For federal employees, the Federal Employee Health Benefits (FEHB) program is one of the most valuable benefits available—not just while working, but also in retirement. Unfortunately, there’s a lot of confusion and misinformation about how FEHB works once you leave federal service.
In this article, we’ll break down the eligibility rules, the financial considerations, and how FEHB can work alongside Medicare to protect your health—and your wallet—throughout retirement.
Meeting the Requirements to Keep FEHB in Retirement
Not every federal employee automatically gets to carry FEHB into retirement. There are two critical rules you must meet:
- Immediate Annuity Requirement – You must be retiring on an immediate annuity, meaning your pension starts right away.
- Five-Year Coverage Rule – You must have been covered under FEHB for at least five years immediately before retiring. This doesn’t have to be the same carrier or plan, but you must be enrolled in FEHB on the day you retire.
Important: Avoid making last-minute changes that could jeopardize eligibility—such as canceling FEHB to join a spouse’s plan just before retirement.
The Government Still Pays Most of the Premium
A common myth is that once you retire, the government stops contributing toward your FEHB premiums. That’s not true.
In retirement, the government still pays the lesser of:
- 72% of the program-wide average premium, or
- 75% of your specific plan’s premium.
This formula ensures the same cost-sharing arrangement you had while working continues after you leave service.
The Tax Surprise in Retirement
While working, your FEHB premiums are typically paid with pre-tax dollars under a benefit called Premium Conversion. In retirement, that changes—premiums are deducted after tax from your annuity payments.
For example:
- While working: Your Blue Cross premium might cost $6,000/year, paid pre-tax.
- In retirement: You’ll need to withdraw closer to $8,000 from your retirement accounts, depending on your tax bracket, to cover that same $6,000 premium.
Taxes, if not planned for, can be the “carbon monoxide” of retirement planning—silent but dangerous. Underestimating them can throw off your long-term projections by hundreds of thousands of dollars.
Inflation: Pension vs. Health Care Costs
Your pension will receive an annual Cost of Living Adjustment (COLA) in retirement, determined by the Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
For FERS retirees, the COLA formula is sometimes called the “diet” COLA:
- If CPI-W ≤ 2% → full CPI increase
- If CPI-W is between 2–3% → 2% increase
- If CPI-W > 3% → CPI increase minus 1%
In recent years, COLAs have been higher than the long-term average due to elevated inflation (e.g., 2.5% for FERS in 2025), but historically they’ve often been in the low single digits.
Health care costs, however, tell a different story. Historically, FEHB premiums have risen about 3–4% per year, but the last few years have seen sharp increases:
- 8.7% in 2023
- 7.7% in 2024
- Average enrollee share projected to rise 13.5% in 2025
This means health insurance costs can grow much faster than your pension, especially over long retirements.
FEHB and Medicare: The “Super Supplement” Strategy
At age 65, you’ll face a key decision: how to coordinate FEHB with Medicare.
Here are your three main options:
- Keep FEHB only – Decline Medicare Part B and maintain your FEHB coverage.
- Cancel FEHB – Rely solely on Medicare Part B (generally not recommended).
- Combine FEHB with Medicare Part B – A hybrid approach that often provides the most comprehensive coverage.
Part A is premium-free for most retirees with enough work history, so enrolling is usually a straightforward choice. Part B always has a monthly premium (and may have an income-related adjustment).
When you have both FEHB and Medicare Part B, Medicare is generally primary and FEHB is secondary. Many FEHB plans waive copays and coinsurance for services covered by Part B, significantly reducing your out-of-pocket costs.
Here’s where FEHB can act like a “super supplement”:
- If Medicare doesn’t cover a service but your FEHB plan does, FEHB can still pay under its regular benefits.
- This extra layer of protection can be valuable for catastrophic or unexpected medical events that would otherwise result in large bills.
Note: Your FEHB premium doesn’t change if you add Medicare, but your cost-sharing may drop depending on your plan’s coordination rules.
Final Thoughts
The ability to keep FEHB in retirement is an incredible benefit—but only if you meet the eligibility requirements and understand how it integrates with your pension, taxes, inflation, and Medicare.
Failing to plan for the rising cost of health care or the loss of pre-tax premium payments can derail even the best retirement plan. The sooner you build these realities into your projections, the better prepared you’ll be.
Plan with Confidence
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