“Should I keep my FEHB plan after I retire?”
is one of the most important questions Federal employees must answer as they prepare to end their service.
By Brian Swerdlow
One of the more complex federal benefits is the Federal Employee Health Benefit or FEHB. Many government employees struggle with the decision to keep their FEHB plan in place, switch to Medicare, or perhaps a combination of both options.
It’s a decision that depends on many factors, including your retirement age, which FEHB plan you have, what your retirement healthcare budget is, whether you can afford copays and increased premiums, and your current and future health.
If you are age 65 or older, enrolling in Medicare is up to you. Your FEHB coverage may continue whether or not you enroll. In most cases, federal employees and annuitants qualify for Medicare Part A at age 65 at zero cost. The OPM typically advises employees that if they are entitled to premium-free Part A coverage, they should enroll. Having part A could potentially reduce your out-of-pocket expenses as well as costs to FEHB. In turn, reducing costs can ultimately help keep your FEHB premiums down.
When you look at Medicare Part B coverage, every enrollee pays a premium. You can discover more about what you can expect to pay by visiting The Social Security Administration’s website. There, you will find premium and benefit information that will assist you in deciding if it makes sense for you to buy Medicare Part B coverage.
Enrolling in Medicare and keeping your FEHB plan means your benefits will be coordinated. If you don’t enroll in Medicare, the FEHB plan will pay benefits in full. FEHB premiums do not reduce if you decide to enroll in Medicare.
Starting on the 30th day before you become eligible for Medicare, you can change your enrollment to any option of any available plan at any time. However, you can only make an enrollment change under this event once.
When continuing FEHB coverage into retirement, what are the critical eligibility rules you need to know?
You can opt to continue your Federal Employees Health Benefits (FEHB) coverage after you retire. However, it would help if you keep in mind that there are two crucial requirements that employees must meet in order to keep their FEHB.
- You must retire on an immediate retirement pension under FERS or CSRS. Simply quitting your job doesn’t allow for continued FEHB coverage.
- You must meet the “5-Year Rule.” To exercise your option to continue FEHB, you must have been continuously enrolled in an FEHB plan for the 5 years immediately before retirement or for the entire time since your first opportunity to enroll in FEHB, if it’s less than 5 years.
What coverage counts toward meeting the 5-Year Rule?
The FEHB coverage you have doesn’t necessarily have to be under your name. Other coverages can count toward meeting the 5-year requirement. These include:
- Your own FEHB plan.
- Coverage under a spouse’s or other family member’s FEHB plan.
- TRICARE provided you were enrolled in FEHB at retirement time.
Here’s a scenario illustrating how an employee could meet the 5-year rule requirements.
Let’s say that Joe Average is a federal employee planning to retire this year. Joe switched his FEHB plan during Open Season, but he has maintained coverage for the past 15 years. Joe’s coverage change will not affect his eligibility for FEHB in retirement. Joe can continue his FEHB coverage because he meets both the immediate pension and 5-year coverage requirements. Changing plans at Open Season does not impact his eligibility.
FEHB for Your Spouse: Key Considerations
FEHB eligibility rules don’t apply to your spouse. But, there is a crucial factor to consider if you want your spouse to continue with FEHB coverage after your death-whether you elect the FERS or CSRS Survivor Benefit.
Unless your spouse is also a FERS or CSRS retiree, they can only keep their FEHB coverage after you die if they are receiving a Survivor Benefit. If they do not have the Survivor Benefit, their coverage ends thirty-one days after your death. If your spouse remarries before age 55, their FEHB coverage will also usually end. One exception to this is if you were married for thirty or more years, your spouse’s coverage can continue, even if they remarry before age 55.
What happens if you postpone FERS retirement?
Suppose you decide to separate from service under the Minimum Retirement Age (MRA) + 10 rule. In that case, you are eligible to continue FEHB when your pension starts, provided you met all the eligibility criteria when you left. If you decide to delay starting your pension, FEHB coverage will stop when you separate. However, you can reinstate your coverage once your pension begins.
What will it cost you to continue FEHB?
Your cost for FEHB remains the same in retirement, with one notable difference—premiums are no longer paid with pre-tax dollars. * Note: Due to a special provision, public safety officers may have the option to continue paying FEHB premiums pre-tax. If you’re a public safety officer, you should check with the OPM to learn more.
