Federal employees make hundreds of decisions as they approach retirement, but few have as massive an impact as how you handle your health insurance. Choosing whether to rely solely on FEHB or to add Medicare to the mix can mean the difference between saving thousands in premiums or facing devastating gaps in coverage.
While there is no one-size-fits-all answer, understanding how these two systems work together is essential to getting the most out of your benefits when you need them most.
Understanding Your FEHB Coverage
Before diving into Medicare, it is crucial to understand the incredible value of your Federal Employees Health Benefits (FEHB).
As long as you retire with an immediate pension and have been covered under FEHB for the five years immediately preceding your retirement, you can keep this coverage for the rest of your life. The government continues to pay about 72% of the premiums, making it one of the most valuable benefits you have. You can still change plans during open season, and it can serve as either your primary or secondary insurance depending on your Medicare enrollment.
The Basics of Medicare for Feds
Medicare is divided into four parts: A, B, C, and D.
For most federal employees, Parts C and D are rarely necessary, as FEHB typically provides excellent prescription drug coverage and comprehensive care. Part A covers hospital stays and is generally free for those who have paid Medicare taxes while working, making it an easy decision to enroll at age 65.
The real dilemma lies with Part B, which covers outpatient services and comes with a monthly premium. The base cost is around $200 per month, but this amount increases significantly for higher-income retirees.
Option 1: Keeping FEHB Only
You always have the option to keep FEHB and decline Medicare Part B. The primary advantage here is cost savings. By skipping Part B, you save at least $2,400 a year per person and potentially up to $15,000 a year for high-earning couples who would be subject to income-related premium surcharges.
This route often makes sense for super-high earners or those who are very healthy and comfortable with their current FEHB coverage. However, the risk is that if you change your mind later, Medicare imposes a permanent late-enrollment penalty, meaning you are essentially locking yourself into relying solely on FEHB for the long haul.
Option 2: Combining FEHB and Medicare
Many retirees choose to enroll in both FEHB and Medicare Parts A and B.
In this scenario, Medicare becomes your primary insurance, and FEHB acts as secondary coverage. The major benefit is that many FEHB plans will waive deductibles and copays when Medicare is primary, leaving you with virtually no out-of-pocket medical costs. Some FEHB plans even offer a partial reimbursement for your Part B premiums. This double coverage provides incredible peace of mind, especially during years with high medical expenses, though you must weigh this against the cost of the Part B premiums.
Common Mistakes to Avoid
Whatever path you choose, there are a few critical mistakes you must avoid.
First, never drop your FEHB coverage. Some retirees mistakenly believe they can rely entirely on Medicare like their private-sector friends, but once you drop FEHB in retirement, you can never get it back.
Second, if you decide to enroll in Medicare Part B, do not delay. You should enroll when you are first eligible at age 65, or when you retire if you continue working past that age, to avoid steep lifetime penalties.
Finally, remember that with FEHB, you generally do not need private Medicare Advantage or supplement plans, so you can safely ignore those sales pitches.
