Retirement Myths: FEHB Premium Increases After Retirement

By on May 21, 2013 in Current Events, Retirement with 42 Comments

This article is part of a series dealing with common misconceptions about federal benefits and retirement.  These articles are written by John Grobe and Ehren Clovis.

Myth-conception: Once I retire, I will have to pay more for my Federal Employee Health Benefits, as Uncle Sam’s contribution decreases.

Reality: With the exception of those who receive an extra agency contribution to their FEHB premiums, I will pay no more as a retiree than I do as an employee. I will, however, pay out of after-tax dollars.

Though many people believe that the costs for Federal Employee Health Benefits increase after retirement that is not the case for most employees.  Why is it that many federal employees think that FEHB costs increase?  Probably the fact that in the private sector (for those lucky enough to receive health insurance after retirement), premiums tend to increase, sometimes dramatically.  Even many other public sector plans have costs that increase after retirement.  The FEHB is unusual in that there is no change in the premium amount.

Over the course of a year, the vast majority of federal retirees will pay the same amount for FEHB as current employees pay.  Retirees will pay on a monthly basis, as opposed to bi-weekly, but, at the end of the year, the amount they pay for FEHB premiums will be the same as that paid by an active employee.  There is a difference though; they will be paying out of already taxed dollars.  Retirees, unlike employees, are not allowed to participate in “premium conversion”, where their FEHB premiums are paid from pre-tax dollars.  Retired law enforcement officers, however, are allowed to deduct up to $3,000 of health insurance premiums on their federal income tax.

Some federal employees will see an increase in what they pay for their FEHB.  Those employees are employed by agencies (such as the Securities and Exchange Commission and the Postal Service) that have an extra employer contribution toward their FEHB.  Upon retirement, any extra contributions (that are the result of provisions in the collective bargaining agreement) cease.

Although FEHB premiums do not increase for retirees, those retirees who elect Medicare Part B at age 65 will have to pay Part B premiums (at least $104.90 per month in 2013).  Federal civilian retirees are not required to elect Part B.  Military retirees who are enrolled in Tricare for Life are required to elect Part B.

John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. The book is written in an easy to understand question and answer format and covers all areas of federal benefits from the perspective of an employee at various stages of their career. Order your copy at shoplrp.com.

© 2016 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.

About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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  1. Clara Kern Hill says:

    How about medicare supplements like F or G how do these add up to FEHB plans if you are going to take medicare part B?

  2. Wilbert Morell says:

    Of course your costs for FEHB increases after you retire unless you can write off your contribution for a refund of the taxes you paid out of your retirement check all year. This article obviously does not hide that fact. If your premiums are $10,000 annually and you are taxed 20%, you are paying the government $ 2,000 annually, and your cost for that $10,000 policy is $ 12,000.00, $ 2,000 more than an employee. This is why the government recommends you get a less costly plan with higher copays and deductibles because you will also have Medicare Part A as a FERS employee. Problem is that most people need much more medical attention as they age. So this is another attack on senior citizens and government retirees. Premiums are the same, but your overall cost is more because you are taxed on something that should not be taxed. What choice do you have, drop FEHB for ACA Plan that offers tax incentives, but may cost more for similar coverage. Or just go stright Medicare the whole way?

  3. PatM says:

    So if my husband is a Postal Employee and carries the FEHB plan and I am a government worker with DOT would it be more beneficial to change our insurance coverage to me since his extra contributions will cease after retirement? or will the contributions just be the same as all others covered under the FEHB program.

  4. Bob says:

    I retired from civil service in 2005 with just under 30yrs service. My portion of health insurance was the same as when I was working except for nominal increases until two years ago when my portion of the premium went up nearly $200 a month. I have been trying unsuccessfully to find out why from both my insurance company and from OPM through my Congressman. That is a huge increase that is taken out of my annuity. I am sure I am not the only one. Anyone know the answer?

    • Wilbert Morell says:

      Switch plans

    • Wilbert Morell says:

      You also need to understand as an employee you paid biweekly for 26 bi-weekly pay periods a year, but now you pay monthly for 12 months. The annual cost is the same except, it looks like you are paying more. As stated before, it’s the tax you pay now on it that you did not before. This is in fact a pay reduction unless yo can deduct the full amount, but you can’t because you only get credit for medical deductions that are over 10% of your irs AGI on schedule A. What a tax scam against retired seniors.

