Paying for health insurance has become a huge financial drag for American employers. In fact, very few companies still offer retiree benefits. Luckily, one of the most generous benefits you are eligible for is the Federal Employee Health Benefits (FEHB) plan.
Unlike many private employers, the government pays roughly 72 percent of your healthcare premium while you are an employee. It is almost unheard of for companies in the private sector to continue to offer healthcare benefits to their retirees—at any cost. Not only does the federal government continue to provide healthcare coverage to you as a retiree, but it also continues to pick up roughly 72 percent of your premium.
Obviously, this is a benefit that you should seriously consider continuing in retirement. But to be able to keep your FEHB coverage in retirement, there are some special rules that you’ll need to follow.
The 3 Rules to Keeping FEHB in Retirement
For you to be eligible to keep FEHB in retirement, you must meet ALL of these requirements:
- You must be retiring on an immediate pension, AND
- You must be enrolled in FEHB on the day you retire, AND
- You must have FEHB coverage for 5 years immediately prior to retiring
Rule #1: Retire on an immediate pension
An immediate pension is one that you are allowed to get RIGHT AWAY. Some examples of immediate pensions are:
- If you’re fully-eligible,
- If you’re offered an early out,
- If you’re job goes away and you’re forced to retire under a Discontinued Service Retirement
Some grey area:
- If you’re retiring under the MRA+10 rules (you’ve met your MRA with at least 10 years of service, but not the 30 years required to be fully-eligible):
- Technically, you will preserve your right for FEHB in retirement as long as you are drawing your pension
- If you voluntarily postpone receiving your pension (so you can avoid the MRA+10 penalty), you will not have FEHB during that postponement time
- Your FEHB coverage will be restored when you decide to begin drawing your pension
What specifically does NOT count as an immediate pension (and therefore cannot keep FEHB in retirement):
- Deferred retirement: This happens when an employee has at least 5 years of service (so they are vested in CSRS or FERS), but they are too young to be fully-eligible to retire and receive their pension right away. This is an INVOLUNTARY delay in receiving their pension. In this case, they do not have a choice to draw the pension “now” even if they are willing to take a penalty. PRO TIP: Do not confuse this scenario with the MRA+10 scenario mentioned above!
Rule #2: Be enrolled in FEHB on the day you retire
This is a much easier rule to outline. Simply stated, you must be enrolled in FEHB on the day that you retire.
Rule #3: Have FEHB coverage for 5 years immediately prior to retiring
To keep your FEHB coverage in retirement, you must enroll in FEHB five years prior to your retirement date. The government does not care if during that time period you have switched providers under the FEHB umbrella. Likewise, making changes for who is covered (switching from a self-only, to a self-plus-one or a self-plus family plan, for instance) has no effect on this 5-year rule. If both you and your spouse are both federal employees, the government is not concerned with which person’s plan you were covered under, or if you moved coverage from person to person. As long as you continuously had FEHB coverage for the five years immediately preceding your retirement, you meet these criteria.
OPM waivers to this 5-year rule are relatively uncommon. If you’re cutting it close to the 5-year mark, double check with your HR that you’ll meet this requirement BEFORE you set your retirement date! When you’re counting the years, remember that when you make the decision to enroll in FEHB (like during an Open Season) and when your coverage becomes effective, are different. Always look to the effective date – not the enrollment date!
Let’s say that you are planning to retire on 12/31/2022. For many years, you were covered under your spouse’s private sector health plan. You learned about this 5-year rule back in 2017, so you switched to FEHB (with or without your spouse) during that Open Season in Nov/Dec 2017. Your FEHB coverage became effective 1/1/2018 which means that you will meet the 5-year rule.
However, if your effective date for FEHB was after 1/1/2018 and you retire on 12/31/2022, you would NOT meet the 5- year rule and would not be eligible to keep FEHB in retirement.
What if You Do Not Meet the Rules Above
If you separate from service for any reason other than gross misconduct and you are otherwise ineligible to keep FEHB in retirement, you will be able to extend your coverage for 31 days at no cost to you. After that point, you will have three options:
- Drop your coverage
- Purchase healthcare coverage in the private sector (remember that it is unlikely that a third party will continue to subsidize 72 percent of the premium cost), or
- Request a temporary continuation of coverage (TCC)*.
Under TCC, you can keep your FEHB coverage for up to 18 months. However, you’ll pay 100 percent of the premiums plus 2 percent to cover administrative costs during that time. So prepare for what would likely be a hefty healthcare premium increase under TCC.
Wrap-Up
For more information about “how the FEHB program works in retirement,” be sure to check out my podcast episode on the topic.
No matter what, don’t let your health coverage lapse. If you suddenly have an accident or become ill, you could burn through your entire retirement savings stash in no time. And then you’ll be in real trouble.
Whatever you decide, make sure that you have all the facts and how they will affect your retirement. Don’t sell yourself short when leaving federal service – KNOW BEFORE YOU GO!
There’s a lot that goes into planning the retirement you’d hoped for. I highly encourage you 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 and have an opportunity to meet one-on-one to do a deeper dive into your situation.
