Whether or not to enroll in Medicare Part B (medical insurance) is a key decision that federal retirees aged 65 and older have to make. Because there is a 10 percent per year monthly premium penalty for not enrolling in Part B within a few months of the enrollment deadline, federal retirees are under pressure to make a decision whether to enroll in Medicare Part B. About 70 percent of federal retirees have decided to enroll in Medicare Part B. It can be surmised that this is usually an “everybody does it” rather than well-calculated and thought-out decision.
SEE ALSO: Understanding Medicare Enrollment Periods and the Late Enrollment Penalty
It is important to emphasize that a federal retiree enrolled in a Federal Employees Health Benefits (FEHB) program health plan is not required to enroll in Medicare. The decision to enroll is entirely up to the retiree. OPM does not require federal retirees to enroll in Medicare. But for reasons discussed in this column, federal annuitants are encouraged to enroll in both Medicare Part A and Medicare Part B.
SEE ALSO: How Federal Employees Qualify For Medicare
Since federal employees can enroll in Medicare Part A (hospital insurance) at no cost (they prepaid the Part A premiums through the Medicare Hospital Insurance Tax during the years they worked) once they become age 65, there is little reason not to enroll in Part A. The only reason an employee would not enroll in Part A at age 65 is when the employee is enrolled in an FEHB program high-deductible health plan (HDHP) associated with a Health Savings Account (HSA). Once enrolled in Medicare, an employee would no longer be able to contribute to his or her HSA.
Once retired from federal service and when they are within three months of their 65th birthday, federal retirees are encouraged to enroll in Medicare Part A and Medicare Part B. While there are monthly premium costs associated with Medicare Part B, there are advantages to being enrolled in an FEHB health plan and Medicare Parts A and B, which are explained here.
The question that many federal retirees over age 65 ask: Why should I enroll in Medicare Part B, paying the monthly premium, while I am enrolled in my FEHB health plan that covers the same type of medical expenses that Medicare Part B covers? Am I “over insured”?
Generally, health plans under the FEHB program help pay for the same type of expenses as Medicare. However, some FEHB program-sponsored health plans pay for certain items that Medicare does not cover, including, but not limited to:
• Routine physicals and emergency care outside of the United States
• Some preventive services and
• Dental and vision care (provided in many Medicare Advantage plans).
Medicare may cover some medical services, medical equipment and supplies that some FEHB health plans may not cover, including but not limited to:
• Some orthopedic and prosthetic devices, and durable medical equipment.
• Home health care, and
• Limited chiropractic supplies.
Those federal annuitants over age 65 and who are enrolled in a Health Maintenance Organization (HMO) may not need to enroll in Medicare Part B. HMOs provide most medical services with minimal co-payments. But a federal retiree enrolled in an HMO may want to consider enrolling in Part B as it:
• Pays for costs involved with seeing doctors outside the HMO plan’s network..
• Pays for costs for non-emergency care in the US if travel is involved, and
• Required to be enrolled in a Medicare Advantage plan associated with an HMO or PPO. The FEHB program offers Medicare Advantage plans for federal retirees enrolled in the FEHB program. But a federal retiree must be enrolled in Medicare Part A and Medicare Part B in order to join a FEHB program-sponsored Medicare Advantage plan.
When Is an FEHB Plan the Primary Payer?
An individual’s FEHB plan must pay benefits first when the individual is an active federal employee or re-employed annuitant, and either the individual or individual’s spouse covered under the FEHP plan is enrolled in Medicare. There is an exception when the re-employed annuitant’s re-employment position is excluded from FEHB coverage or if the individual is enrolled in Medicare Part B only.
An individual’s FEHB program plan must also pay benefits first when an individual is under age 65, entitled to Medicare on the basis of disability and covered under FEHB based on the individual’s or spouse’s employment status.
When Is Medicare the Primary Payer?
Medicare must pay benefits first when an individual is a federal retiree and enrolled in Medicare. The exception is when the individual is a re-employed annuitant, and either the individual or the individual’s covered spouse is enrolled in Medicare. Medicare must pay benefits first when an individual is a former federal employee receiving worker’s compensation and the Office of Worker’s Compensation has determined that the individual is unable to return to duty, except for claims related to the worker’s compensation-covered injury or illness.
