Carefully Examine Your Healthcare Options

Due to the COVID-19 pandemic and other factors, many employees today are thinking about early retirement, and this includes some federal government employees.

As we wrote in our post on early retirement from the Federal Government here, one of the biggest challenges faced by many early retirees is paying for healthcare benefits before they become eligible for Medicare at age 65. The good news for federal government employees looking to retire early is that there are some good options when it comes to obtaining affordable health insurance before they turn 65.

Carrying FEHB Into Retirement

Federal government employees and their families receive some of the most comprehensive healthcare benefits anywhere through the Federal Employee Health Benefits (FEHB) Program. These employees have access to FEHB benefits not only while they’re working, but also after they retire — including if they retire before age 65. (Click here to read my previous article detailing FEHB benefits.)

To continue receiving FEHB benefits in retirement, you must have retired on an immediate annuity that begins to accrue no later than one month after the date of final employment separation. In addition, you must have been continuously enrolled in an FEHB healthcare plan for the five years of employment immediately preceding retirement.

There are some exceptions to the five continuous years rule. For example, if you were enrolled in FEHB for two years, separated employment from the federal government for three years, and then came back to work for the federal government and re-enrolled in FEHB for three more years, you would meet the five-year coverage requirement. But if you were continuously employed by the federal government and cancelled FEHB for any reason during this time, you would not meet the coverage requirement.

If you want to add one or more family members to your FEHB coverage after you retire, you will need to enroll in the FEHB’s Self and Family or Self Plus One program. However, you don’t have to do this until after you retire — you can do it during any Federal Benefits Open Season or when you experience a qualifying life event.

One of the biggest benefits of carrying FEHB into retirement is that premiums don’t go up after you retire. You’ll pay the same premium and receive the same government contribution toward your healthcare benefits in retirement that you did while working. One small change worth noting is that you’ll pay your premium with after-tax dollars as opposed to being able to pay premiums with pre-tax dollars as you did while working.

Reaching Medicare Eligibility Age

Once you turn 65, of course, you become eligible to join Medicare. FEHB plans and Medicare generally cover the same kinds of healthcare expenses, with some exceptions. For example, some FEHB plans cover costs for routine physical exams and dental and vision care that Medicare doesn’t cover, while Medicare covers costs for some orthopedic and prosthetic devices, durable medical equipment and some medical supplies that FEHB doesn’t cover.

This raises the question: If you’re carrying FEHB into retirement, do you also need Medicare? Here’s the short answer (with one caveat): If you’re entitled to received Medicare Part A without paying premiums, you should go ahead and take this because it will help cover some of the costs that your FEHB plan doesn’t cover, like deductibles, co-insurance, and costs that exceed the FEHB plan’s allowable charges. The one caveat is that once you enroll in Medicare Part A, you’ll no longer be able to make HSA contributions – so if that’s important to you, you might delay enrolling in Part A.

If you elect to enroll in Medicare Parts A and B, you’ll also be eligible to enroll in Medicare Part D (which covers prescription drugs)  or you could choose a Medicare Advantage Plan. These health plans — which are run by private companies, not Medicare — offer HMOs, PPOs, private fee-for-service plans, Medicare Special Needs Plans, and Medicare Medical Savings Account plans.

Note that you can change your FEHB enrollment to any available plan starting 30 days before you become eligible for Medicare. You can also change your FEHB enrollment during the Federal Benefits Open Season or when you experience a qualifying life event.

Coordinating FEHB and Medicare Benefits

FEHB plans include a coordination of benefits (COB) coverage provision that coordinates benefits for Medicare-eligible retirees who have both FEHB and Medicare coverage. This provision helps ensure that you and your covered family members recover as much of your healthcare expenses as your total coverage allows without exceeding the actual charges.

Under the COB, one plan pays benefits in full as the primary payer while the other plan pays reduced benefits as the secondary payer. Generally speaking, if you’re retired and have Medicare, this becomes primary and FEHB becomes secondary. If you are retired and have Self and Family or Self Plus One coverage and your spouse is 65 or over and has Medicare, this becomes primary for him or her — unless your spouse is employed by the federal government and is enrolled in Medicare Part A.

Remember that FEHB plans adjust benefit payments so that they supplement, rather than duplicate, Medicare benefits. So if Medicare is the primary payer, you’ll submit your claim to Medicare which will pay allowable benefits in full while the FEHB plan will pay a reduced benefit. The combined amount usually equals 100 percent of covered expenses, though there still could be remaining expenses that aren’t covered by Medicare of the FEHB plan that you’re responsible for.

Do Some Research and Plan Ahead

If you’re thinking about retiring early, be sure to spend some time researching your healthcare options before finalizing your plans. There are some good options to choose from, but careful planning in advance is the key to maximizing your healthcare benefits as a federal government employee.