As a federal employee, you’re entitled to healthcare through the Federal Employee Health Benefits program. Many federal employees wonder whether or not these benefits extend into retirement. With Medicare becoming available at age 65, federal employees are uniquely positioned to explore multiple healthcare options in this new season of life which is a rarity these days.
It’s important to weigh your options as a federal employee when it comes to healthcare in retirement. Understanding what coverage you receive from FEHB, and how it compares to Medicare or other private healthcare programs is critical to creating a financially savvy spending strategy.
The Big Question: Can You Keep FEHB Benefits In Retirement?
In a word – yes. Federal employees are entitled to keep FEHB coverage even after they retire. However, they must be currently enrolled in the FEHB program, and have been enrolled for the full five years preceding your retirement.
In retirement, you pay the same healthcare premiums through the FEHB program as you would when you were a full-time employee of the government. The only difference is that premiums are paid monthly after you retire instead of biweekly as they were when you were paying premiums through your paycheck during your employment.
What About Medicare?
Medicare is available for individuals age 65 or older. However, there isn’t a “one size fits all” Medicare plan that all retirees receive when they enroll. Instead, Medicare is split into Parts A-D. Each part serves a different purpose.
Part A is what is often considered to be “general Medicare”. It typically only offers hospital coverage, but it’s also offered free to most individuals over age 65. Per Medicare.gov, Part A is free if:
- You get retirement benefits from Social Security or the Railroad Retirement Board
- You’re eligible to get Social Security or Railroad benefits, but haven’t filed for them yet
- You or your spouse had Medicare-covered government employment
Part B covers medically necessary treatment and preventative services. These might include:
- Ambulance services
- Medical equipment
- Mental health care
- Outpatient prescriptions
- Clinical research or wellness visits
If you’re enrolled in Social Security, Railroad Retirement Board, or Office of Personnel Management, your Part B premiums will be automatically deducted from your benefit payments. If you aren’t enrolled in one of these benefit services, you’ll receive a bill for your premiums. In 2022, premiums ranged from $170.10-$578.30 depending on income, and your Part B deductible is $233. Once your deductible is met, you pay a 20% copay for most services.
Medicare Advantage Plans, otherwise known as Part C, combine benefits from Medicare Part A and B (and sometimes even prescription drug coverage from a typical Part D plan). These plans are offered through private insurance companies, and often include more robust coverage than traditional Medicare plans. For example, some may include gym memberships or other “wellness” focused perks.
Medicare Part D plans are specifically designed to offer prescription drug coverage. There are several different tiers available that cover different levels of prescription drugs. For example, Tier 1 offers the lowest copayment, but also only covers generic prescription drugs.
Benefits of Sticking With FEHB
There are several different types of FEHB coverage. If you retire, you can stick with the same coverage you’re currently enrolled in through FEHB, or you can choose to change your plan during the annual open enrollment period. Sticking with FEHB in retirement ensures you’ll get the same level of coverage you’re used to, and you may be able to maintain relationships with the current medical professionals you prefer to use. Additionally, because premiums are kept relatively low, FEHB coverage can be a good way to minimize health care costs in retirement.
When Does It Make Sense to Switch to Medicare?
Generally, once you become eligible for Medicare, you should consider signing up for Medicare Part A. It is almost always free and it can cover some costs FEHB won’t cover. Beyond that, though, the decision becomes more complex. You aren’t required to enroll in Medicare, and different types of FEHB plans – Fee for Service or HMO as examples – impact whether there are any coverage gaps that Medicare would address. For a more detailed overview, this brochure from OPM on Medicare and FEHB may be helpful.
Striking a Balance
In many cases, former government employees choose to strike a balance between Medicare and FEHB coverage during this chapter of their lives. For example, many retirees enroll in Medicare Parts A and B as their primary insurance and move to a lower-tier FEHB plan as secondary insurance to cover (nearly) all of their medical costs. This can be a savvy way to reduce your out-of-pocket premiums while maximizing the benefits of both healthcare vehicles during retirement.
Something else to keep in mind is that you don’t have to fully cancel coverage through FEHB if you choose to enroll in Medicare. Even if moving to a lower tier of coverage isn’t the right option for you, you can choose to suspend your FEHB benefits if you are enrolling in a Medicare Advantage plan that better suits your needs (make sure to follow the process to the letter if you elect to do this). Suspension allows you the flexibility to reenroll in FEHB benefits if, for any reason, you choose to cancel your Medicare Advantage coverage in the future.
Keep in mind that, should you choose to suspend your FEHB coverage and want to re-enroll, you’ll need to wait to do so until Open Enrollment Season. The only exception to this is if you should lose your Medicare Advantage coverage involuntarily.
Navigating Health Care Benefits in Retirement
Health care, and medical expenses in general, are a major component of your retirement cash flow strategy. Navigating which plan (or combination of coverage) is right for you can be a challenge. Working with a fee-only financial planner who is versed in FEHB coverage, and other federal government employee benefits can help. If you’d like to speak to our team, and review your options, reach out! We’d love to hear from you and to help you build a holistic retirement strategy that meets your needs.