The following table summarizes the circumstances Medicare or FEHB is the primary payer:
The following example illustrates:
Robert, age 69, is a federal retiree. Robert is enrolled in Medicare Parts A and B and is also enrolled in an FEHB program PPO health insurance plan. Robert needs to visit a health care specialist for a medical issue he has. The doctor charges $1,500 for the initial consultation and subsequent medical treatment. Payment by Medicare Part B is considered primary and Robert’s FEHB program PPO health insurance plan is considered secondary.
Following Robert’s visit to the doctor, the doctor’s office submits the $1,500 charge to Medicare. The following sequence of events summarizes what happens:
1. The doctor’s office bills Medicare for Robert’s doctor services: $1,500.
2. Medicare determines the approved charges: $1,125, and
3. Medicare pays the doctor 80 percent of the approved charges. 80 percent of $1,125 equals $900.
Note that the Medicare Part B deductible ($257 during 2025) must be met before Medicare Part B pays. A federal annuitant’s FEHB plan will pay that deductible.
4. Robert’s FEHB health plan pays the uncovered $225 out-of-pocket expenses ($1,125 less $900 – the Medicare approved amount less what Medicare actually paid).
5. Robert’s doctor accepts the Medicare payment of $900 since the doctor accepts Medicare patients and therefore “accepts assignment” from Medicare.
6. Robert is responsible for paying this amount: $0.
A health care provider who accepts Medicare assignment will accept the Medicare-approved amount as payment in full. Federal retirees aged 65 and older who are not enrolled in Medicare Part B must be treated the same as those annuitants who are enrolled in Medicare Part B for medical benefit payment purposes. That means the amount doctors and other health-care providers may charge a federal retiree over age 65 no more than the Medicare -approved fee. Even with the Medicare-approved fee, a retiree who has chosen not to enroll in Medicare Part B will most likely have a deductible and co-payment to pay because the retiree’s FEHB plan will not pay the doctor’s full charges. On average, the FEHB plan will pay an average of about 60 to 80 percent. In this example with Robert, if Robert was not enrolled in Medicare Part B, then his FEHB program health plan would pay his doctor $900 and the doctor will charge Robert 15 percent of $1,175, or $176.25. This assumes that Robert has met his annual deductible for his FEHB program plan.
How FEHB Premiums Are Affected by Medicare Enrollment
At the time a federal annuitant enrolls in Medicare Parts A and B, Medicare becomes the primary payer of his or her hospital, doctor and laboratory expenses paying on average 60 to 80 percent of the annuitant’s expenses. The annuitant’s FEHB health plan will pay most – if not all -of the remaining 20 to 40 percent of the expenses, leaving the annuitant with nothing to pay out-of-pocket.
However, in spite of the fact that the annuitant is paying out-of-pocket far less than what Medicare pays, the annuitant’s FEHB program health plan insurance premiums are not reduced. This is unfortunate but there are actions explained here that an annuitant can take to reduce the FEHB premiums.
Some federal annuitants feel that because FEHB health plan premiums are not decreased when they enroll in Medicare Part B, they do feel the need to enroll in Part B. While their rationalization is logical, not enrolling in Part B is not going to result in much savings, especially if they are enrolled in an FEHB fee-for-service health plan.
An FEHB fee-for-service health plan will not necessarily cover all of a retiree’s out-of-pocket expenses. A fee-for-service plan’s payment is typically based on allowable charges and unbilled charges. In some cases, Medicare’s payment and the FEHB combined payment will not cover the full cost. A retiree’s out-of-pocket costs for Part B services will depend on whether the retiree’s doctor accepts Medicare “assignment.” When a doctor accepts Medicare patients and thereby accepts Medicare “assignment,” the retiree cannot be billed for the difference between the Medicare-approved amount and the combined payments made by Medicare and the FEHB plan. This is called “balance-billing” and is against the law.
Medicare will pay its share of the bill and the retiree’s FEHB health plan will pay its share. Some services such as medical supplies and some durable medical equipment, do not have limiting charges. With out-of-pocket expenses including deductibles, co-insurance and co-payments associated with the FEHB program expected to significantly increase during 2026 and beyond, federal retirees need to consider the cost of Medicare Part B enrollment versus the cost of not enrolling in Medicare Part B and paying significantly more out-of-pocket for their medical care needs.