As I’ve written before, your FERS retirement benefit is more than just your pension. In fact, if you do your retirement planning correctly, you can take your federal employee health benefits, or FEHB, with you into retirement. I strongly believe that being able to keep your FEHB coverage after you retire is the best of the many retirement federal employee retirement benefits. In this article I explain how federal employee health insurance changes upon retirement. I have a passion for helping feds understand their benefits package so that they can make informed decisions. Note however, that I am speaking in my personal capacity. If you have specific questions, please contact your human resources department or a certified financial specialist.
Table of contents
- What are the US Federal Governments retirement benefits?
- Does a federal employee get free health insurance after retirement?
- Why is health insurance important?
- How can a federal employee keep their health insurance after retirement?
- How much does health insurance cost when you retire?
- Federal employee retirement health benefits and Medicare
- What if I die before my spouse?
What are the US Federal Governments retirement benefits?
Federal employees receive generous retirement benefits. Many people know that federal employees receive a pension. However, few people understand the full complement of federal retirement benefits. Employees in the federal employee retirement system, also called FERS, receive three benefits. (1) A retirement annuity (pension). (2) A supplemental pension from ages 57-62. (3) A continuation of their FEHB plan into retirement. Previously, I have written extensively about all of the benefits of federal employment. Today I’ll try to explain federal employee health insurance benefits after retirement.
Does a federal employee get free health insurance after retirement?
Unfortunately, federal employees do not receive free health insurance upon retirement. However, federal employees can keep their current federal employee health benefits (FEHB) plan upon retirement. Employees continue to pay the employee portion of the premium. The government pays the remainder of the retiree’s premium at the same rate as they do for current employees. (Up to 75% of the premium, depending on the plan).
Why is health insurance important?
Almost 2/3rds of bankruptcies in the United States were caused by medical bills. Health insurance is not just insuring your health; it insures your wealth. Even after the passage of the Affordable Care Act, most people in the US receive their health care through their employer. Insurance can be difficult to obtain if you retire before you’re eligible before Medicare. The ability to have access to any sort of coverage between retirement and Medicare is a huge benefit. Not just for federal employees, but also their spouses, and family members.
How can a federal employee keep their health insurance after retirement?
OPM states that federal employees can keep their health insurance after retirement as long as you meet the following conditions:
- You retire on an immediate annuity or postponed retirement if you have reached your minimum retirement age and have 10 years of service. This means that you cannot take a deferred retirement and expect to retain your FEHB coverage. Importantly, the requirements to maintain FEHB upon retirement are different from those pertaining to voluntary retirement. To receive a full pension, you need to have 30 years of federal service and meet your minimum retirement age (55-57 years old, depending on year of birth). You may also qualify for an immediate annuity at age 62 with 5 years of service or at age 60 with 20 years of service. However, FEHB is governed by the “MRA+10 rule”. In general, you need to be at your MRA and have 10 years of service to be eligible. Note: you may be able to get a waiver in certain instances, please check the OPM guidance.
- In addition to MRA+10 you also must have participated in the FEHB for the 5 years prior to your retirement. If you retire with less than 5 years of service in the federal government, you may still be eligible to continue your FEHB if you were enrolled in FEHB for your whole government career. Note that the 5 year coverage window applies to your federal career. If you took a career intermission, you would not need to work an additional 5 years before retiring, so long as you had been enrolled in FEHB before leaving the government.
How much does health insurance cost when you retire?
The health insurance premiums remain the same both before and after retirement. However, federal employees pay their portion of the premium on a biweekly basis. Retirees pay their portion on a monthly basis. However, if you remain on the same health plan before and after retirement, your total yearly premiums and benefits will remain the same.
It is important to note that part time federal employees typically have to pay more for their health insurance than full time employees. (That is, the government contribution is prorated based upon the number of hours worked). However, upon retirement, part time and full time employees receive the same government contribution (the full contribution).
Another important fact is that you are not allowed to participate in flexible spending accounts, also called FSAs, upon retirement. The IRS has specified that FSAs are a salary benefit and therefore cannot be used by people receiving an annuity.
Where can I find FEHB health insurance premiums as a federal employee after retirement?
You can find information about specific plans for federal employee health insurance after retirement on the OPM webpage on the FEHB program. The OPM also allows you to make a plan comparison of every FEHB plan offered throughout the country with this tool.
