How does retiree health insurance work with Medicare?

How does retiree health coverage work with Medicare?

If you have both retiree health insurance and Medicare, Medicare generally pays first and the retiree plan pays second. That means Medicare becomes your primary coverage, paying up to its coverage limits. Then the retiree plan pays if you have expenses that Medicare doesn't cover, which could include deductibles and copayments.

The details of retiree coverage can vary a lot by company. However, some plans cover expenses that aren’t included in Medicare, such as dental and vision care. Contact your retiree plan administrator for details.

Retiree insurance may not cover all of Medicare’s out-of-pocket costs. But if you have retiree coverage, you typically don’t need to buy a Medicare supplement policy, better known as Medigap.

How is federal retiree health insurance different?

Retired federal employees covered under the Federal Employees Health Benefits (FEHB) program aren’t required to enroll in Medicare. Your federal retiree coverage can continue to be your primary coverage if you don’t sign up for Medicare.

Consider Part A. If you aren’t required to pay a premium for Part A, you may want to sign up for Medicare at age 65 or when you leave your federal job if you work beyond 65. The federal Office of Personnel Management encourages federal retirees to enroll in Part A if their premiums are free. 

Think carefully about whether you want to delay enrolling in Part B, because doing so could come with a penalty if you change your mind later. Part B costs $164.90 a month in 2023. It costs more if you’re single and your modified adjusted gross income is higher than $97,000 or higher than $194,000 if married and filing jointly.

You can continue to receive full coverage from the FEHB after 65, unlike other types of retiree benefits that may not pay unless you enroll in Medicare. But if you decide to get Part B later — if, for example, you think your federal health benefits have become too expensive compared to Medicare — you could get stuck with a late enrollment penalty.

The reason? You didn’t have coverage from an active employer during that time.

Complementary coverage. If you decide on both Medicare and FEHB retiree benefits, Medicare will pay first and the FEHB becomes secondary. The FEHB may cover Medicare’s deductibles and copayments, and it may provide additional benefits that Medicare doesn’t, such as dental and vision care and some emergency care outside of the United States.

Medicare will pay some of the costs for products and services that your FEHB plan may not cover, including specific medical equipment and supplies, home health care, and orthopedic and prosthetic devices. See the Office of Personnel Management’s FEHB and Medicare guide for more information about coordinating the two types of coverage.

Keep in mind

Prescription coverage. The rules are different for Part D prescription drug coverage. In this case, it doesn’t matter whether your drug coverage is from an active employer, a former employer or another source. If you have prescription coverage that’s considered to be at least as good as Part D, which the federal government considers “creditable” coverage, you don’t have to sign up for Part D.

Ask your former employer if your drug coverage qualifies. You also should receive a letter from your drug plan every September that shows whether your plan is creditable coverage.

Retiree coverage isn’t guaranteed for life. If you lose that drug coverage, you’ll be eligible for a two-month special enrollment period when you can sign up for Part D coverage without a late enrollment penalty.

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