  5. Steve Neal says:

    TriCare goes from FREE (active duty) to full cost the day of your military retirment. TriCare Prime rates will increase 250% over the next four years. I sure hope I’m elegible for TriCare for Life and Medicare Part B soon, before I can no longer afford it…

  6. Al says:

    Now doesn’t the employer contribution go away? This itself would be the reason for the significant hike

  7. Nek says:

    Pre-tax vs After-tax payment of health insurance premiums is a BIG thing. I paid $520 more income tax the year after retiring due to my having to pay premiums in After-tax dollars. I was in the 15% tax bracket. It would have been worse if I was in the 25% bracket. That is a lot of money. I am retired 5 years now and still paying the taxes. As health insurance premiums go up so does this tax. The federal government is making more and more on retiree health insurance premiums. This comes at a time when you are more likely to have larger healthcare expenses. Because of the tax you will have to sacrifice other things in retirement. The federal government then wastefully spends the tax dollars. I don’t believe many will be able to get tax back using itemized deductions that Operius points out. If they do it will be a tiny amount because of the 7.5% threshold which will be going to 10% soon. Most can’t itemize anyway. The whole thing seems backwards. Retirees should pay in Pre-tax dollars and people working should pay in After-tax dollars. Retirees need that money. Either have everyone pay Pre-tax or After-tax, don’t discriminate against retirees.

    • Retired Fed says:

      The flip side of that is that after you’re 65, elderly generally receives “free” Medicare Part A. Even Part B premiums are subsidized by the government for up to 75%. So they are getting something that working people are not getting.

      • Wilbert Morell says:

        Yes, for Medicare part B, it is presently $104.00 per month per person, no family plan there. You can’t beat FEHB and more so if it is an HMO, no need for part B. If you have a fee for service plan like FEHB Blue Cross Blue Shield better plan and you see the doctor a lot, you will need Medicare part B. You can check it out and change plans during a life event or open season. I have been on an FEHB HMO for past 40 years and have a serious incurable autoimmune neuromuscular and skin disease where my own immune system attacks my muscles, skins, joints, bones, and organs for the past 12 years, and requires me to be on chemotherapy drugs and immune suppressants and up till last year I had monthly infusions of High Dose IVIG therapy and 6 months of physical therapy. My doctors and HMO saved my life. Quality of life is not so good with any incurable disease or cancer, but I kind of like being alive. I only say all this, because it could eventually happen to you. People who retire under the age of 62 have a better chance than those who retire after age 65, especially if you get diseases like ALS, MS, Dermatomyositis, Lupus, Parkinson’s, etc….

        • Retired Fed says:

          I wasn’t talking about the virtue of whether to get Part B or not, I was simply saying that working people do not get Part A benefits and a major portion of Part B premium paid for. $104.90 per month is only 25 per cent of the TOTAL Part B premium. Working do not get these benefit unless they are working beyond 65. So while they get to pay medical premiums with pretax dollars, Medicare patients don’t have to pay any taxes on Part A and a major portion of Part B premiums that the government pays as ordinary incomes. So there is something for each of the working class and retirees (after 65).

    • Wilbert Morell says:

      No one should be taxed on medical premiums and medical payments, state or local. By reversing who should and who should not is one reason why we are all overtaxed to take the burden off big business and the government employers who are the reason for most medical problems. You have an autoimmune disease or cancer think back to what toxins and vaccines and viruses and disease and traumatic injuries happened to you. Workmanship compensation was mainly set up so you cannot sue and win in appeals and court. Most law firms wrap you into a class action suit and if you get a settlement, it is not much, and good luck keeping low cost health insurance that will pay for larger cost treatments like chemo and IVIG after a certain amount. Why health insurances are the largest high profit businesses in the world. If you have a retirement stock portfolio, pick the best pharmaceutical company and top health care provider of your stock part of at least 10 other index stocks under the S&P index funds. Well enough said, I made my point

  8. Operius says:

    Note that according the the IRS, “You can include in medical expenses insurance premiums you pay for policies that cover medical care.” You still must meet the 7.5% (temporary exemption for over 65) or 10% (for under 65), and can only deduct the amount OVER that percentage. Something good to know since if you make much less as a retiree, those premiums can contribute to being a high percentage of your income. Also as an older person you will likely have increasing medical costs each year. There is a high liklihood some of the premiums will be deductible.

