Your Best Benefit? Ability to Keep FEHB in Retirement

By on September 27, 2012 in Current Events, Retirement with 93 Comments

In the federal retirement classes I teach, people are surprised when I call your ability to keep FEHB in retirement your best benefit.

No doubt about it, you have some great benefits – the Thrift Savings Plan (and matching contributions for FERS) – your CSRS or FERS pension – or even FEHB while you’re employed are all great and wonderful benefits.

But being able to keep your FEHB in retirement *and* to have the government continue to pay for 72% of your premiums is, in my opinion as a financial planner for federal employees, your *best* benefit.

Let’s cover some basics about keeping FEHB in retirement – and why I think it’s so important to your retirement.

Who Can Keep FEHB in Retirement?

In order to continue your FEHB into retirement, you must meet two qualifications:

  • You are *entitled* to retire on an immediate retirement when you separate
  • You had FEHB coverage for the 5 years before you separated from service (or if less than 5 years that you enrolled as soon as you were eligible)

 

See the FEHB Handbook online at OPM’s website

Notice that the first requirement isn’t that you *retire* on an immediate retirement, but that you are entitled to retire on an immediate retirement at separation.

What’s the difference? This distinction is important for FERS who are considering a postponed or deferred retirement. If you go out on a deferred retirement, you can’t keep FEHB – but if you go out with a *postponed* retirement, you can keep FEHB. To learn more, visit our page about Postponed vs. Deferred FERS Retirement.

Why Do I Call it Your Best Benefit?

There are three main reasons I call keeping FEHB in retirement your best benefit…

#1) Getting to Keep Health Insurance into Retirement at All is a Benefit

Most people who have health insurance, have it through their employer. And while many private companies offer health insurance to their employees, not all companies allow their employees to stay on the plan once they retire.

I have some non-federal employee clients who have great coverage through a private employer now – but that coverage turns into a pumpkin when they retire.

Sure – they have the option to do TCC (Temporary Continuation of Coverage – also sometimes called COBRA). But COBRA is *VERY* expensive and usually only lasts for 18 months after they stop working. Then what?

Health insurance is such an important part of retirement planning that when people can’t keep some type of health insurance into retirement – they often have to get a part time job in retirement just to get health insurance. Or work until they’re eligible for Medicare at age 65.

Having the ability to keep FEHB into retirement allows you more flexibility in your retirement planning.

#2) Getting to Keep Coverage In One of the Best Group Plans Available is a Benefit

FEHB is easily one of the best group health insurance programs available. It is the largest employer-sponsored group health plan in the world. According to FEHB Handbook at OPM, there are over 8 million people enrolled (including current federal employees, their family, retirees, etc.).

In general, the larger the group of people paying in, the better coverage and rates a group will get.

Costs for smaller group plans can easily cost more than twice as much (for less coverage) than is premium costs through FEHB.

Being able to stay on FEHB, one of the best group plans available, allows you to have better coverage options at better prices than you can find elsewhere.

#3) Having the Government Continue to Pay 72% of Premiums is an Outstanding Benefit

Not only do you get to stay on one of the best employer-sponsored plans around, the government will continue to pay 72% of your premium in retirement. That is a tremendous benefit!

FEHB plans and premiums vary across the country. Here in Alaska, a good FEHB family plan will cost you about $400/month. So that means that the total premium cost for coverage is roughly $1,430. That means each month you pay $400, the government is paying roughly $1,030 to cover the rest of your cost… every month.

The ability to have excellent health insurance into retirement, and to pay less than a third of your premium costs gives you a huge head start on retirement planning.

Federal Benefits vs. Private Sector

Sometimes federal employees compare what they pay for FEHB to what some private sector employees pay for their health insurance.

From what I’ve seen with my clients, what federal employees on FEHB usually pay is about the same or even a little bit more for premiums while they’re working. Some private companies might cover more than 72% of their employees premiums, while they’re employed.

But when those private employees go to retire – they don’t always have the option to continue that coverage into retirement. And it’s almost unheard of that they could continue coverage by paying 28% of the premiums through retirement.

Keeping FEHB in Retirement is Very Important

Being able to continue FEHB into retirement allows you more flexibility in your retirement planning. You get to keep better coverage for a lower cost, and the government will continue to pay for the lion’s share of your premium costs.

But sometimes people overlook this benefit or take it for granted.

