If you’ve been in the government for quite a while you’ve probably been through your fair share of open seasons. This article is not going to be about how to pick a plan or your copays or deductibles or how to compare plans; I would encourage you to go to the Office of Personnel Management’s (OPM’s) website to be able to do those FEHB comparisons.
This article is about managing your FEHB decisions with an eye on retirement. That seemed to be a better subtitle than “here’s all the stuff to not do to screw up your FEHB,” which is really what I wanted to call it. But I promise I’m going to just be really straight with you on how these things work. There are a couple of really key points that I want to make sure to drive home. Of course, we’re nearing the end of the Open Season right now, since it started on Monday, November 14th and will go all the way through December 12th.
How to Retain Access for You as the Employee
When it comes to retaining FEHB access for you as the employee, I encourage you to put your own mask on first before helping others. You’ve got to have your own FEHB intact in order for any of your family members to have a fighting chance. For you as the employee there are two big requirements that you must meet in order to keep FEHB. The first is, you must have been enrolled in that program for five years immediately preceding your retirement from federal service. The second requirement is that you have to be enrolled in FEHB on the day that you retire in order to keep it. Two big requirements; there are no waivers. Very important that you have both.
Next step, you are permitted to switch around within the FEHB program to different plans within that five-year rule. Unfortunately, I hear so much misinformation out there as far as feds believing that they’re stuck in one plan for five years and that’s not true. As long as you are covered under the FEHB umbrella for five years prior to your own retirement, you are good to go.
Now there are two other FEHB-related programs that I think are worth mentioning here. One is Dental and Vision. Dental and Vision does not have a five-year rule, so you do not have to meet that requirement, you’re able to keep Dental and Vision even in retirement.
And finally, the Flexible Spending Account—this is a great way as an employee to set aside money that you don’t pay tax on to pay for qualified medical expenses. Great program while you’re working. You will not be able to keep FSAs as a retiree, so use them up while you’ve got them as an option as an employee.
How You Can Retain Access for Your Family Members
Next step. How do you retain access for your family members for the FEHB program? Well, first let’s talk about who are your family members who might be eligible for FEHB. Of course, we have your spouse, any children under the age of 26, and any disabled adult children. There are some special rules applied, but I want to dispel some bad information out there that we hear constantly in our workshops. That is, there is no five-year rule for your family members to be able to keep FEHB. You as the employee have a five-year rule, your family members do not have a five-year rule. So they can hop in as long as they’re in before you die, they’re able to stay in.
I want to caveat that a little bit. For family members to be able to have access, to have a fighting chance to keep FEHB, they must be covered under your plan before you die. I’m just going to be as straight as I can with you on that. Now, family members can be added or removed during open seasons or if you experience a qualifying life event. If you get married, divorced, the death of a spouse or the birth or adoption of a child, you’re able to go in and adjust your FEHB. I do want to make a special note that retirement in and of itself is not considered a qualifying life event, so very important that you don’t believe that you can go in and make those adjustments just for the sake of you retiring.
Now, there are other requirements in order for your family to be able to keep FEHB coverage after you die as a retiree. Your spouse must be named at least as a minimum survivor annuitant. I’m not going to get into a lot of detail on the Survivor Benefit Plan, it’s simply a way to protect the portion of your pension for a surviving spouse, so they have to receive something from your pension every month in order to keep FEHB. That’s one of the additional rules after you’re gone.
OPM’s definition of a disabled child might be different than the average person, which is that that child has to be deemed disabled prior to the age of 18 and they have to be incapable of self-support. Your agency will need to certify that fact is true in order for you to be able to keep that coverage for your disabled child. Just keep in mind that although access remains for your spouse and your disabled child after you die, as long as you’ve met these requirements, they still have to pay the premium. So this is not free access, it’s just access.
