FEHB and Medicare: What Federal Employees Need to Know Before Retiring
By: Brian Gassaway
Planning for healthcare in retirement is one of the most important steps for federal employees nearing the end of their careers. Understanding how Federal Employees Health Benefits (FEHB) and Medicare work together can prevent costly mistakes and ensure seamless coverage. Unfortunately, confusion often surrounds whether to enroll in Medicare, how it interacts with FEHB, and how to bridge the gap if retiring before Medicare eligibility.
This article will guide you through keeping FEHB after retirement, how Medicare fits in, and how to create a personalized healthcare plan.
Key Takeaways:
- FEHB can continue after retirement if you meet the 5-year rule and retire with an immediate annuity.
- Medicare Part A is usually free and works well with FEHB, while Part B comes with a premium and is optional.
- You can bridge the gap to Medicare through FEHB, TCC, or spousal coverage if retiring before 65.
Can I Keep FEHB After Retirement?
The short answer is yes, but only if you meet the 5-year rule. To continue FEHB into retirement:
- You must have been enrolled in FEHB for 5 years before retiring.
- You must retire with an immediate annuity.
What Continues and What Changes After Retirement?
- Premiums: Your FEHB premiums will be the same as those paid by active employees, with the federal government continuing to cover a significant portion.
- Coverage: FEHB plans remain available after retirement, covering the same services, including prescription drugs, dental, and vision.
- Enrollment in Medicare: While FEHB continues, most federal retirees become eligible for Medicare at age 65, requiring decisions about how to coordinate both plans.
How Medicare Works for Federal Retirees
Medicare consists of four parts, and knowing how each part works is key:
- Part A: Covers hospital services and is usually free for those who paid Medicare taxes.
- Part B: Covers doctor visits and outpatient care, with a monthly premium.
- Part C (Medicare Advantage): Private plans that combine Parts A and B, often with extra benefits.
- Part D: Provides prescription drug coverage through private insurers.
Enrollment Timelines and Penalties
- Initial Enrollment Period (IEP): Begins 3 months before you turn 65 and ends 3 months after.
- Late Enrollment Penalty: Delaying Part B enrollment after becoming eligible can result in lifetime penalties, increasing the cost of premiums.
FEHB vs. Medicare: Do I Need Both?
One of the biggest questions federal retirees face is whether to keep FEHB and enroll in Medicare. Here’s how they coordinate:
- FEHB and Medicare Part A: Most federal retirees enroll in Part A since it’s free and acts as secondary insurance.
- FEHB and Medicare Part B: Some retirees enroll in Part B to reduce out-of-pocket costs, while others choose to keep only FEHB and avoid Part B premiums.
Common Strategies:
- FEHB + Medicare Part A Only: Lowers costs while maintaining comprehensive coverage.
- FEHB + Full Medicare (Parts A & B): Provides the most protection but comes with additional premiums.
Cost Comparisons
Weighing the cost of Medicare premiums against potential savings on copayments and deductibles can help determine the most cost-effective approach.
Bridging the Gap to Age 65
If you retire before age 65, you’ll need to maintain health coverage until Medicare kicks in. Options include:
- FEHB Continuation: Continue your FEHB plan as a retiree.
- Temporary Continuation of Coverage (TCC): Available for up to 18 months for those who separate from service before being eligible for an immediate annuity.
- Spousal Coverage: If your spouse has employer-provided insurance, consider switching to their plan temporarily.
Building a Personalized Healthcare Plan
To create a retirement healthcare strategy that fits your needs:
- Estimate Premiums and Out-of-Pocket Costs: Compare the costs of keeping FEHB alone versus enrolling in Medicare.
- Consider Long-Term Care Insurance: Evaluate whether to purchase a separate policy to cover long-term care.
- Think About Supplemental Coverage: Decide if additional coverage is needed to bridge potential gaps in Medicare and FEHB.
By understanding how FEHB and Medicare work together, you can make informed decisions that protect your health and financial security in retirement. Schedule a free Retirement Readiness Review to explore the best options for your situation.
Sources:
- OPM FEHB Guidelines:
https://www.opm.gov/healthcare-insurance/healthcare/ - Medicare Enrollment and Penalty Information:
https://www.medicare.gov/sign-up-change-plans/get-started-with-medicare - FEHB and Medicare Coordination Guidelines:
https://www.opm.gov/retirement-center/medicare-and-fehb/
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