Your Federal Retiree Health Insurance Choices at 65
When you turn 65 and are a federal retiree, you have several paths for your health insurance. Unlike many private sector retirees, you can keep your Federal Employees Health Benefits (FEHB) plan, and it will continue to provide comprehensive coverage. However, your relationship with Medicare changes upon retirement. For active federal employees over 65, FEHB is the primary payer, but once retired and on Medicare, Medicare becomes the primary payer for all Medicare-covered services.
The Case for Enrolling in Medicare Part A
Most federal employees and retirees are eligible for premium-free Medicare Part A, which covers inpatient hospital care, skilled nursing facility care, hospice, and some home health services. The Office of Personnel Management (OPM) strongly recommends enrolling in premium-free Part A. This provides a no-cost second layer of protection, which can significantly reduce your out-of-pocket expenses for hospital-related services by covering deductibles and coinsurance that your FEHB plan might not. The only real drawback is if you wish to contribute to a Health Savings Account (HSA), which you cannot do once enrolled in Medicare Part A.
The Complex Decision of Medicare Part B
Deciding whether to add Medicare Part B is where things get complicated. Part B covers outpatient services, including doctor visits, preventive services, lab tests, and durable medical equipment. This coverage comes with a monthly premium, which can increase for high-income retirees. When you have both FEHB and Part B, Medicare pays first and your FEHB plan acts as the secondary payer, often waiving most or all remaining deductibles, copayments, and coinsurance for Medicare-covered services. This can dramatically lower your out-of-pocket costs, making the combined coverage very comprehensive.
On the other hand, if you choose not to enroll in Part B, you risk a lifelong late enrollment penalty if you ever decide to sign up later. The penalty adds 10% to your premium for every 12-month period you were eligible but not enrolled. However, if you are continuously covered by FEHB as an active employee or through a working spouse, you can delay Part B without penalty. After retirement, you have an 8-month Special Enrollment Period to sign up for Part B penalty-free.
A Key Consideration: High-Income Surcharges (IRMAA)
For higher-income retirees, the Income-Related Monthly Adjustment Amount (IRMAA) can make Medicare Part B and Part D significantly more expensive. The Social Security Administration uses your tax return from two years prior to determine if you owe an income-related surcharge on your premiums. This can be a major disincentive for those in higher income brackets, potentially erasing any savings gained from combining coverage.
Combining FEHB with Medicare Advantage
Federal retirees who enroll in both Medicare Part A and B can gain access to special FEHB-integrated Medicare Advantage (MA) plans offered by several FEHB carriers. These plans, often referred to as FEHB-MA plans, can be a compelling option for several reasons:
- Premium Reimbursement: Some FEHB-MA plans offer a partial or full reimbursement of your Medicare Part B premium, helping to offset the cost.
- Reduced Cost-Sharing: Many of these plans offer $0 copayments and deductibles for Medicare-covered services when you see an in-network provider, a benefit not available through Original Medicare and FEHB alone.
- Enhanced Benefits: The plans often include additional benefits like dental, vision, and hearing coverage, which Original Medicare does not provide.
Enrolling in a special FEHB-MA plan typically involves suspending your standard FEHB coverage, so it is essential to research the specifics carefully.
How FEHB and Medicare Cover Prescriptions
Federal retirees generally do not need to enroll in Medicare Part D. FEHB plans are required to have prescription drug coverage that is “creditable,” meaning it is at least as good as a standard Medicare Part D plan. If you stay with your FEHB coverage for prescriptions, you will not face a late enrollment penalty if you decide to join a Part D plan later. Some FEHB plans, however, now automatically include Part D coverage (known as an Employer Group Waiver Plan, or EGWP) for Medicare-eligible enrollees, so it's vital to check your plan's details.
Scenario Comparison: FEHB vs. FEHB + Medicare
To illustrate the potential differences, here is a simplified comparison of costs and coverage. This table is for illustrative purposes only, and actual costs depend on your specific plan and healthcare needs.
| Feature | FEHB Only (as retiree) | FEHB + Medicare A&B | FEHB + FEHB-MA Plan |
|---|---|---|---|
| Primary Payer | FEHB | Medicare | Medicare |
| Monthly Premiums | FEHB premium only | FEHB premium + Medicare Part B premium | FEHB-MA premium (often lower) + Medicare Part B premium (often reimbursed) |
| Out-of-Pocket Costs | Subject to plan's deductibles, copayments, and coinsurance | Often eliminated for Medicare-covered services | Often near-zero for in-network Medicare services |
| Network | Limited to plan's network (HMO) or higher cost for out-of-network (FFS) | Access any provider accepting Medicare | Limited to plan's network, or higher cost for out-of-network |
| Late Enrollment Penalties | No penalty for Part D; lifelong penalty for Part B if enrolled later | No penalties if enrolled on time | No penalties if enrolled on time |
Making the Right Decision for Your Retirement
Your decision hinges on a careful cost-benefit analysis. Consider your health needs, financial situation, and preferred access to providers. While adding Medicare Part A is almost always a good idea if it's premium-free, the value of Part B must be weighed against its monthly premium, especially for higher-income individuals subject to IRMAA. Exploring a special FEHB-MA plan can also provide significant cost savings and enhanced benefits. It’s important to research your specific FEHB plan's coordination of benefits and to use the tools available during the annual Federal Benefits Open Season.
For authoritative guidance on this complex topic, you can also consult resources from the Office of Personnel Management via their Medicare page.
Ultimately, there is no one-size-fits-all answer. Your unique circumstances will determine the best path forward for your healthcare in retirement.