Most Financial Planners Don’t Understand Your Federal Benefits

Your benefit to keep FEHB into retirement and have the government continue to pay 72% of your premiums is such a phenomenal benefit – but many financial planners have never heard of it.

So when they give you retirement planning advice, they may not be aware of just how great this benefit is. And if they don’t know how great the benefit is – they might recommend things that would be good for a private sector employee – but that would result in you and/or your survivors losing one of your most important federal benefits.

Make Sure *You* Understand Your Benefits

Most financial planners don’t understand your federal retirement benefits. So whether you’re doing it yourself – or working with a financial planner – it always makes sense for *you* to understand your benefits.

When you’re going through your retirement planning – make sure you are *sure* that you will be able to keep FEHB into retirement. AND make sure that your spouse will be able to continue FEHB after you pass away by putting them on your plan and making sure you leave a survivor annuity benefit.

Keeping FEHB in retirement is just one of the topics we cover in FERS Route to Retirement.  I’ve taken my experience as a financial planner for federal employees and turned it into a do-it-yourself program that helps FERS step-by-step through planning their retirement.

See a full list of topics we cover in FERS Route to Retirement

© 2016 Micah Shilanski, CFP®. All rights reserved. This article may not be reproduced without express written consent from Micah Shilanski, CFP®.

About the Author

Micah Shilanski is a Certified Financial Planner™ professional who specializes in helping federal employees get the most out of their retirement benefits. Micah helps his clients with tax planning, retirement planning, federal retirement planning, estate planning, and investment advice.

Plan Your Federal Retirement is a dba of Shilanski & Associates, Inc., an Alaska Registered Investment Advisor, with securities offered through Summit Brokerage Services, Inc., Member FINRA/SIPC.

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  1. LoganGuy says:

    I am retired from the federal Gov’t with FEHB. I am getting another job with a private company. If I use a healthcare provider out of network, can I use FEHB and the new insurance to pay whatever they cover? For example if a doctor charges $250 for therapy. FEHB will pay around $56 if I submit the charges myself , will I also be able to collect some percent of the reasonable and customary fee from the new employer insurance company?

    regards

  2. shorty says:

    If you can afford it the best way to go (from what I hear) is part B and keeping your FEHB plan. Eventually you will come out ahead when the big bills start to add up. My problem is that I am not sure if my Blue Cross policy will remain the same or if it is limited to back up only what Medicare approves. For example, Medicare does not approve hearing aid costs – all cost for hearing aids are the responsibility of the individual. On the other hand, Blue Cross pays something like $3,000 every couple years or so towards hearing aids. Will Blue Cross still pay that even when they are secondary to Medicare?

  3. Anthony says:

    All,

    I am single retiring next year. I plan on marrying my sweetie at some point. Question: If I marry after I retire and have no survivor benefit (as I am single), can I add her to my Blue Cross Blue Shield Family plan) after I am retired?

  4. Marcare7 says:

    FEHB coverage is not offered outside the US – Correct? I would like to move to SA, but my understanding is I will have to purchase my own health care @ that place…any input please?

  5. Ruth Jeram says:

    Is this still true under Obamacare? I was told that FEHB would go away?

  6. M palmer says:

    I have been retired 6 years with FEHB for my husband & myself.  Do I need medicare B in addition,  I thought there would be a penalyty, since I didn’t originally sign up.  Thanks.

  7. BigO7301 says:

    Most of us dwell on coverage and cost, but access to good care is very important as well.  Access should not be an issue with the addn of a FEHB plan.  Granted, it is a significant addn cost in retirement but, sooner or later, medical expenses come with age.  If you are among the few who are senior and in good health, you are truly fortunate. Here’s a tip for your retirement planning consideration:  cost for health care isn’t a matter of if, it’s a matter of when. It’s very reassuring to know I have a wide range of excellent options to quality health care with the addnl coverage of a FEHB plan.

    Medicare benefits to providers are due to take addn hits in Jan 2013.  Many MDs have already said enough is enough and will not take new medicare patients.  Surely, more will get fed-up in the future.  In this case I feel the best offense is a good defense.  I, for one, will be keeping my FEHB plan.

    • fan says:

       FEHB pays Medicare rates when there is no Medicare B. Post 65 I  have heard it’s the law if you are retired that doctors can only get the Medicare level of payment, even if you don’t sign up for Medicare.

