The Best Way to Combine FEHB and Medicare—How Federal Retirees Can Optimize Their Health Coverage

Howard Chapman
November 25, 2024

Key Takeaways:

Combining FEHB (Federal Employees Health Benefits) and Medicare offers comprehensive healthcare coverage, but understanding the best way to coordinate the two is essential to maximize benefits.
By enrolling in Medicare Part B while retaining FEHB, federal retirees can minimize out-of-pocket costs and gain access to an expansive network of healthcare providers.

The Best Way to Combine FEHB and Medicare—How Federal Retirees Can Optimize Their Health Coverage

Federal retirees have a unique opportunity to optimize their healthcare by combining the FEHB program with Medicare. While this combination can provide robust coverage, it’s essential to know the best strategies to minimize costs and enhance benefits. This article outlines the most effective ways to coordinate FEHB with Medicare, helping retirees achieve comprehensive and cost-effective healthcare in retirement.

Understanding the Basics: FEHB and Medicare

Federal Employees Health Benefits (FEHB) and Medicare are both valuable resources for retirees, but they serve different roles. FEHB is the health insurance program for federal employees and retirees, offering a wide range of plan options, including nationwide coverage and various levels of benefits. On the other hand, Medicare is a federal program primarily available to individuals aged 65 and older, providing medical and hospital insurance (Part A and Part B) and options like Medicare Advantage (Part C) and prescription drug coverage (Part D).

When you become eligible for Medicare at 65, you can enroll in Medicare Part A (hospital insurance) at no cost if you or your spouse paid Medicare taxes during your working years. However, Medicare Part B (medical insurance) comes with a monthly premium. To make the most of both programs, you need to decide if enrolling in Medicare Part B while keeping your FEHB coverage is worth it. For many federal retirees, combining the two results in better coverage and reduced out-of-pocket costs, but it’s crucial to weigh your options.

Why Medicare Part B Is Worth Considering

The decision to enroll in Medicare Part B can be a significant one due to the premiums involved. While these costs may seem unnecessary when you already have FEHB, there are compelling reasons why many federal retirees choose to enroll:

Reduced Out-of-Pocket Costs: When you combine FEHB with Medicare Part B, your healthcare expenses like copayments, coinsurance, and deductibles can be significantly reduced. Medicare becomes the primary payer, while FEHB serves as the secondary payer, which often means lower out-of-pocket costs.
Access to a Broader Network: Medicare Part B allows retirees access to an extensive network of healthcare providers nationwide. If you only have FEHB, you might be restricted to a specific network or face higher costs when seeing out-of-network providers. Medicare’s flexibility, when combined with FEHB, provides greater freedom in choosing doctors and specialists.
Protection Against Rising Costs: FEHB premiums and out-of-pocket costs can increase over time. Medicare, with its predictable premiums and extensive coverage, provides an extra layer of security against escalating healthcare costs as you age. By combining both, retirees can create a balanced and stable healthcare plan.

Medicare Part A: Automatic Enrollment and FEHB Coordination

Most federal retirees are automatically enrolled in Medicare Part A when they turn 65, as long as they have sufficient work credits. Medicare Part A covers inpatient hospital care, skilled nursing facilities, hospice care, and some home health care. It is premium-free for those who meet the work requirements, so there’s little reason not to accept this coverage.

When you combine Medicare Part A with your FEHB plan, Medicare typically becomes the primary payer for inpatient services, and FEHB acts as secondary coverage. This coordination can help reduce your overall healthcare expenses and ensure that most of your inpatient care is covered.

Prescription Drug Coverage: Do You Need Medicare Part D with FEHB?

Another common question for federal retirees is whether they need Medicare Part D, which covers prescription drugs, in addition to their FEHB plan. Fortunately, FEHB plans already include prescription drug coverage that is as good as or better than what Medicare Part D offers. Therefore, most federal retirees do not need to enroll in a separate Part D plan.

Sticking with FEHB’s drug coverage means you don’t have to worry about paying additional premiums for Medicare Part D. However, if your medication needs change significantly over time, reviewing your options and understanding your FEHB plan’s prescription coverage is essential.

Choosing the Best Plan: Medicare Advantage vs. FEHB

Some retirees explore Medicare Advantage (Part C) plans, which offer additional benefits beyond what original Medicare provides, such as dental and vision coverage. However, if you choose a Medicare Advantage plan, you may lose the benefits of your FEHB coverage, as most plans don’t coordinate with Medicare Advantage.

For federal retirees, keeping FEHB and using it alongside Original Medicare (Part A and Part B) is often the most effective approach. FEHB offers broader coverage, including comprehensive care options that Medicare Advantage might not provide. Additionally, maintaining FEHB coverage ensures that you can switch plans during Open Season, allowing for flexibility as your healthcare needs evolve.

How to Enroll in Medicare Without Losing FEHB

Enrolling in Medicare while keeping your FEHB coverage is a straightforward process, but timing and understanding the rules are crucial:

Initial Enrollment Period: The best time to enroll in Medicare Part B is during your Initial Enrollment Period, which begins three months before you turn 65 and lasts for seven months. Enrolling during this period ensures you won’t face penalties for late enrollment.
Coordination of Benefits: When you have both Medicare and FEHB, Medicare becomes the primary payer, and your FEHB plan becomes secondary. You should inform both your Medicare and FEHB plan providers so they can coordinate your benefits effectively. This setup helps minimize any gaps in coverage and reduces out-of-pocket expenses.
Avoiding Penalties: Even if you’re retired and covered by FEHB, enrolling in Medicare Part B when first eligible is often the best approach. Delaying enrollment may result in lifetime penalties, which increase your premiums. These penalties add up and can make Medicare Part B more expensive in the long run.

Is It Always Beneficial to Combine FEHB and Medicare?

While many federal retirees benefit from combining FEHB with Medicare Part B, it’s not always the right choice for everyone. If your FEHB plan already offers extensive coverage with low out-of-pocket costs, adding Medicare Part B might not provide substantial additional benefits. It’s essential to evaluate your current health status, anticipated medical needs, and financial situation before deciding.

Managing Costs and Maximizing Benefits

Combining FEHB and Medicare is a powerful way to optimize healthcare in retirement, but managing costs effectively requires careful planning. Here are a few tips:

Review Your Plan Options Annually: FEHB Open Season is an opportunity to review and switch your plan if necessary. Ensure that your current FEHB plan complements your Medicare coverage and offers the best balance of premiums, copays, and network options.
Explore Catastrophic Coverage Limits: Some FEHB plans offer catastrophic coverage limits, ensuring you won’t pay more than a certain amount in out-of-pocket expenses each year. If you combine this with Medicare, you may benefit from an even more comprehensive cap on your costs.
Consider a Healthcare Spending Account: If you have access to a healthcare spending account (HSA or FSA), you can set aside pre-tax dollars to cover out-of-pocket medical costs. This can be a valuable tool for managing the expenses associated with combining Medicare and FEHB.

Maximizing Health Coverage Through FEHB and Medicare

Federal retirees have a unique advantage in being able to combine FEHB with Medicare, creating a comprehensive and flexible healthcare plan. By understanding how these benefits work together and making informed decisions during Open Season and Medicare enrollment periods, retirees can ensure they receive the best possible healthcare coverage at the lowest possible cost.