Retirement

Big Medicare Changes Coming For Postal Service Retirees

You’ve seen the headlines. The United States Postal Service (USPS) has been losing money. (A recent USPS press release said it’s already lost $2.1 billion this year.) So, Congress passed the Postal Service Reform Act of 2022 (PSRA). The Office of Personnel Management (OPM) published the interim final rule on April 6, 2023, and it took effect yesterday (June 5, 2023.)

Two big changes and many questions

The PSRA establishes the Postal Service Health Benefits (PSHB) Program within the Federal Employees Health Benefits (FEHB) Program.

Here’s what that means.

  • Starting January 1, 2025, PSHB plans that include health benefits will be available only to Postal Service employees, annuitants, and their eligible family members.
  • They will not be able to enroll in or continue with FEHB plans.
  • To continue with a PSHB plan, Medicare-eligible annuitants who have retired will have to enroll in Medicare Part B, medical insurance.

I recently talked to a former client and his wife. As a Postal Service employee, she had FEHB coverage for her family. He enrolled in Part A at age 65 and now she is eligible for Medicare and retiring. This change was news to them and, of course, they had some questions.

Can you describe the current situation?

To understand the impact of the change, you need to know about the current system. The Postal Service provides coverage through the FEHB Program. Eligible individuals can choose from a variety of coverage options, including health maintenance organization plans, preferred provider organization plans, and high-deductible plans, sponsored by a multitude of insurance companies.

There is one feature that many retirees find enticing. These plans will continue to pay for healthcare services after age 65, even if retirees don’t enroll in Part B. In fact, plans cannot force them to do so. (Non-FEHB-eligible retirees must enroll in Part B after retirement; otherwise, their coverage will not pay.) This means Postal Service retirees don’t have to pay the monthly Part B premium, $164.90, in 2023 or IRMAA (Income-related Monthly Adjustment Amount), paying more in premiums once their income crosses the threshold.

The one downside: If they change their mind down the road, they face a Part B late enrollment penalty. That is an additional 10% of the Part B premium ($16.49 this year) every month for each full year without Part B. However, it’s likely that many go without Part B for their entire lives.

Why is the government doing this?

As with so many decisions, money is likely the driving force. In 2018, there were about 500,000 retirees receiving health benefits with the Postal Service Retiree Health Benefits Fund paying most of the costs. According to the Congressional Budget Office, this change could save the Postal Service $5.6 billion through 2031 while adding $5.5 billion in costs to Medicare during that span, and probably much more in later years.

Will those who deferred Part B have to pay a late enrollment penalty?

Those annuitants and their eligible family members who did not enroll will be eligible to sign up, without facing a penalty, during a six-month special enrollment period (SEP), from April 1-September 30, 2024. Individuals who qualify for the SEP will receive a separate notification.

What actions should current Postal Service employees who are planning to retire take?

If they want to have a PSHB plan, the actions depend on the date of retirement.

  • For those who retire before April 2024, they can either enroll in Part B right away or pay attention and watch for more information about the SEP. My former client’s wife decided to continue with her current FEHB plan and enroll in Medicare Part A, hospital insurance. (This is premium-free and those who want to receive Social Security retirement benefits must be enrolled. It is a condition of receiving benefits.) Both she and her husband will enroll in Part B sometime before the end of SEP.
  • Postal Service employees who in April 2024 or later can qualify for the “regular” Part B SEP. This provides eight months, from the date employment ends, to enroll in Part B. If they don’t, they’ll have to wait until the General Enrollment Period (GEP), January 1-March 31, and face penalties.

Just to be safe, should retired annuitants get a head start by enrolling in the next GEP, starting in January 2024?

The GEP is for those who missed their chance to enroll, either during their Initial Enrollment Period at age 65 or a Part B SEP when working past age 65 and then retiring. (That’s about 25% of current Medicare-eligible postal retirees.)

Until this significant change, the GEP was the only time federal retirees who initially deferred Part B could enroll, and late enrollment penalties applied. If current retirees enroll during the GEP in 2024, they likely will face the penalty. They may just want to sit tight until April 1, when they’ll have a chance to enroll with penalties waived.

Will these annuitants be able to continue with their current plans?

FEHB plans for current employees and retirees will end on December 31, 2024. However, language in the interim final rule should ease concerns. Every year, OPM issues guidance for health insurance benefits to FEHB sponsors and that guidance will apply to PSHB plans, as well. Plus, the “PSRA requires that carriers offering PSHB plans will, to the greatest extent practicable, offer benefits and cost-sharing (e.g., deductibles, copayments and coinsurance) equivalent to the benefits and cost-sharing for FEHB plans for that carrier in the initial contract year.”

Is this a sign of what may come for other federal retirees?

There are so many different types of federal employees, ranging from secretaries and data-entry clerks to firefighters and lawyers. It’s no surprise that FEHB is the largest employer-sponsored health care program in the country, covering more than eight million federal employees and others at a cost of about $59 billion in 2021. If mandating Part B enrollment can save money by passing costs to Medicare, then anything is possible.

Take-away points

  • The interim rule is final, and the Postal Service is in high gear to meet the deadline.
  • Postal Service retirees who want to continue with PSHB plans and are not enrolled in Part B should consider applying during the April 2024 Part B SEP.
  • Employees retiring in April 2024 and beyond should enroll during their Part B SEP.
  • All employees and retirees should watch for information about new plans.
  • There could be changes to these changes – so pay attention.

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