Do Federal Retirees Need Medicare Part D? When to Decline Your FEHB Plan’s Part D Coverage

 

Federal retirees are eligible to enroll in Medicare when they become age 65. Almost all retirees enroll in Medicare Part A (Hospital Insurance) and many enroll in Medicare Part B (Medical Insurance). For those federal retirees enrolled in Medicare who keep their Federal Employees Health Benefits (FEHB) program health insurance during retirement, Medicare is considered primary insurance and FEHB coverage is considered secondary insurance (technically called Medicare supplemental health insurance). Any individual enrolled in Medicare is called a Medicare beneficiary.

SEE ALSO: 10 Common Medicare Mistakes Federal Retirees Should Avoid

Since 2006, Medicare has offered prescription drug coverage through Medicare Part D (Prescription Drug Coverage). Congress created Part D to help Medicare beneficiaries who incur catastrophic prescription drug expenses. Beneficiaries who do not incur catastrophic drug expenses have no reason to enroll in Part D. But like Part B, a Medicare beneficiary who does not enroll in Part D when first eligible could be subject to a late enrollment penalty if they enroll later. The rules on Medicare enrollment periods, deadlines and penalties explain how those penalties work.

Over the years, federal retirees who are Medicare beneficiaries have asked numerous questions about Part D, including: (1) Does a federal retiree have to enroll in Medicare Part D?; (2) What is the deadline for enrolling in Medicare Part D?; and (3) What are the penalties for late enrollment?

Until 2023, the Office of Personnel Management (OPM) explained that federal retirees who are not incurring catastrophic prescription expenses are not required to enroll in Part D. If a retiree enrolled in an FEHB plan and Medicare does incur catastrophic prescription drug expenses, the retiree can enroll in Part D at that point without a late enrollment penalty. The reason: all FEHB plans have what is called creditable prescription drug coverage.

OPM Updates FEHB and Medicare Part D Coordination

Starting in late 2022, OPM encouraged FEHB carriers to maximize value for federal retirees enrolled in both the FEHB program and Medicare. OPM pointed out that since 2020, a growing number of carriers have offered a Medicare Advantage Prescription Drug Employer Group Waiver Plan (MA-PD EGWP) to FEHB participants enrolled in Medicare. Details are on the OPM Medicare page.

OPM explained that coordination between an FEHB plan and its associated MA-PD EGWP allows enrollees to benefit from the manufacturer discounts required by law under Part D. The problem is that enrolling in Part D requires a retiree in an FEHB plan (which already includes prescription drug coverage) to pay a separate monthly premium for the Part D coverage. Furthermore, the higher the retiree’s adjusted gross income, the more the retiree pays. This is because Part D premiums, like Part B premiums, are subject to surcharges called Income-Related Monthly Adjustment Amounts (IRMAA).

The Inflation Reduction Act of 2022

A downside of Part D during its first 15 years was that there was no definite out-of-pocket cap on costs, no drug price negotiation, and no mechanism for the federal government to mitigate drug price increases. The Inflation Reduction Act of 2022 (IRA) included several key changes to Part D that advanced consumer protection. In short, the IRA helps Part D beneficiaries save money by limiting cost sharing and bringing drug prices down. These two areas are discussed in more detail below.

Limiting Cost Sharing

Effective January 1, 2025, Medicare Part D has a beneficiary out-of-pocket cap (maximum payment). The cap is indexed annually for increases in prescription drug costs. For 2025, the cap was $2,000. During 2026, the cap increased to $2,100. This change brought Part D in line with Medicare Advantage plans, which are also offered by private insurance companies and are subject to annual out-of-pocket maximums. The redesign of Part D also created the option for beneficiaries to pay their deductibles and copays in monthly installments rather than all at once.

Insulin is an example of limited cost sharing. Since January 2023, insulin costs for beneficiaries have been capped at $35 per month. The impact was dramatic. Between January 1, 2023 and April 30, 2023, Part D beneficiaries between age 65 and 74 filled nearly 4,000 more prescriptions per month than they did during the last four months of 2022.

In addition, several preventive adult vaccines were made free for Part D beneficiaries starting January 1, 2023. These included preventive vaccines for shingles, respiratory syncytial virus (RSV), Tdap, and hepatitis A and B. The result is that all vaccines covered under Part D now have zero-dollar cost sharing. Data from the U.S. Department of Health and Human Services showed this change improved vaccine uptake and saved Part D beneficiaries over $400 million during 2023.

Decreasing Drug Prices

The IRA put in place two programs that bring down prescription drug prices: the Drug Price Negotiation program and the Part B Rebate program.

The Drug Price Negotiation program allows the federal government to negotiate prices for the high-cost drugs that drive most of Medicare spending. Those include drugs that millions of beneficiaries need to treat cancer, diabetes, blood clots, heart failure, autoimmune conditions and chronic kidney disease. The negotiated prices for the first set of drugs went into effect January 1, 2026. The drugs selected for the next two cycles of negotiation, which take effect in 2027 and 2028, have also been announced. Early analysis (mid-2026) shows the new program is boosting access and lowering costs. The first set of negotiated prices is expected to save Medicare beneficiaries $1.5 billion in annual out-of-pocket costs and reduce Medicare spending by $6 billion a year.

