. Bob eventually enrolled in Medicare Part B to avoid the large bill, but because he delayed enrollment, he had to pay a penalty of 10% for each year he waited, which increased his monthly premium permanently.
Why Coverage Changes After Age 65
The main risk isn’t that Medicare Part B covers different services, but that insurance billing rules change after age 65. Providers and insurance companies typically expect Medicare to pay first. If you don’t have Medicare Part B, you may be left with significant bills that your FEHB plan will not cover.
If you enroll late in Medicare Part B (after you are first eligible and not covered by active employment), you will incur a 10% penalty for every 12 months you delayed enrollment. This penalty is added to your monthly premium for life.
What If You Skip Medicare Part B?
Choosing not to enroll in Medicare Part B could result in higher out-of-pocket medical costs. Experts suggest setting aside $8,000 to $10,000 per year to cover potential uncovered expenses. Some retirees may be comfortable with this risk, but it’s essential to understand the potential financial consequences.
Are There Financial Benefits to Enrolling in Part B?
Yes, some FEHB plans, such as Blue Cross Basic, offer incentives for enrolling in Medicare Part B. These benefits may include reimbursement for Part B premiums and the waiving of deductibles and copays when you have both FEHB and Medicare Part B. In some cases, you may even be able to switch to a less expensive FEHB plan that works well with Medicare, resulting in savings on premiums.
Final Thoughts
Medicare Part B is not just about extra coverage—it’s about ensuring your health coverage works seamlessly with FEHB. After age 65, many providers and insurance companies expect Medicare to be your primary insurance. If you are unsure about the best decision for your situation, consider consulting with a financial advisor who understands federal benefits. They can help you evaluate the risks and benefits as part of your overall retirement plan.
ABOUT THE AUTHOR
Micah Shilanski, CFP®, is a distinguished financial planner known for his deep commitment to providing exceptional advisory services to his clients. As the founder of Plan Your Federal Retirement, Micah has dedicated his career to helping federal employees understand and optimize their benefits to ensure a secure and prosperous retirement. His expertise is widely recognized in the industry, making him a sought-after speaker and educator on financial planning and retirement strategies.
Micah’s approach is client-centered, focusing on creating personalized strategies that address each individual’s unique needs. His work emphasizes the importance of comprehensive planning, incorporating aspects of tax strategy, investment management, and risk assessment to guide clients toward achieving their financial goals.Micah Shilanski 00:01
You’ve worked for the federal government, you have great health insurance, FEHB, you go out on retirement eligible to keep that health insurance. So why the heck do you need this Medicare thing at 65 and do you really need Medicare Part B? Well, if you’ve ever wondered the answer to that question, then stay tuned for this FERS Federal Fact Check. Hi, I’m Micah Shilanski with Plan Your Federal Retirement and welcome to today’s FERS Federal Fact Check. We have an excellent question from Russell, and this is a question I get all of the time, and I understand it. It’s very complex on one hand, and other things, your benefits are changing, but they shouldn’t. So why does this take place? Let’s look at what Russell has asked: Do I need Medicare Part B, if I have FEHB? I find it hard to believe that Medicare Part B covers something that my FEHB does not. So please provide some exact examples of the gaps and medical surprises where my FEHB does not cover something that is already covered by Medicare Part B. Boy, that is a great question, Russell, I am going to share my experiences that I have had with clients with you that is the best evidence that I can give you, and take it for what it is. If you don’t want to believe me, then that’s okay. And at the end of this, I’ll talk to my clients I really don’t want Medicare, and how we go about planning for that. I had a client. We’ll call him Bob. Bob went to retire 65 had all of the great service had FEHB, etc. We had a Medicare conversation. I said, Bob, you really need Medicare Part B. He disagreed with me. Long story short, he opted not to. I said, Hey, there’s a penalty if you don’t do it. And his comment is, Micah, I’ve had FEHB my entire life. There’s no reason that Medicare Part B is going to provide me any additional benefit. He went and got shoulder surgery done that next month, let me know very well that FEHB covered everything. It was fantastic. There was no problems whatsoever. Five years later, he’s now 70 years young, he goes and needs to get the other shoulder done. Same type of procedure, same physician, same surgery center, everything’s the same. After he goes in for his initial visit, they go to the billing departments back up. They said, Oh, by said, Oh, by the way, you need to pay $15,000 before we can do surgery. No, you don’t understand, I have the FEHB insurance, Blue Cross, Blue Shield, and they’re going to cover it. And she’s like, No, because you’re not under Medicare, you have to pay the $15,000 out of pocket. This is my concern. It’s not Russell so much what I know today, it’s what I see insurance companies doing, and what do they do when they are if there’s any opportunity for them not to pay the bill, they say someone else is obligated to do that. And we see these changes in coverage is happening a little bit more and more and more. Now, maybe it’s a little bit more for me, because I live in Alaska, and our cost of medical is quite high. So we’re seeing some of these disparities kind of drawn out, but I’ve also seen it with clients in the lower 48. So what Bob had to do is he contacted me, he told me this, and I said, Alright, Bob, well, here’s what we’re going to do. We’re going to go sign up for Medicare. Unfortunately, you’re five years delayed. That’s a penalty of 10% per year. That’s a 50% permanent penalty on his Medicare Part B premium that never goes away. We got signed up for Medicare Part B, we then went back. He did not have to pay that $15,000 out of pocket. So Russell, my concern is these types of stories, and I have dozens of them that I could share that come up. So if you really don’t want Medicare Part B, not a problem. I tell my clients that don’t want this, we need to budget eight to $10,000 a year in expenses that will not be covered. Now, as long as you’re okay with that, well, financially you can afford that, you’re probably going to be okay. Are we rolling the dice a little bit? Absolutely we are right, because we don’t know what these changes are going to be. That’s why I default to Medicare Part B. The other thing to think about, Russell, depending on where you’re at, there are some really good FEHB plans, I’ll pick on Blue Cross, because that’s what most people have, is moving from the standard plan to the basic plan. And in the basic plan, it has a reimbursement for Medicare Part B, and the premium is less, and then all your deductibles and co pays are kind of waived if you’re under Medicare Part B. So there are some ancillary benefits there. I totally get the confusion and the frustration with it. So again, that’s just our thoughts coming from Alaska, and what we see working with federal employee clients across the globe, and why we continue to recommend that Medicare Part B to our retirees. If you have a question like Russell’s, then jump on our website – plan-your-federal-retirement.com and leave some comments, and you could be featured in our next FERS federal fact check. Till then. Happy planning.