The Federal Employee Health Benefits (FEHB) Program is one of the best benefits federal employees have. It ensures that families and individuals meet their healthcare needs without having to worry about where that money is coming from. How you obtain coverage or services and pay for them differs depending on the plan. However, benefits available under all plans include a wide variety of coverage and care that you will surely want as you retire. In this episode, Michael, Tommy and John will be discussing how FEHB coordinates with Medicare and why it is essential you work with your financial planner to take advantage of this benefit as soon as possible.
Listen in as they explain the importance of working with a financial advisor who understands your benefits and why it is of utmost importance that you don’t miss the window of activating these benefits. You will learn whether you need to have both Medicare and FEHB, when you may want to consider having TRICARE, and why you should never get complacent with the coverage you have.
Listen to the full episode here:
What you will learn:
- Why you need to know about FEHB. (3:00)
- How early retirement can become less scary through use of FEHB. (6:30)
- Why it is important to find a financial planner who understands your benefits. (12:00)
- The importance of enrolling in Medicare. (17:00)
- Whether it is essential to have both Medicare and FEHB. (22:00)
- What to expect as you approach 57-65 years old when you are FEHB only. (31:00)
- What to expect if you have three tiers of coverage at 65. (37:30)
- The importance of reviewing what coverage you actually want or need. (40:00)
Ideas worth sharing:
“The Federal Employee Health Benefit is arguably the second biggest benefit our clients have.” - Mason & Associates, LLC
“CSRS and FERS have very lucrative pensions in your own rights.” - Mason & Associates, LLC
“Working with a financial planner who understands your benefits is of utmost importance because there are no do-overs when you get into this age bracket on missing this tax planning window or activating these benefits.” - Mason & Associates, LLC
Resources from this episode:
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Read the Transcript Below:
Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.
Michael Mason: Welcome to the Federal Employee Financial Planning Podcast. I'm Michael Mason, certified financial planner. Across the table from me, John Mason, certified financial planner, and Tommy Blackburn, also a certified financial planner and a certified public accountant.
Mason & Associates have over three decades of experience helping federal employees with their financial plans. This episode, number 21, Federal Employees Health Benefits (FEHB), Medicare, and TRICARE. Basically, all things health insurance, Tommy, for federal employees.
Tommy Blackburn: Thanks, Mike. What a great intro. The purpose of today's episode, as Mike just laid out, is to talk about all things FEHB. And really, we just want to hit on like how great of a benefit this is, how tremendous of a part of the benefits package this is.
And also, just want to put out there for purposes of today's episode, we are assuming Blue Cross FEHB in Virginia. There are plenty of other plans out there like GEHA, Mail Handlers, there's an HSA compatible options.
We're choosing the Blue Cross option in Virginia just because that's what most of our clients tend to use and tend to prefer.
John Mason: Oh, if we went down Tommy, the various packages or the various options that folks have of various FEHB coverages across the country, we would never be able to finish this podcast. So, I agree. I think simplifying Blue Cross Blue Shield Standard, Blue Cross Blue Shield Basic, those are overwhelmingly, the most popular that our clients have.
Although, we're kind of fans of that Blue Focus, that newer plan, that hasn't been very highly adopted amongst our clientele. So, we're going to focus on basic and standard, I think throughout this episode.
Tommy Blackburn: What a great point, John. And the Focus or the HSA compatible option, maybe one of the reasons we don't see it as much is just because our clients tend to be more towards retirement. But we do love that HSA option. I think everybody should give it a close look.
If you're younger, if you're earlier in your financial plan, you really have a chance to kind of max out that HSA and build that additional bucket. I think one of the things we wanted to talk about today, fellas, is particularly for early retirees, which is a lot of federal employees, why are we so pumped up about FEHB? Why do we think it's such a great benefit?
John Mason: Tommy, Federal Employee Health Benefits is arguably the second biggest benefit that most of our clients have. So, most people when they think about FERS or they think about CSRS, they think, “Wow, I have a really good pension.”
And caveat that with sometimes, FERS folks don't think they have a very good pension. We'll just say that both of you, CSRS or FERS, have very lucrative pensions in your own right. Tune into previous episodes if you missed that.