What Happens If You’re Under the Military’s TRICARE Program
For our military recipients, if you are under the TRICARE program, you know that this is the platinum standard. FEHB runs a close second to TRICARE, but there are some questions that folks come to us with. And since about a third of the federal workforce are veterans, it’s no surprise that we get lots of questions about TRICARE. With TRICARE some special things happen. Let’s say you’re retired from the military, you’re under TRICARE and you’ve never had a need to be under FEHB. The five-year rule that we talked about a few minutes ago with FEHB can be satisfied by your time under the TRICARE program. This is a huge perk. The key is you have to still be enrolled in the FEHB plan on the day that you retire from federal service if you wish to be able to use FEHB later. TRICARE can help you meet the first rule, the five-year rule, but it can’t help you meet the “day of” rule. You actually have to be in the FEHB program on the day that you retire.
Now, why would someone want to be in TRICARE and perhaps FEHB? Well, you’re not typically in both at the same time. If you are going to stay in a highly military-populated area, chances are TRICARE is going to serve you very well. If you happen to be moving outside of one of those areas, maybe you have a little bit of a harder time having access to the providers that you need under the TRICARE program, you could switch back to FEHB if that served you better. You’ll simply suspend, or put on hold, your FEHB plan to go to TRICARE and then you can return at a later time.
Federal Employees Married to One Another
What happens when we have two federal employees married to one another? Now, the question I always get is, is it cheaper to be under two Self-Only plans or a Self-Plus-One? If you look at the premium tables for FEHB, you’ll notice that by having just two Self-Only plans it usually ends up being 10-15% cheaper for most plans.
Again, premiums aren’t the only reason that you should consider a plan. Know that when you have two Self-Only plans you meet your deductibles separately, not as a family, and so that’s something to consider. But certainly if we’re just looking at premiums, it’s a nice savings for a federal employee married to another federal employee. Now for a federal couple, they still have to meet the five-year rule and the “day of” rule that we mentioned before. But keep in mind the government does not care whose plan you are under. They don’t care if you’re under the husband’s or the wife’s plan. You can switch around and go to a low plan and then back to a high option; they don’t care. They simply care that you’re under the FEHB umbrella for the five-year rule and that you are enrolled in FEHB at the time that you separate or, in this case, retire from federal service.
Now, with respect to federal couples (i.e., feds married to other feds) in order to keep FEHB coverage under your own right, you must retire from federal service under an immediate pension. So, a deferred pension doesn’t count; it has to be an immediate pension and you have to be covered under either person’s FEHB plan for those five years. Again, you can switch around. It doesn’t have to be continuous five years in one particular plan or under one particular person.
But why would this matter? Is it really different to have your own coverage versus having coverage because you’re a spouse? Well, if both of you are entitled to your own FEHB coverage because of your work record, you have some different options that the average person doesn’t have who’s married to, say, a private sector employee. First, you get to choose the types of plans that you’re under, each one of you. Again, the two Self-Only plans only can be possible if we have two feds that are entitled to FEHB in their own right.
Next, when you go to retire you have some different choices with respect to the Survivor Benefit Plan to protect your pension. So, you get to look at that decision based solely on the merits of the plan and not it’s weird connection to the FEHB coverage. Remember, I talked about the importance of leaving your spouse at least part of your pension in order for them to be able to keep FEHB after you’re gone. That’s not true for dual feds. Feds married to one another are both entitled to their own coverage, and not because one of them happens to be their spouse. Now, in the event that you have a Self- Plus-One plan, say it’s under the wife’s plan, if the wife were to pass, the husband would just pick up the plan, pretty simple to be able to do that.
The Costs for Everybody
Costs are always a factor and that’s certainly true for FEHB. OPM recently announced that the 2023 FEHB premiums will increase by about 8.7% over the entire plan. This is a significantly larger increase than in previous years when the FEHB health care plan premiums went up by 3.8% in 2022, 4.9% in 2021, and 5.6% in 2020.
Of course, some plans will be higher or lower than that, but it’s important to understand the rising cost of FEHB coverage, both the premiums and any other out-of-pocket expenses like copays, deductibles, co-insurance, that you might be responsible for. And also recognizing how we measure the increase in the cost versus the increase in your pay while you’re an employee, the increase to your pension as a retiree called the cost-of-living adjustment (COLA), and how that all balances against inflation.