    • Wilbert Morell says:

      You missed the fine print. You cannot write off premiums that you did not pay the entire cost as a retireeThe government pays most of the FEHB premiums. The article is correct. Pick up pub 721.

    • Wilbert Morell says:

      The 7.5 % AGI for seniors goes up to 10% for everyone in 2016 as per new law. It is now 10 percent for everyone under 65, unless disabled and on Medicare disability and soc,ial security disability. With all my problems, I choose not to be on disability and still work at age 60. I will be in a wheelchair soon enough, but not going out until I reach my 66th birthday at which time I hope to do volunteer work helping the elderly, even if we are the same age. You know what they say about old people, we are kind because we want to repent so we can get into heaven.

  9. RipoffHealthCareCosts says:

    Premiums for each health care plan included in the FEHB increase every year, and in some cases, by double digits. Health care plan costs can be expected to increase substantially in the future. Proposed voucher system is a complete scam. Under a voucher system, each participants share of their health care premiums will explode by leaps and bounds. Huge percentage of health care costs will be shifted to retirees very quickly under a voucher system. Just another scam to perpetrate on seniors and retirees and all others who are nearly unable to afford any health care.

    • theinnerring says:

      what does your rant have to do with the article?

      • Rambo1957 says:

        It’s his/her opinion of reasons for upcoming increases to premiums. I know it’s hard to comprehend someone not toeing the line.

        • theinnerring says:

          no, i can comprehend the point. it just has nothing to do with the issue discussed in the article, which, if you need help, is that retirees pay no more for FEHB than current employees with a few exceptions. 2/10 on the rant scale for him/her. yours….sorry no points for you.

          • Rambo1957 says:

            In the article: “Why is it that many federal employees think that FEHB costs increase”? The poster gave their opinion. Pertinent to the article.

          • Retired Fed says:

            I agree. RepoffHealthCareCosts was saying that if you think the premiums are going up fast now, wait until they implement the voucher system where government portion will go up no faster than the COLA or the Gross Domestic Product, which have been MUCH lower than the cost of health care/premiums. Meaning, in case you missed it, that premiums would go up even faster, MUCH faster. Personally, I think they are more likely to put us on Obamacare.

          • Wilbert Morell says:

            Because their premiums are not paid with pre tax dollars and cannot be deducted under medical expenses of 1040 schedule A unless in law enforcement or firemen jobs before they retired. However you can write off deductibles, co-pays, and out of pocket costs for drugs and durable medical equipment that the insurance companies do not pay for, but in 2016 the first 10% of your AGI costs are taxable. For example your taxable income is 50,000′ your premiums are 5,000, and your deductibes, co-pays, and all out of pocket expenses are 5,000, you not surpass the 10% Amount because you cannot count the premiums, and the other out of pocket expenses are exactly 10%. You may want to schedule the out year tests in same year so you can deduct some of it if you have a cheaper plan with higher deductibles and Copays.

  10. massconfusion2 says:

    It should be pointed out that employees who don’t have sufficient Social Security coverage (i.e, CSRS employees) are assessed a premium for Medicare Part A if they want that coverage. Part A premiums are based on a sliding scale, so that for FERS retirees it is normally free. When there is double coverage for hospital services covered by Part A, Medicare pays first and the FEHB plan normally covers the co-pays and deductibles which are not covered by Medicare.
    Part B premiums also vary so that beginning in 2014, families with high earnings will pay a premium on the
    $104.90 that is cited in the article.

    • theinnerring says:

      it appears part a eligibility is related more to whether or not the CSRS employee paid medicare taxes for 10 years (minimum) or retired before a date in 1983? does not seem to be related to deductions for social security?