But Federal Employee Health Benefits guys is probably the second biggest benefit that our clients have because the government pays a portion of those premiums and our clients pay a portion of those premiums.
And in general, for a Blue Cross Blue Shield standard or basic plan in Virginia family coverage, Mike, the government's kicking in a thousand or more dollars per month premium share.
So, like if the total premium is 1,700 or 1,800 bucks, the government's paying about a thousand or $1,100 of that, and the federal employee’s paying $500 to $600. That's like having another $300,000 or $400,000 in TSP.
Michael Mason: It's huge. And more importantly, or as important to that, is the ability to retire at 57, 60, 62. We have family members private sector that their target date for retirement is age 65, because that's when they can get Medicare. I mean, that gap between 62 and 65 is scary in the private sector to fill that health insurance issue.
Tommy Blackburn: Yeah, and what's so interesting is that the cost for our federal retirees as they transition from employment to retirement is that cost stays the same. So, we don't really see that too much.
As we were preparing for this podcast, we were talking about our state retirees, VRS here in Virginia, and they don't get that same benefit when they retire, if they keep the state's health insurance. Our understanding is they're going to pay the entire freight once they retire.
John Mason: No doubt, you retire Virginia Retirement System, you go from having very lucrative, very comparatively inexpensive health premiums to the day after you retire as maybe a firefighter or law enforcement in your early fifties to all of a sudden, waking up to $1,700 to $2,000 a month in healthcare premiums.
I remember a client that I brought on board maybe seven years ago, they were on VRS healthcare guys, and it was great when the husband was active firefighter, but then when he retired, that premium jumped up to $2,300 per month.
And one of the instant values that we were able to provide is that next open season, the spouse, the wife, went into Federal Employee Health Benefits enrolled an FEHB that next open season.
Tommy Blackburn: A windfall for that family, I imagine.
John Mason: $2,300 down to $500 or $600 a month. They were able to bump TSP, Roth IRA contributions, help pay for college, you name it. And I think that's going to lead us into some other topics about how we were able to use that as a planning strategy as this family got closer to retirement.
Tommy Blackburn: It's huge. So, you get to keep the same health insurance, you get to keep the same cost. It makes early retirement very possible, less scary because we're keeping the same plan, same cost. We don't have to go shop a plan.
We're going to have very comprehensive coverage, and then we'll have options, of course, once we get towards Medicare.
Michael Mason: As I'm thinking about that, I just want to caveat the same cost. It's just a small caveat when you're working and it comes out of your pay, it comes out pre-tax, and in retirement, unless you’re law enforcement, you're going to pay that with after-tax dollars. It's not a huge difference. Well, your tax bracket difference, 22% to 30% depending on what your state tax bracket is.
Tommy Blackburn: Yeah, thanks for pointing that out, Mike. That was a point I know we wanted to cover. So, as I was glancing at my notes, you read my mind of where I was trying to take us. So, thanks for going ahead and seizing on that.
One of the things we think about too here, particularly in where we're at now kind of with markets fluctuating and inflation kicking up, as we were preparing for this podcast, thinking about it, thinking about things we talk about with our clients.
Our FERS retirees got a 4.9% inflation increase, CSRS 5.9% social security, the same. So, those all went up 4.9%, 5.9%. Did we see our FEHB premiums increase at that same rate?
Michael Mason: What do you guys think? I haven't seen that happen. So, in a previous episode, we talked about the inflation, and don't get too hyper on the inflation because some of your biggest bills, and we didn't mention this one.
Some of your biggest bills aren't affected by 2022 inflation; your mortgage, your car payment. But your mortgage might be as low as 1,100, 1,200 bucks a month.
In these interest rates, your car payment's not 1,100 or 1,200, but your health insurance premium is, and if it didn't go up by 6%, if you’re CSRS or 4.9%, if you’re FERS, 5.9%, if you’re military. If it didn't go up by that, then there's three of your typical largest bills that weren't affected by inflation.
John Mason: In general, I feel like a lot of the media out there talks about how your biggest expenses in retirement are going to be your healthcare.
And that's always something that's kind of like pushed out there and it creates like this negative thought in our mind that we're going to be very sick one day and we're going to have all these expenses and healthcare is going to like derail our retirement.