Federal employee retirement health benefits and Medicare
There are a lot of factors when trying navigate FEHB, Medicare, and Medicare Advantage (i.e. Medicare part C). As someone decades away from being about to apply for Medicare, I haven’t studied them deeply and do not feel qualified to discuss this in great detail. To get more information on the topic, I interviewed Brian Sigwart. Brian is a certified financial planner with Cummins and Associates Financial Group. He focuses his practice on educating federal employees how their benefits work. He has been providing financial wellness classes for over a decade at over 25 federal agencies in the DELMARVA area. As a side note, even if you’re not in the DELMARVA area, Brian is licensed in many states and works with federal employees throughout the US. If you want to speak to a certified financial planner who knows federal employee benefits, you can contact him here.
Medicare has 4 parts. Part A covers hospitals and in-patient care and is free for most US Citizens. Medicare Part B covers the cost of out patient care; the cost depends upon your income in retirement. You need to pay for Medicare Part B; for most retirees (joint income less than $174,000), it costs $144.60 per month. Brian pointed out to me that retirees could face significant Medicare premiums if they sell a rental property or take a large withdrawal from a tax-deferred account. Medicare Part B premiums can go up to $491.60 per month for high income earners. The final two parts, Medicare C and D provide gap coverage and drug coverage, respectively.
FEHB and Medicare Parts A & B
You can (and should- it’s free) enroll in Medicare part A when you’re 65. You’re expected to enroll in Medicare Part B when you turn 65 if you are retired. If you do not enroll at age 65, you will be penalized if you try to enroll later. You should know that while you can continue your FEHB benefits for life, your FEHB insurance company expects you to enroll in Medicare Part B. Therefore, if you don’t enroll in Medicare Part B at age 65 because you participate in the FEHB, you may find an unpleasant surprise in the form of the coverage gap when you visit a doctor.
FEHB and Medicare parts C & D
Federal employees should definitely enroll in Medicare Parts A & B according to Brian. However, when it comes to Medicare Advantage, Brian recommends declining that coverage and sticking with your FEHB instead. Typically the FEHB has more benefits and greater coverage than Medicare part C. Finally, most FEHB plans also cover prescription drugs, so you should not need to enroll in Medicare Part D. However, you may want to double check that your FEHB plan does cover the prescription drugs you need before declining Medicare Part D. If you decide you want Medicare Part D, you can add Medicare Part D during a future open enrollment period but may face a penalty in the form of an increased premium. Furthermore, you can only add Part D during the open season.
So, in summary, most federal employees should:
- Keep FEHB coverage
- Enroll in Medicare Parts A & B when they are eligible
- Decline Medicare Parts C & D.
If you want to go deep into the weeds on this topic, OPM published a 20 page book that walks you through the decision making process. Be warned that it is extremely dry reading.
Long term care
One final note Brian wanted me to share is that neither FEHB nor Medicare cover long-term care and are not a substitute for long term care insurance. While Medicaid may pay for nursing home care, that you’re not eligible for Medicaid until you have depleted all of your assets. I write this blog to help federal employees grow their wealth (and maybe retire early). Therefore, I feel like I need to mention wealth preservation strategies along with my other content. While no one wants to imagine themselves in a nursing home, you should at least have a plan for your assets if that happens to you.
What if I die before my spouse?
As a federal retiree, you may enroll in a family plan, a self plan, or a self plus one plan, if offered by your insurance. Given that the FEHB is such a valuable benefit, if only one member in the household is a family employee, you should plan on utilizing his or her insurance in retirement. However, if the federal spouse dies first, it’s important to look at survivor benefits.
If you are enrolled in a “self plus one” or family plan at the time of your death in retirement, your survivors can continue coverage with the FEHB. Surprisingly, the government continues to pay the full government portion of the premiums and your survivors only need to come up with the employee portion (25%). These amazing survivor benefits are the same for both employees and annuitants. However, you should know that if you’re enrolled in a “self plus one” plan, your partner cannot change his or her coverage to a family plan after your death. You can find full details in the FEHB handbook.
Hopefully after reading this article you realize just how amazing your FEHB benefits are. (I wish all federal employees knew this from day one!) FEHB doesn’t just help you pay for care while you’re a federal employee, but it is even more valuable after you retire.
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