Still Using FEHB After Retirement? Here’s How to Keep Your Coverage Without Overspending

Key Takeaways:

1. Maintaining FEHB after retirement can provide solid health coverage but requires planning to avoid overspending.
2. Coordinating FEHB with Medicare or other cost-saving strategies can reduce premiums and out-of-pocket expenses in retirement.

Understand Your FEHB Options for Retirement

Retiring as a federal employee comes with some incredible benefits, and keeping your Federal Employees Health Benefits (FEHB) coverage is one of the best. However, what you might not realize is that if you aren’t mindful, you could end up paying more than necessary for health insurance as a retiree. Here’s a guide on how to enjoy FEHB after retirement without feeling a financial pinch.

Why Keeping FEHB After Retirement Can Be Beneficial

• Also Read: 4 Reasons Why Medicare Could Be a Smarter Choice Than FEHB for Some Federal Retirees
• Also Read: Leaving Your TSP Alone Can Be Risky—Especially If You’re Already Retired
• Also Read: FERS Pension Gone? Here’s What Really Happens If You Resign Tomorrow

Unlike other insurance plans that may adjust coverage or increase premiums dramatically after retirement, FEHB provides coverage continuity. You also don’t have to worry about medical underwriting as you would with some other retiree plans. However, this peace of mind comes with a cost, and without a clear strategy, these costs can add up quickly.

Step 1: Understand Eligibility and Enrollment

To keep your FEHB coverage in retirement, you must meet specific eligibility criteria. The basic rule is that you need to retire with an immediate annuity and must have been continuously enrolled in FEHB for the five years immediately preceding retirement (or since your earliest opportunity to enroll). If you miss this window, you might lose the option to carry FEHB into retirement.

Important Timelines to Consider

• Eligibility Review: As you approach retirement, confirm with your HR office that you’ve met the five-year rule.
• Annual Open Season: Even after retirement, you can review and make adjustments to your plan every year during FEHB Open Season. This can be crucial as your healthcare needs and plan costs may change.

Step 2: How Medicare Can Help Lower FEHB Costs

Once you reach age 65, Medicare becomes available to help with your healthcare costs, and coordinating it with FEHB can be a big saver. Medicare and FEHB work together in two primary ways:

1. Medicare as Primary, FEHB as Secondary: If you enroll in both, Medicare usually pays first, and your FEHB plan will cover much of the remaining costs, reducing what you pay out of pocket.
2. Premium Savings: Since Medicare becomes primary, some FEHB plans offer a lower premium. This can mean hundreds or even thousands in annual savings.

Should You Sign Up for Medicare Part B?

Medicare Part A (hospital insurance) is premium-free if you or your spouse have worked at least 10 years in Medicare-covered employment. Part B (medical insurance) has a premium, and whether to enroll can be a big decision. Many retirees decide to enroll in Part B to gain additional coverage, as Medicare and FEHB together can offer nearly comprehensive coverage.

Key Considerations:

• Coordination of Benefits: By combining Medicare with your FEHB plan, you can lower your out-of-pocket costs, as your FEHB plan may waive copays and deductibles for services Medicare covers.
• Late Enrollment Penalty: If you delay Part B enrollment, you could face a 10% increase in premiums for each 12-month period you could have enrolled but didn’t. So, think long-term before opting out.

Step 3: Know When to Review and Switch Plans

Retirees often benefit from switching plans as their health or financial situations change. FEHB offers a variety of plans, including HMOs, PPOs, and high-deductible health plans (HDHPs), and some may better fit your needs over time. A few key points to keep in mind:

1. Annual Review During Open Season: Each year, you can review and switch your FEHB plan. Changes to plan benefits and costs may influence your choice, especially if you’re already enrolled in Medicare.
2. Consider Total Costs: Don’t just focus on the monthly premium. Look at deductibles, copays, and coverage for specific services. For example, some plans may have lower premiums but higher out-of-pocket costs.

High-Deductible Health Plans and HSA Opportunities

HDHPs, paired with a Health Savings Account (HSA), can be a valuable choice if you’re relatively healthy. You can use an HSA to save for future healthcare costs, and your contributions and withdrawals for qualified expenses are tax-free.

Tip: You can continue using HSA funds tax-free even after enrolling in Medicare, although you’ll no longer be able to contribute.

Step 4: Don’t Overlook Catastrophic Coverage Options

Medical costs tend to increase as we age, and catastrophic coverage can prevent unexpected expenses from disrupting your retirement budget. Many FEHB plans offer coverage for serious or long-term health conditions, but it’s important to check your plan’s specific limits.

What to Check for:

• Out-of-Pocket Maximum: Look at the annual cap on your out-of-pocket expenses, as this is the maximum amount you would pay for covered healthcare in a year.
• Prescription Drug Costs: If you expect high prescription costs, check for a plan with favorable drug pricing or coverage for specialty medications.

Step 5: Budget for Rising Healthcare Costs

Healthcare costs continue to rise annually, and while FEHB is more stable than many private insurance plans, it’s not immune to cost increases. Each year, premiums generally increase, so you should plan for these adjustments in your retirement budget.

Estimate Annual Increases

Historically, FEHB premiums have increased by about 5-6% per year. Setting aside funds for future healthcare expenses, even if you’re currently healthy, can help avoid financial strain as you age.

Factor in Inflation

Not only do premiums rise, but medical inflation can also impact what you pay out-of-pocket. Try to estimate a buffer in your retirement funds to accommodate unexpected increases in healthcare spending.

Step 6: Be Mindful of Additional Benefits and Resources

Your FEHB plan offers more than just basic health insurance. Many plans include additional resources like wellness programs, preventive services, and telehealth options, all of which can help reduce your healthcare costs if you take advantage of them.

Helpful Benefits to Look For:

• Preventive Care: Many plans offer free preventive services. Regular checkups can help catch issues early and avoid expensive treatments down the line.
• Telehealth Services: If your plan includes telehealth, you could save on routine visits by consulting a healthcare provider virtually.
• Health Incentive Programs: Some plans offer incentives for completing wellness activities, which can be a nice perk for staying active and healthy.

Wrapping Up Your FEHB Strategy

Retirement planning isn’t only about building your nest egg; it’s also about managing your expenses. With FEHB, you have access to excellent coverage, but that doesn’t mean you should settle for high costs if there are ways to lower them. Coordinating FEHB with Medicare, reviewing your plan annually, and budgeting for healthcare costs are effective strategies to help you keep coverage without overspending.