And we just don't see that to be the case with federal employees. And we're going to talk about throughout the episode how Federal Employee Health Benefits and TRICARE coordinate how these benefits coordinate with Medicare.
And realistically, what we've seen, Mike, probably in your three decades of doing this, and in our combined 20 plus years, Tommy, you and me doing it, is that the out-of-pocket expenses for federal employees who are enrolled in Blue Cross, Blue Shield, and Medicare is your premiums.
Now, there may be situations where there's additional out-of-pocket expense, but 9 times out of 10, what we see is that you pay your premiums and that's all you pay. You don't typically get bills after a heart attack or after a stroke, or after any sort of major surgery, it's just your premiums.
Michael Mason: We've talked about this before and we laugh, and if we're laughing at you just think we're laughing with you.
I've stayed at around … in the Hampton Roads area, you hear advertisements for cars or anything else, and there's always a federal employee discount, there's always a military discount. And I'm sure these people are nice and patriotic.
But the reality is, is you give discount to the people that have the money and you want them to come shopping. And why is that a good lead into what I want to say? How many times have we joked about, “Oh, I'm on a fixed income?”
It's a pretty nice, fixed income that got a 6% pay raise CSRS, but more importantly, the best health insurance in America, I would rank them this way, guys, and you can fix it.
I'd rank military, TRICARE for life with Blue Cross or with Medicare, and then I'd do FEHB in Medicare, and then I'd just do anybody that's on Medicare and Medicare supplement. Because if you have the right supplement, health insurance or health costs are not really hurting you.
Tommy Blackburn: Absolutely. It's such a tremendous benefit. You just don't see this anywhere else. It's why we also say you're really like an executive when you retire. I mean, private sector, it's not common to have this benefit as you go into retirement, let alone such a comprehensive coverage in place.
And Mike, as you ranked them, one system that popped into my head that's also connected to the federal government that actually seems like it's pretty great is the Federal Reserve. I'm not intimately familiar with it, but we have looked at least what they pay as an employee, and it's pretty great.
Which is also interesting as we think about inflation and mortgage or just interest rates in general right now. Federal Reserve has some pretty nice benefits for their employees as well.
So, also thinking as we discuss this John, and you're saying the media scaring people to death and we're talking about specifically to federal employees, FEHB, TRICARE, Medicare, how great these all are and how they're going to work with your plan. Go back and listen to another recent episode of ours “If they're not talking to you.”
And I think that's what we think of and what you'll see and hear throughout all of our episodes, this one in particular, if somebody doesn't know about your FEHB, they don't know how it works, how it's going to work in retirement, how it's going to coordinate with Medicare – if you're on TRICARE and they don't know how all these pieces fit together, this is a tremendous part of your financial plan and a big area where mistakes and costly mistakes could be made.
John Mason: A lot of these decisions, whether it be social security claiming strategies or Medicare applications, they're irrevocable many of them. Or if they're not irrevocable, you have a small window to reverse those decisions.
So, working with a financial planner or a team of professionals who speaks your language, who understand your benefits is of utmost importance because there are no do-overs when you get into this age bracket. There are no do overs on missing this tax planning window or activating these benefits.
Michael Mason: Yeah, John, I had a situation probably 10 years ago with a client and we do a really, really good job here. And I'd called her like on her 65th birthday to wish her happy birthday and was prepared to help her transition and apply for Medicare A and B.
And she was retired CSRS, and it already dropped her Federal Employee's Health Benefits in favor of a Medicare supplement. And fortunately, I called her for happy birthday and we caught it in time. But she's not alone out there.
I've talked to people all the time; what do I need to do with this Medicare stuff that you start receiving at 64 and a half?
Tommy Blackburn: Absolutely. So, Medicare in general is available at age 65. So, if you haven't enrolled by then, three to six months before you reach age 65, you're going to start getting a lot of information in the mail, as Mike just mentioned.
And if you are a federal retiree or you're on TRICARE, our general advice here, or maybe walk it back, maybe not advice — but our general thoughts are you can just disregard that because you don't need a supplement.