    • $26307850 says:

      Best idea is just to avoid Medicare entirely. That’s what my father has done. Saves the doctor’s office a lot of paperwork and is a lot easier for him to keep straight also since there’s one less agency to call if there’s a problem.

    • Wilbert Morell says:

      FERS employees paid into Medicare, CSRS employees did not. There are no free lunches. CSRS is still a better deal unless you get canned before your full retirement. Grass always seems greener in other people’s backyard. I am 60 and hoping to hang in their till I am at least 65 to retire. I am going to volunteer to fill out income taxes for elderly in my community for free, just to keep my mind occupied, and help handicap people as long as I can stand on my own 2 feet. I am fighting several autoimmune neuromuscular disease and thank the government and God for my Heath insurance even if I have to pay for it.

  11. Grammi says:

    AND… the retirees preminum increases the same as a current employees’ premium does and mine as increased every year for over 30 years! With the new health care laws, I anticiape it will cause my premiums to raise substantially!

  12. Mark says:

    While I agree with the after-tax rationale for the “higher” payment amount, few people think in after-tax terms.
    Instead, I believe there is a simpler basis for the misconception. Most people equate 4 weeks to a month; thus, they expect to pay an amount equal to two bieeekly payments. However, since there are 26 biweekly payments in a year, the “extra two” biweekly payments are divided by 12 and equally distribuited on top of the two biweekly payments. In short, they pay 2.2 times the biweekly payment, rather than 2 times the biweekly amount, giving rise to the “higher” premium.

  13. PH says:

    An annuitant paying FEHB premiums from already taxed $ is certainly paying more than active employees whose premiums are deducted prior to being taxed, though the $ figure of the premium is the same for both. This is not a myth. It is a fact

  14. SAM says:

    Great info….thank you for the article…Sam Pittsburgh

  15. HR Spec says:

    Just remember, you have to have been continuously enrolled in the FEHB for the 5 years before you retire to carry over this benefit.

  16. krs1251 says:

    John wrote that ” Federal civilian retirees are not required to elect Part B. ” That would be great news, but I have to question it. In all the retirement seminars I attended we were told that if you did not have Part B coverage after 65, your FEHB benefits would be limited to the amount of claims that would not have been covered by Part B if you HAD coverage. Anyone else have any information on that?

    • jhenjoh says:

      Yes about limited to what B would pay, but that is not the complete answer. The provider must charge only what they could under Medicare. (Exception: If the provider does not participate in Medicare – then you are responsible for your deductibles, coinsurance, copayments, and any balance up to 115% of the Medicare approved amount. The maximum they can charge.)

      This is from the NALC Booklet for 2013, section 9, page 97
      ========================================================================
      When you are age 65 or older and do not have Medicare:

      Under the FEHB law, we must limit our payments for inpatient hospital care and physician care to those payments you would be entitled to if you had Medicare. Your physician and hospital must follow Medicare rules and cannot bill you for more than they could bill you if you had Medicare.

      You and the FEHB benefit from these payment limits. Outpatient hospital care and non-physician based care are not covered by this law; regular Plan benefits apply. The following chart has more information about the limits.

      • Retired Fed says:

        One caveat: Medicare payments is not always lower than private health insurance. My eye doctor submits a bill $139 to BCBS, The plan allowance was $60.52. I pay the $35 copay and the insurance pays the rest. That was last December. In March, just before I turned 65, they submit the same $139 bill to BCBS. But, under FEHB law, the Medicare Allowance was the standard and it was $91.24. I pay the $35 copay and the insurance paid the rest (Yes, they did pay more simply because I was turning 65 and I hadn’t apply for Medicare then). Anyone out there who went through this period in their lives, check your EOBs. I’d like to know how often Medicare pays more than the private health insurance do.

    • theinnerring says:

      there are almost endless discussions of this issue on federal soup.com. do a search for medicare part b. you’ll find tons of info

    • $26307850 says:

      It is true. My fathe is retired civil service and has been for about 15 years. He has never elected any Medicare option. While some recommend it, the idea that it is a requirement is a myth. If you don’t elect it, at least that’s one less agency to deal with if there are health insurance payment issues.

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