The Part B Rebate program penalizes drug companies that raise prices faster than the rate of inflation. It also allows some Medicare beneficiaries to pay less for rebate-eligible drugs. The IRA sets coinsurance amounts for these drugs based on what the drug would have cost Medicare without price increases that outpaced inflation. The Centers for Medicare & Medicaid Services (CMS) determines which Part B drugs are subject to this adjustment on a quarterly basis.

The IRA’s redesign of Part D benefits FEHB enrollees who are Medicare-eligible in three ways:

• Effective January 1, 2023, the IRA sets a $35 cap on the cost of insulin products and waives cost sharing for adult Part D vaccines recommended by the Advisory Committee on Immunization Practices.
• Effective January 1, 2025, there is a $2,000 cap (adjusted annually) on a Part D enrollee’s out-of-pocket prescription drug expenses, and enrollees may spread their out-of-pocket costs over the year.
• From 2024 through 2030, average basic Part D premium increases are capped at 6 percent per year.

OPM has emphasized that MA-PD EGWPs coordinate with FEHB plans and give federal retirees enrolled in Medicare the opportunity to take advantage of these Part D changes. This coordination may make health care more affordable for retirees in FEHB plans by incorporating the manufacturer discounts required by Part D.

Federal Retirees Can Choose Not to Enroll in a Part D EGWP

A federal retiree enrolled in Medicare and in an FEHB plan that offers a prescription drug plan has the option of declining the MA-PD EGWP drug coverage. One reason to decline is satisfaction with the FEHB plan’s prescription drug coverage. A retiree who enrolls in the MA-PD EGWP loses access to the FEHB plan’s prescription drug coverage.

Another reason to decline is that the MA-PD EGWP has an annual deductible that must be met before the plan pays any of the beneficiary’s prescription drug expenses. The deductible increases from one year to the next: for 2025 the annual deductible was $591, and during 2026 it is $615. Medicare will soon announce what the deductible will be for 2027. A federal retiree expecting prescription drug expenses of less than $615 during 2026 should have declined the MA-PD EGWP. Retirees who choose not to enroll need to contact their FEHB carrier during the 2026 FEHB open season and formally decline enrollment in the carrier’s MA-PD EGWP for the plan year that begins January 1, 2027.

There are three reasons a federal retiree enrolled in Medicare Part A, or in Parts A and B, may want to decline an MA-PD EGWP:

• Part D beneficiaries whose adjusted gross income (AGI) exceeds certain limits are subject to IRMAA. Part D IRMAA is less than Part B IRMAA (see the Medicare income-related drug premium chart). For example, the “first income tier” Part D IRMAA of $13.70 per month is far less than the first-tier Part B IRMAA of $74 per month. A federal retiree should determine whether the improved prescription drug benefits of the MA-PD EGWP will offset the Part D IRMAA. Retirees who believe their premiums are too high can learn how to appeal Medicare Part B and Part D premiums.
• Some retirees use prescription drug discount cards from drug manufacturers, such as GoodRx. A retiree enrolled in an MA-PD EGWP loses access to manufacturer discount programs. Retirees who receive manufacturer assistance through discount cards should weigh their current discounts against the prices and additional coverage offered by the MA-PD EGWP.
• If a federal retiree spends time overseas, an MA-PD EGWP will not provide prescription drug coverage while the retiree is abroad. For example, the Federal Employee Program (FEP) of Blue Cross Blue Shield states: “Members enrolled in FEP Medicare Part D Prescription Drug Program have no coverage for drugs obtained and/or purchased overseas.” Federal retirees who travel overseas usually have emergency care coverage, but the portion of any medical bill tied to prescription drugs would have to be paid out of pocket. Retirees who travel overseas are advised to buy separate travel insurance for health care expenses not covered by their FEHB plan.

Federal retirees enrolled in Medicare who are not currently enrolled in an MA-PD EGWP can join one during a future FEHB open season without a Part D late enrollment penalty. This is because FEHB prescription drug coverage is considered creditable coverage.

What Federal Retirees Enrolled in Medicare and the FEHB Program Need to Know and Do

1. Contact the FEHB plan and find out more about the plan’s prescription drug coverage associated with Medicare Part D.
2. A federal retiree cannot drop only the FEHB prescription drug coverage without also dropping the FEHB plan’s hospital and medical coverage.
3. It is always to a federal retiree’s advantage to keep FEHB coverage throughout retirement.

A federal retiree who is incurring significant out-of-pocket prescription drug expenses should check with the FEHB plan to find out what relief it offers. The retiree should be specific about prescription drug information (and a spouse’s, if applicable). If the FEHB plan offers enough prescription drug coverage that annual out-of-pocket expenses total less than $615 (the 2026 Part D deductible, which will most likely increase in 2027), the retiree should be advised by the FEHB plan not to enroll in the plan’s MA-PD EGWP.