      • SR-Alabama says:

        I seem to recall from FEHB Blue Cross documents that when the person is eligible for Medicare B, reimbursement is limited by law to Medicare rate PLUS 15%. So far no Doctor has questioned my Blue Cross Insurance coverage, but one has said “we don’t do Medicare”.   I am 68, retired since May 2011 and have not enrolled in Medicare B so far– because it appears that you pay the Part B premium ~$115/ mo  and only gain the benefit of getting copays and deductibles paid for.  A major negative is that Blue Cross then becomes irrevocably  a secondary insurer and you have all the problems of getting a Doctor who will accept Medicare patients.

        • fan says:

           I was told that whether or not you sign up for Medicare  the insurance will not pay the doctors the amount they paid before you were eligible for Medicare. My understanding is that Medicare or no Medicare the doctor does not get the same amount of payment that they did before you were  eligible for  Medicare. Some people are required to take Medicare to continue their health insurance.  I checked a statement and the %15 still leaves an amount due to the doctor.  All I know is that I was told my coverage would be lowered. This is my first year and my annual was not as extensive as it was before I was on Medicare, but prescription cost has gone down. It all depends on your situation. My understanding was that medical profession does not get the same reimbursement no matter whether you sign up for Medicare or not and as stated before, some people are told Medicare must be primary to get their benefits , so are they to be excluded from health care services from the medical profession because they are required to have Medicare as primary?

        • Premkumar Harimohan says:

          If your pre Medicare Part B (with BC/BS coverage in place)  co pays and deductibles total per year is greater than the Medicare Part B yearly premium of say$115/mth  X 12 mths  = $1,380 then it becomes cost effective to subscribe to Part B medicare since BC/BS pays all deductibles and co pays (remembering that after retirement after age 65 the annuitant is not eligible to subscribe to the $5000/Yr max to FSAFeds HSA & the FEHB premium is taken out of post tax annuity ). 

          However, could someone answer this: Once Medicare Part B is subscribed to it becomes the primary carrier & FEHB the seconday carrier. But, if a doctor or health care provider facility will not accept Medicare Part B (most do accept) but is a in network provider in BC/BS,  will in such a case, BC/BS be automatically required by OPM to function as the primary carrier?   

          Another wrinkle that most are not aware of is that if one’s spouse is covered by the annnuitant’s FEHB and both being over 65 subscribe to Medicare B say BC/BS then though BC/BS becomes the secondary carrier for the annuitant, BC/BS still remains the primary carrier for the annuitant’s spouse though she/he is subscribing to Medicare Part B .   

  8. Dimart54 says:

    I just wanted to verify that if I keep FEHB into retirement that my spouse if also covered by this insurance?
    Thanks.

  9. Shirley Reilly says:

    I am not yet retired, though I am 70 years old.  Admittedly, I am not good at math but your article keeps saying the government pays 72% of my FEHB.  I have a single plan which costs me $287.94 per pay period.  The Government contributes $ 185.75 per pay period to my FEHB.  How is that 72%??

  10. formerIRS says:

    Response also directed to Sandraduncan  Medicare A has no current cost to the employee. You paid for it during your entire working lifetime.  Also, this is a perfect answer to those employees who claim that they will quit if the wi9n the lottery. If you win a million dollars, it c0mes to $50,000 per year,  approx $38,000 after state and local taxes.  Then it stops. Then what?. By not staying, you lose the right to continue FEHB. This would require you to get insurance on your own, pay the full cost, and also not get group rates. You would have to wait for years to get Medicare B. Also, your wife would also be able to continue in FEHB for the rest of her life after you die. This is too good a benefit to walk away from. I would still tough it out until the day I was eligible, then I would split.

    • Hostess1953 says:

      The wife would only be eligible if a survivor benefit were left to her from the federal pension.  No survivor benefit, no FEHB.

  11. Guest says:

    I have been a federal employee for app. 9 years.  I did not take FEHB out because I was on my spouse health plan,  3 years ago she lost her job and I then took out my FEHB. After being in it for only 3 years I was told by a doctor that I should retire (63) due to major health issues, is there any way to carry my ins. over?

  12. kramarpie says:

    It is a great benefit, equal to the Federal pension and Social Security

  13. Retired LR says:

    I want to keep FEHBP after 65 y/o…medicare will be a problem with service cuts, panel to deny health care (Obamacare) because of cost and age e.g 80y/o no hip replacement too costly, less doctors taking medicare patients because of decrease in fees up to 30% in some areas right now…..congress should provide a voucher option for over 65 y/o.

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