Mason & Associates, LLC

Federal Employee Health Benefits Medicare Reimbursement

John Mason, CFP®

Approximately three years ago, BlueCross BlueShield began offering partial Medicare Premium Reimbursements for retired federal employees who are:

  1. Enrolled in BCBS Basic (Self, Self +1, or Family) AND
  2. Enrolled in Medicare Part A and Part B.

How much is Medicare?

Medicare Part A is typically free and is often referred to as “premium-free Part A”. Most individuals are eligible for premium-free Part A at age 65 if:

  1. You already receive retirement benefits from Social Security , CSRS or the Railroad Retirement Board
  2. You’re eligible to receive Social Security, CSRS or Railroad retirement benefits but haven’t filed for them yet.
  3. You or your spouse had Medicare-covered government employment.

Medicare Part A is free if an individual has paid Medicare taxes for 40 quarters or more.  If one does not qualify for premium-free part A they have the ability to purchase Part A:

  1. Medicare Taxes Less than 30 quarters- $458/month
  2. Medicare Taxes between 30-39 quarters- $252/month
  3. Medicare Taxes 40 quarters or more- $0/month

Medicare Part B has a range of premiums based on family adjusted gross income. The standard monthly Part B premiums is $144.60 per person but can be as high as $491.60 per month if one is subject to an Income Related Monthly Adjustment Amount (IRMAA).  Essentially, the higher the income you earn in retirement, the higher your Medicare Part B premiums will be (mean’s testing).  Although we can’t discuss in depth today, the financial planners at Mason are well aware of the income thresholds when one is subject to IRMAA and we begin planning for IRMAA at the creation of the financial plan.  We’ve found that many individuals delay distributions from the Thrift Savings Plan, 401(k), or IRA until mandated distributions are required at age 72.  This delay in realizing income can create a tax problem but also an IRMAA problem.  The financial planners at Mason & Associates are actively looking at Roth conversion opportunities to help our clients remain below the IRMAA threshold and also take advantage of historically low tax rates.

How much is FEHB?

This depends on the company selected as well as type of coverage (Self, Self +1), or Family).

Current cost of BCBS: https://www.fepblue.org/benefit-plans/compare-plans-2020

Please remember that in order to be eligible for the Medicare Reimbursement Account one must be enrolled in a version of Basic.

How much is the Reimbursement?

The reimbursement for Basic Option Members for Medicare Part B premiums in 2020 is $800 per person, increased from the original $600 per person reimbursement established in 2018.

BCBS Medicare Reimbursement Account QuickStart Guide

BCBS Medicare Reimbursement Account Login / Register

How to Register

Register for your Medicare Reimbursement Account online.  If you have any questions, call 1-888-706-2583 weekdays from 8 a.m. and 8 p.m. Eastern time, excluding holidays.

  • You will need your 4-digit ID code.  Your ID code is a combination of your day of birth (DD) and the last 2 digits of your SSN.  For example, if you were born on the 8th day of the month and the last 2 digits of your SSN are 12, your ID code is 0812.
  • After you register, you will get 24/7 access to your account and you will be able to elect to receive notifications of important updates and alerts.
  • You will not need to re-register every year.  Simply log in using your existing username and password.

Action and Analysis

Are you a retired federal employee who is enrolled in BCBS Basic and enrolled in Medicare Part B?  If so, you’re eligible for a reimbursement of $800 per person.  Did you meet the same criteria in 2019?  If so, you have until December 31, of 2020 to submit your claim for 2019.  Claims can be submitted a variety of ways as outlined here.

BlueCross BlueShield is not the only provider offering this program to federal employees.  It is our understanding that Government Employees Health Association, Inc. (GEHA) offers a similar program but we have not found it to be as beneficial to our clients.

Individuals enrolled in Medicare Part B and BCBS Standard or Blue Focus are not eligible for the Medicare Reimbursement Account.  If you fit this category, we encourage you to review your options during the Open Season in November of 2020 and potentially switch to BCBS Basic.  Although we do not advise clients on which health plan to select, we are comfortable in saying that our clients who are enrolled in Basic and Part B are happy.  There are circumstances where the combination of Basic and Part B may not be sufficient and we encourage all readers and clients to assess the options for themselves.  Keep in mind, your FEHB coverage can change every year during the Open Season.

Federal Employees covered by FEHB are not forced to sign up for Part B coverage if they are eligible to maintain health benefits in retirement.  The financial planning team at Mason & Associates provides advice on this topic on a case by case basis.  The default recommendation is to enroll in Part B, but we have advised not taking Part B coverage in certain situations.  Why is Part B our default?

  • Annual Medicare Cost = $144.60 x 12 = $1,735.20
    • Less $800 Reimbursement
    • Total Medicare Part B Premium = $935.20

$935.20 is an inexpensive premium for adding Medicare Part B coverage.  In this instance, Medicare becomes the primary insurance and FEHB becomes the secondary.

Please don’t forget to submit your claims if you’re already eligible for the reimbursement account.  If you’re not eligible in 2020, consider your options for 2021 during the November 2020 open season.

We address this topic with our clients during our Strategic Financial Planning Meetings as well as during the creation of the initial financial plan.  We can’t plan in a vacuum because every decision has ripple effects throughout the entire financial plan.  How can one decision, such as switching from Standard to Basic or enrolling in Medicare Part B be so complicated?

  • Are you eligible to maintain FEHB in retirement? Unfortunately we’ve seen retired federal employees who did not satisfy the requirement to maintain the coverage.
  • Are you planning on maintaining FEHB in retirement and declining Medicare Part B?
    • What was your decision on Survivor Benefits? Would your nonfederal employee spouse lose FEHB coverage if you were to predecease?
  • What is your projected RMD requirement?
    • How will this impact your adjusted gross income and IRMAA?
  • When will you claim Social Security Retirement Benefits?
    • Is there a tax planning opportunity between 62 and potentially delaying Social Security until age 70?
    • Should one consider Roth IRA conversions during this 8 year period?

The bullet points above illustrate how a seemingly simple question can become increasingly more complicated.  A comprehensive financial plan will address all of these questions and more.  Click here to start your financial plan by scheduling an introductory meeting with a member of our financial planning team.

 

Sources:

https://www.geha.com/
https://www.fepblue.org/benefit-plans/medicare/medicare-reimbursement-account https://www.fepblue.org/benefit-plans/medicare/-/media/pdfs/other/2020_mra_qrg_interactive.pdf

https://www.medicare.gov/

https://www.fepblue.org/