The FEHB and Medicare Combo That Saves Money (But Only If You Know the Rules)

Key Takeaways

• Pairing FEHB with Medicare can reduce your overall healthcare costs in retirement, but only if you follow certain timing and coordination rules.

• Your eligibility, Medicare enrollment decisions, and plan choices all affect how much you actually save.

Understanding the Basics of FEHB and Medicare

The Federal Employees Health Benefits (FEHB) Program provides health insurance to government employees and retirees. At the same time, once you turn 65, you become eligible for Medicare. These two programs can work together to cover a significant portion of your healthcare expenses—if you know how to use them correctly.

What FEHB Offers

• Also Read: Postal Employees, Big Changes Are Coming to Your Benefits in 2025—Here’s What You Need to Watch Out For
• Also Read: Military Buyback Programs Explained: Here’s How Federal Employees Can Use Them to Boost Their Pensions
• Also Read: Joining Civilian and Military Benefits—Why It’s the Best Move You’ll Make for Retirement

What Medicare Covers in 2025

Medicare is divided into parts:

• Part A: Hospital insurance. Free for most people. Covers inpatient care, skilled nursing facility stays, and hospice. The 2025 deductible is $1,676 per benefit period.

• Part B: Medical insurance. Covers doctor visits, outpatient services, durable medical equipment. The standard premium in 2025 is $185 per month, with a $257 deductible.

• Part D: Prescription drug coverage. Includes a $590 deductible and an annual $2,000 cap on out-of-pocket costs in 2025.

Most government retirees coordinate FEHB with Parts A and B, and prescription benefits may come through FEHB or a Medicare Part D plan depending on the setup.

Why Combining FEHB and Medicare Can Save You Money

Enrolling in Medicare and keeping your FEHB plan means you have two payers. Medicare becomes your primary payer (for Parts A and B services), and FEHB is secondary. This coordination can reduce your out-of-pocket costs significantly.

The Financial Advantages

• Lower cost-sharing: Medicare often pays first, reducing what your FEHB plan has to cover.

• Reduced copayments: Many FEHB plans waive deductibles and copays if you’re enrolled in Medicare.

• Prescription savings: Some FEHB plans coordinate with Medicare Part D, and many include access to a Medicare drug plan at no additional cost to you.

You must be enrolled in both Part A and Part B for your FEHB plan to offer these advantages. Skipping Part B often means forfeiting cost reductions.

Timing Your Enrollment Correctly

Turning 65 While Still Working

If you’re still employed in the government when you turn 65, you’re not required to enroll in Medicare right away. Your FEHB coverage counts as “creditable coverage,” so you can delay enrolling in Part B without penalty. When you retire, you’ll have an 8-month Special Enrollment Period (SEP) to enroll in Part B without late penalties.

Already Retired at Age 65

If you’re retired by the time you turn 65, enroll in both Part A and Part B during your Initial Enrollment Period (IEP), which begins three months before your 65th birthday and ends three months after.

Failing to enroll during this time means you’ll face a permanent Part B late enrollment penalty unless you qualify for an SEP.

How to Coordinate FEHB and Medicare Benefits

To fully benefit from both programs, you must understand how they interact and ensure you’re enrolled in the right parts.

Medicare as Primary, FEHB as Secondary

In retirement, Medicare pays first. Your FEHB plan picks up what Medicare doesn’t cover, such as:

• Excess charges beyond Medicare’s allowable amounts

• Copayments or coinsurance

• Services not fully paid by Medicare (in certain cases)

This dual coverage helps minimize gaps and may result in little to no out-of-pocket costs for common services.

Prescription Drug Coverage

If your FEHB plan includes good prescription benefits, you might not need to enroll in Medicare Part D. FEHB plans are considered creditable coverage, so you can avoid penalties for skipping Part D.

However, some plans automatically enroll Medicare-eligible retirees in an Employer Group Waiver Plan (EGWP), which is a form of Medicare Part D. This can add drug coverage with better pricing and protections, including the $2,000 cap.

When It Makes Sense to Drop FEHB

Most retirees keep both FEHB and Medicare because of the enhanced protection. But in a few situations, you might consider suspending FEHB coverage instead of canceling it entirely.

Suspension Scenarios

• You enroll in a Medicare Advantage plan (Part C) that offers cost savings.

• You live in an area where local Medicare plans offer strong supplemental benefits.

Suspending your FEHB keeps the door open for future reenrollment during Open Season or a qualifying life event. Canceling it closes that door permanently.

Things to Watch Out For in 2025

Several updates in 2025 affect how these programs work together:

• FEHB premium increases: Premiums for enrollees rose by an average of 13.5%, making cost coordination more valuable.

• Medicare Part D changes: The elimination of the coverage gap and the $2,000 out-of-pocket max help those with high drug expenses.

• PSHB transition: If you’re a Postal retiree, your FEHB coverage moved to the Postal Service Health Benefits (PSHB) program in 2025. PSHB requires Medicare Part B enrollment for most annuitants to maintain full coverage.

Cost-Saving Tips to Keep in Mind

• Enroll in both Medicare Part A and Part B once retired to trigger secondary coverage benefits under FEHB.

• Check your FEHB plan brochure to confirm if Medicare enrollees receive waived copayments or reduced deductibles.

• Review your annual Notice of Change to see how your FEHB benefits adjust when you become Medicare eligible.

• Compare total costs, not just premiums—look at deductibles, coinsurance, and coverage limits.

• Stay informed during Open Season, which runs from November to December, and make changes if a better coordination opportunity arises.

The Role of IRMAA in Your Medicare Premiums

If your income exceeds a certain threshold, you’ll pay more for Medicare Part B and Part D due to the Income-Related Monthly Adjustment Amount (IRMAA).

In 2025, IRMAA kicks in for individuals earning over $106,000 and couples earning over $212,000 (based on 2023 tax returns).

This is an important factor when evaluating whether the extra benefits of combining FEHB with Medicare justify the higher premium.

Making the Most of the Combo

The FEHB and Medicare combination works best when you:

• Coordinate coverage properly

• Time your enrollment to avoid penalties

• Understand how the plans interact

• Adjust your plan annually based on changing needs

This approach ensures maximum financial protection while keeping your healthcare decisions flexible.

Know the Rules—Then Reap the Rewards

The synergy between FEHB and Medicare in 2025 can significantly reduce your health-related expenses in retirement. But the benefits only materialize if you understand the rules, avoid penalties, and take advantage of coordination opportunities.

Take the time to review your options, especially as you approach age 65 or plan to retire. Even small mistakes—like missing an enrollment window—can cost you hundreds or thousands of dollars per year.

For tailored guidance and help reviewing your plan options, speak with a licensed agent listed on this website to get professional assistance.