The more expensive your FEHB coverage becomes without the other sources of income keeping up with you, you will have a harder and harder time paying that premium because it’ll consume a bigger and bigger chunk of the pay that you are receiving. I do encourage you, don’t just look at the premiums. You’ve got to be looking at all of those other pieces, copays, deductibles, and certainly your out-of-pocket maximums. Make sure that you’re looking at that on these plans and know how you’re going to absorb these costs in the event that you met that maximum.
Let’s discuss the costs for everybody. There is a huge perk that you are getting while you’re working and many of you don’t even realize it. It is the ability, it’s called premium conversion, and it’s the ability to pay for your FEHB premiums with pre-tax money, meaning a pool of money that isn’t subject to federal tax, state tax, Medicare tax, social security tax, any of those things. It’s not even reported as income to you while you’re employed, so that’s great. But while you’re retired, you don’t have premium conversion anymore and so you have to pay those premiums with after-tax money, meaning you had to take a larger initial pot of money then pay tax on it and then have enough left over to pay your FEHB carrier.
“Whammies” to Avoid with Your FEHB in Retirement
If you’re a fan of the game show “Press Your Luck,” you’ll know that the whole premise of the show is that you want “big money, big money, no whammies.” But there’s a few surprises or a few whammies in retirement that a lot of folks don’t understand with respect to FEHB and so I want to just cover those briefly.
The first is the five-year rule hiccup. Do not be so short-sighted that you fail to meet the five-year rule to keep FEHB in retirement. This happens typically for one of two reasons. The first is you might have a spouse who has other health insurance available to them through their employer. Maybe it’s free, or maybe it’s less expensive than FEHB and you think it’s a better deal. I highly encourage you to look at the plan brochure for that program and make certain what things look once your spouse is no longer working there. Does the program go up in smoke? Does the premium skyrocket? What does that look like? Because if FEHB ends up being a longer-term better solution for you and your family, we want to make sure that you meet that five-year rule before you retire.
The second reason that we see folks get a little bit of a hiccup around this five-year rule is if they get an early-out offer. Maybe they were under their spouse’s plan, and they thought, “Oh, five years before I plan to retire, I’ll go ahead and enroll in FEHB.” And then they get an early-out offer that they just don’t want to refuse. They get maybe some cash, so we’ve got a little bit of an incentive pay in there. All of that is great, unless they’ve lost FEHB and that was the program that they were going to need to satisfy their health concerns in retirement. Then they’re going to be stuck with declining the early-out because they won’t be able to keep that FEHB coverage.
And that third whammy is the increased tax burden and those FEHB premiums that continue to rise over time. This can seriously erode the retirement income plan that you had because we don’t actually have enough money to satisfy the rising cost of the healthcare.
Tip the Odds in Your Favor
How can you tip the odds in your favor? It’s actually really simple. It’s being involved in the decisions that you’re making and thinking through them clearly. There is so much that goes into all of the decisions that you’re making for retirement. Of course, we’re just talking about FEHB and how not to mess that up in this article, but this is one of many decisions that you’re going to need to make and so I’d love to see you tip the odds in your favor in order to be able to do that.
I would highly encourage you to get the rest of the story, not just your FEHB decisions but all of the decisions that you’re going to need to make in retirement. There’s a lot that goes into planning the retirement you’d hoped for. Be sure to attend one of our retirement workshops where we cover all of the federal benefits topics and the decisions that need to be made right there in the training session. You’ll leave with clear action items for each section and have an opportunity to meet one-on-one to do a deeper dive into your situation.
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ABOUT THE AUTHOR:
Chris Kowalik is a federal retirement expert and frequent speaker to federal employee groups nationwide. In her highly-acclaimed Federal Retirement Impact Workshops, she and her team empowers employees to make confident decisions as they plan for the days when they no longer have to work.
As the developer of dozens of highly-regarded retirement planning materials for federal employees and the creator of the FedImpact Webinar and the FedImpact Podcast, Chris has also analyzed the challenging retirement scenarios for thousands of federal employees – helping them to avoid costly mistakes, and highlighting opportunities for them to gain greater financial security in their retirement years.
Chris’ candid and straightforward nature allows employees to get the answers they need, and to understand the impact these decisions have on their retirement. After all, if what you thought was true wasn’t, when would you like to know?