FEHB and Medicare Together: How to Avoid Overpaying for Health Coverage in Retirement

Key Takeaways:

1. Combining FEHB and Medicare can lower your healthcare costs in retirement. Learn the strategies for integrating these programs to maximize benefits while minimizing expenses.

2. Understanding coverage gaps and overlaps helps you avoid paying for unnecessary benefits. Making informed choices ensures your healthcare needs are met without overspending.

Why Combining FEHB and Medicare Matters

As a federal retiree, you’re in a unique position to benefit from the Federal Employees Health Benefits (FEHB) program and Medicare. Together, these programs can provide comprehensive coverage that meets your healthcare needs while saving you money. However, navigating the details of how these systems interact can be confusing. Overlapping benefits, premium costs, and enrollment decisions can all affect your retirement budget. Here, we’ll walk you through the essentials to ensure you make the most of these valuable benefits.

Understanding Your Options

FEHB: A Lifelong Health Partner

The FEHB program offers robust health insurance options for federal employees and retirees. Even after retirement, you can keep your FEHB coverage as long as you meet the eligibility requirements—primarily, being enrolled in FEHB for the five years leading up to retirement. FEHB plans typically cover hospital visits, prescription drugs, preventive care, and more.

Medicare Basics

Medicare provides additional health coverage for Americans aged 65 and older. It consists of:

• Part A (Hospital Insurance): Covers inpatient hospital care, skilled nursing facility care, and some home health services. Most people qualify for premium-free Part A.

• Part B (Medical Insurance): Covers doctor visits, outpatient care, and preventive services. Part B requires a monthly premium.

• Part D (Prescription Drug Coverage): Helps pay for prescription medications.

Why Medicare Part A Is a No-Brainer

Most federal retirees opt for Medicare Part A because it’s premium-free if you’ve worked at least 10 years in Medicare-covered employment. Enrolling in Part A supplements your FEHB coverage, reducing your out-of-pocket expenses for hospital stays and other inpatient services. Since there’s no additional cost to you, it’s a straightforward decision to enhance your benefits.

Deciding on Medicare Part B

Pros of Adding Part B

• Lower Out-of-Pocket Costs: Medicare Part B helps cover services like doctor visits and outpatient care that might otherwise require higher copayments under FEHB.

• Coordination of Benefits: With both FEHB and Medicare Part B, your coverage is comprehensive. Medicare becomes your primary insurer, and FEHB pays secondary, often covering costs like deductibles and coinsurance.

• Potential FEHB Savings: Some FEHB plans offer incentives, like reduced premiums or cost-sharing, for enrollees who add Medicare Part B.

Cons of Adding Part B

• Monthly Premium: The standard 2025 Part B premium is $185. If your income exceeds a certain threshold, you may pay more due to the Income-Related Monthly Adjustment Amount (IRMAA).

• Duplication of Benefits: If your FEHB plan already covers a service, you might not gain significant additional value from Part B.

Balancing FEHB and Medicare Part D

If you’re enrolled in an FEHB plan, you likely already have prescription drug coverage that meets or exceeds Medicare Part D standards. In most cases, adding Part D isn’t necessary, as FEHB covers a wide range of medications. However, if your prescriptions are exceptionally costly or your FEHB plan has limitations, you may consider Part D.

Enrollment Timelines to Remember

Medicare Enrollment Periods

• Initial Enrollment Period (IEP): Begins three months before you turn 65 and lasts for seven months. Enrolling during this time avoids late penalties.

• Special Enrollment Period (SEP): If you’re still working past age 65 and covered by employer-sponsored insurance, you can delay Medicare enrollment without penalties. You’ll have an eight-month window after leaving employment or losing coverage to sign up.

FEHB and Medicare Coordination

Once you’re enrolled in Medicare, notify your FEHB provider to coordinate benefits. This ensures claims are processed correctly and reduces your out-of-pocket costs.

Common Pitfalls to Avoid

Overlapping Coverage

Paying for both FEHB and Medicare without fully understanding the coordination of benefits can lead to unnecessary expenses. Ensure you’re not duplicating coverage that you don’t need.

Missing Enrollment Deadlines

Failing to enroll in Medicare during the designated periods can result in late penalties that last a lifetime. For example, the late enrollment penalty for Part B adds 10% to your premium for every 12-month period you were eligible but didn’t enroll.

Skipping Cost Comparisons

Different FEHB plans interact with Medicare in various ways. Some offer better incentives for Medicare enrollees, such as reduced premiums or waived deductibles. Compare your plan options during Open Season to ensure you’re maximizing benefits.

Tips for Cost Optimization

Utilize Medicare Integration Features

Many FEHB plans reduce deductibles, copayments, or premiums for enrollees who also have Medicare Part B. Some plans even reimburse a portion of the Part B premium. Check your FEHB plan’s brochure for details on these benefits.

Choose the Right FEHB Plan

If you’re planning to enroll in Medicare, consider switching to an FEHB plan designed for retirees with Medicare. These plans often have lower premiums and additional perks, like enhanced prescription drug coverage.

Reevaluate Coverage Annually

Your healthcare needs and plan offerings can change from year to year. Use Open Season to reassess your FEHB plan and Medicare benefits. Pay close attention to the Annual Notice of Change (ANOC) from Medicare and plan brochures from FEHB.

Addressing Prescription Costs

Starting in 2025, Medicare Part D includes a $2,000 annual cap on out-of-pocket prescription drug costs. If you have expensive medications, this could significantly reduce your expenses. Compare this benefit with your FEHB plan’s prescription coverage to determine whether adding Part D makes sense for you.

When to Consider Dropping FEHB

Some retirees find that Medicare alone meets their healthcare needs, especially if they’re on a tight budget. However, dropping FEHB should not be taken lightly. Once you leave the program, you can’t re-enroll. If you’re considering this option, ensure Medicare covers all your needs and evaluate the potential risks, like higher out-of-pocket costs for services not covered by Medicare.

Making the Most of Open Season

Each year, Open Season runs from mid-November to mid-December. This is your chance to review and adjust your FEHB plan or make decisions about Medicare integration. Take advantage of tools provided by the Office of Personnel Management (OPM) to compare plans and ensure you’re getting the best value.

How FEHB and Medicare Work Together

When you have both FEHB and Medicare, they coordinate benefits to minimize your costs. Medicare usually acts as the primary insurer, paying first, while FEHB covers remaining costs as the secondary insurer. This coordination often reduces your copayments, deductibles, and other out-of-pocket expenses.

Key Questions to Ask

• What services are covered under my FEHB and Medicare plans?

• How do my FEHB premiums change if I enroll in Medicare Part B?

• Will my current healthcare providers accept both FEHB and Medicare?

• What prescription drug costs should I expect with FEHB and/or Medicare Part D?

Your Best Retirement Healthcare Strategy

The combination of FEHB and Medicare can offer peace of mind and financial savings in retirement. By understanding how these programs work together, you’ll be well-equipped to make informed decisions that meet your healthcare needs without overspending. Review your options carefully, consult plan brochures, and don’t hesitate to seek guidance if needed.