The Federal Retiree's Health Coverage Decision
One of the most common questions federal employees ask as they approach retirement is whether to keep their Federal Employees Health Benefits (FEHB) coverage, switch to Medicare, or maintain both. Unlike private-sector retirees who typically lose employer coverage at 65, federal retirees have the unique advantage of keeping FEHB into retirement — and that changes the calculus significantly.
Keeping FEHB in Retirement
To carry FEHB into retirement, you must have been continuously enrolled in FEHB (or covered as a family member) for the five years immediately preceding your retirement, or since your first opportunity to enroll if that was less than five years. As a retiree, you continue to pay the same employee share of the premium, and the government continues to pay its share — typically 72% to 75% of the total premium.
FEHB plans in retirement work exactly as they did during your career:
- You can change plans during Open Season each year
- Premiums are deducted from your annuity payment
- There are no pre-existing condition exclusions
- Most plans cover prescription drugs, vision, dental, and mental health services
Medicare Basics for Federal Retirees
Most federal employees hired after 1983 have been paying into Medicare through payroll taxes throughout their career and are eligible for Medicare at age 65. Medicare has several parts:
- Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing facilities, hospice, and some home health care. Most people pay no premium for Part A because they paid Medicare taxes for at least 40 quarters.
- Part B (Medical Insurance): Covers doctor visits, outpatient care, preventive services, and medical equipment. The standard monthly premium for 2026 is approximately $185, though higher earners pay more through Income-Related Monthly Adjustment Amounts (IRMAA).
- Part C (Medicare Advantage): Private plans that combine Part A and Part B coverage, often including prescription drugs.
- Part D (Prescription Drug Coverage): Standalone prescription drug plans for those with Original Medicare.
Should You Enroll in Medicare Part A?
If you qualify for premium-free Part A — and most career federal employees do — there is essentially no reason not to enroll. It costs you nothing and provides an additional layer of hospital coverage alongside your FEHB plan.
When you have both FEHB and Medicare Part A, your FEHB plan becomes the primary payer and Medicare Part A acts as secondary coverage. This can reduce or eliminate your out-of-pocket costs for hospital stays, since Medicare Part A covers what FEHB does not, and vice versa.
Enroll in Part A when you turn 65, even if you are still working. There is no penalty for late enrollment in Part A if you were covered by employer insurance, but there is also no reason to delay since it is free.
The Medicare Part B Decision
Medicare Part B is where the decision gets more nuanced. Part B has a monthly premium, and you must weigh whether the additional coverage justifies the cost when you already have FEHB.
Arguments for enrolling in Part B:
- Reduces out-of-pocket costs when FEHB and Medicare coordinate benefits
- Some FEHB plans waive or reduce copays and deductibles for members who also have Part B
- Provides a safety net if you ever need to leave FEHB
- May allow you to switch to a less expensive FEHB plan since Medicare covers the gaps
Arguments against enrolling in Part B:
- The premium is an additional expense — $185+ per month, or $2,220+ per year
- If you have a generous FEHB plan with low out-of-pocket costs, Part B may not save you enough to justify the premium
- High-income retirees pay significantly more due to IRMAA surcharges
If you decide to delay Part B enrollment, be aware that you can enroll later without a late enrollment penalty as long as you were covered by FEHB. However, you can only enroll during specific periods, and there may be a coverage gap.
How FEHB and Medicare Coordinate Benefits
When you have both FEHB and Medicare, the coordination of benefits depends on the type of FEHB plan:
For Fee-for-Service plans, Medicare pays first for services covered by Medicare, and then the FEHB plan pays its share of the remaining costs. This often results in little or no out-of-pocket expense for the member.
For HMO plans, the coordination varies. Some FEHB HMOs offer special Medicare Advantage-like benefits if you enroll in Medicare Part B, effectively creating a comprehensive coverage package with minimal out-of-pocket costs.
Review your specific FEHB plan's brochure for its Medicare coordination provisions. Some plans offer such strong benefits when combined with Medicare that the Part B premium essentially pays for itself through reduced copays and deductibles.
Enrollment Timelines and Avoiding Penalties
- Part A: Enroll when you turn 65. No penalty for late enrollment if you had employer coverage.
- Part B: Enroll at 65 or later. No late penalty if you had employer coverage, but you can only sign up during specific enrollment periods.
- Part D: Generally not needed if your FEHB plan provides creditable prescription drug coverage, which almost all FEHB plans do. Keep the annual letter from your FEHB plan confirming creditable coverage, as you will need it if you ever enroll in Part D.
Making Your Decision
For most federal retirees, the optimal approach is to enroll in premium-free Medicare Part A at age 65 and carefully evaluate whether Part B makes financial sense given your specific FEHB plan. Run the numbers: compare your current FEHB out-of-pocket costs against what they would be with Part B, and subtract the Part B premium. If the savings exceed the premium cost, Part B is worth it.
Consider consulting with a benefits specialist who understands the federal system. The interaction between FEHB and Medicare is complex, and the right decision can save you thousands of dollars annually in retirement.