Can retirees still participate in the FEHB Open Season?
Retirees can still participate in the annual FEHB Open Season and change their health plans just as employees do. The process is the same for both retirees and active workers.
What about your dental and vision coverage in retirement?
FEDVIP (Federal Employees Dental and Vision Insurance Program) is available to retirees. To continue these coverages, you must retire on an immediate pension. FEDVIP premiums are billed directly during your pension finalization period. Once your retirement is finalized, FEDVIP is automatically deducted. To continue FEDVIP, you do not need to meet the 5-year continuous enrollment rule.
If you’re thinking of keeping your FEHB, be proactive.
As you get closer to retirement, be sure to ensure that you meet all necessary eligibility requirements for FEHB. Also, carefully plan for the costs of keeping your coverage, including dental and vision options. If you’re married, you and your spouse should discuss the implications of Survivor Benefits on your FEHB continuity. Strategic planning can go far to help secure your health coverage and financial stability when you stop working.
So, now that you have an idea of what it takes to be eligible for FEHB continuation, what are some reasons you might choose to do so instead of transitioning to Medicare?
Here are just a few of the reasons retired feds have given me for why they chose to keep their FEHB when they separated.
You might want to keep your FEHB plan in place if one or more of these situations apply.
You want to retire earlier than age 65. Medicare is not available until 65. Many government employees plan to retire far earlier.
You worry you might not have a good selection of providers. Medicare providers are becoming scarcer. Many healthcare professionals have become disenchanted with the hassles and bureaucracy of Medicare. Some no longer want to work with Medicare because Medicare won’t pay them enough to make it worthwhile. Without a strong network of doctors in your area who accept Medicare, you might have to travel out of town to get the care you need.
Medicare Part B may not fit into your retirement budget. It can be costly. Copays are 20%, and premiums for Part B are tied to income. Premiums are on the rise and go up quickly, especially if you wind up with higher taxable income in retirement.
You’re thinking of retiring overseas. Many people do not realize that Medicare provides NO coverage outside the US. If you plan on retiring to another country, even part-time, or you intend to spend a significant amount of time outside the US full-time, you might want to keep your FEHB and skip Medicare Part B.
There may not be much difference in premiums. Depending on the FEHB plan you have, you may discover that the cost of an FEHB plan is the same as, or only slightly more than, the lowest premium for Medicare Part B. Your copays may also be less, and your coverage may include prescription medication.
Medicare does not qualify for copay assistance. If you’re younger and healthier, you might not think of this potential downside. However, as we all know, health issues can arise when you least expect it. While other programs can help with prescription costs, such as grants, the “Extra Help” program, and the Qualified Medicare Beneficiary Program, some employees choose to stick with their FEHB plan. Many FEHB plans cover you for services and drugs not covered by Medicare Parts A, B, and D.
You have a chronic condition requiring a drug that Medicare Part B won’t cover. If you must take a drug that Medicare does not cover, you may want to consider keeping your FEHB.
You are concerned about IRMAA. If your income in retirement is over the threshold ($103,000 in 2024), you may be subject to what’s known as an “income-related monthly adjustment, or IRMAA. If this is the case, paying higher premiums for Part B may not be something you want to do.
You could want a hybrid approach that uses both FEHB and Medicare. Many people get a psychological benefit from knowing that they have a plan with which they are familiar and perhaps more complete coverage. They may not want the financial burdens of excessive out-of-pocket costs or copays, or their favorite doctor won’t take Medicare.
Fortunately, it’s possible, with the help of a knowledgeable federal benefits expert, to put together a healthcare plan that gives you the coverage best suited for your unique situation. Every person’s healthcare and money needs are different, and there is no “ideal” plan that’s suitable for everyone. What you wind up with in retirement may look very different than what one of your co-retirees has.
If you don’t continue with FEHB, there’s no going back. Therefore, you need as much information and assistance as possible to make the best decision for you and your family.
These are just some of the reasons Feds keep their FEHB plans, even if they have Medicare Part B and supplemental Medicare coverage. With healthcare costs rapidly increasing, it makes sense to get as much coverage as possible so you won’t have to liquidate other assets to pay for unexpected medical expenses. It is also wise to sit down and discuss all your options with an advisor who understands how these benefits work. Your advisor can give you ideas about other ways to ensure that excessive medical costs don’t wreck your retirement.
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