Your FEHB is going to act as your supplement or your TRICARE is going to act as your supplement. So, as we're kind of getting into what happens at Medicare eligibility, what we typically see is you're going to have part A, so that's going to be your hospital and your inpatient care. And that one is no additional cost.
I say no additional cost because we’ve paid Medicare taxes our entire career, so there was a cost to it, but we're paying no additional cost at this point. You're also going to have part B. This one is an additional cost.
Right now, the lowest level tier based on your income is $170 a month. And that's for each of you. And part B is going to be your doctors and your hospitals.
From there, private sector of America, you typically, going to make a lot of sense to get a drug policy, a part D as well as some type of supplement to round out your coverages to help pay for copays, deductibles. And there's a range of options as to how comprehensive care you want and premiums involved in that.
So, for our federal and our military, it's usually just A and B, and then whichever of those systems applies to you.
John Mason: And I think the big takeaway here, guys, is that if you're federal employees listening to this podcast or federal employees who we consult with as clients, is basically it's 64 and a half, everything you're going to get in the mail is junk.
And Advantage plans and all these fancy commercials you see with famous actors who are getting up there in age we can pretty much, like Tommy said, just disregard all of that because it's a moot point.
And Medicare makes things way too confusing because there's a part A and B, and then there's also supplements A and B, and then there's a D thrown in there. It's just …
Tommy Blackburn: And then somehow Advantage is C, so it's very confusing.
John Mason: It's very confusing and it's such an uplifting experience to be able to look at a client and say, “All that stuff you're getting is irrelevant. It doesn't matter, toss it.” Because what we're going to do is we're going to go on Medicare A and B and then we're going to have Federal Employee Health Benefits as your supplement and as your drug plan.
And we probably don't have time to talk about why that's so much better, but we'll just throw this out there; part D drug plans, they change. They change and they change the rules, and then you have to go find a new drug plan. FEHB doesn't really change like it is what it is, you've got what you've got. It is phenomenal coverage.
We do want to warn you; you will automatically enroll in Medicare if you are already receiving social security benefits. So, if you're receiving social security retirement benefits, you will automatically enroll at 65 in Medicare, and you will receive a Medicare card in the mail.
And it comes on a really flimsy piece of paper. A lot of people laminate it or do something, so it feels more permanent and sturdy. We've actually had clients, guys, throw away their Medicare card because they thought it was scam or they thought it was junk mail.
Tommy Blackburn: They thought this was like your spare one. We're sending you the real one that will be more durable at a different point. But no, it's similar to the social security card. It's just this flimsy piece of paper.
Michael Mason: And if you're not receiving social security and whether you're working or not at age 65, you must enroll. You should enroll in Medicare Part A, it's free. You don't want to miss that age 65 limit.
If you are currently working as a federal employee, you don't necessarily have to apply for Medicare Part B at that time, but you still need to put your foot in the door and apply for A.
John Mason: So, Mike, I think to your point you're referencing that initial enrollment period. And most people have probably heard of this, but the initial enrollment period is a seven-month window.
So, three months before your birthday of 65, the month of your birthday, and three months after. So, that seven-month window is the IEP or the initial enrollment period where most people become first eligible for Medicare.
And oftentimes, our federal employees are retired by then and will be enrolling during that initial enrollment period. But we also have something called a special enrollment period, which is what you alluded to if one was still working past age 65.
Tommy Blackburn: Right. So, that special enrollment period is going to last for six months. And what that says is you can delay enrolling in Medicare A and B supplements, et cetera, and not be penalized if you go past age 65 if you qualify; if you have qualifying group health coverage through your employer that you're working for currently.
So, it's very important we meet those strict requirements to take advantage of this rule, and we do see folks take advantage of it. But we also see some folks make mistakes where I think maybe they're covered under retirement plan and they're not covered under their current group coverage and they think that, “Hey, I've got qualifying coverage.”
Well, it's not by your current employer, so you don't meet it. But if you do meet it, you can delay past age 65. Once that coverage ceases, you retire, you've got six months. And if we miss these, the reason we're talking about these windows is fellas, what happens?
John Mason: It's a 10% premium penalty for every year that you didn't enroll and for life.
Tommy Blackburn: For life.
John Mason: And that's a lifetime annual 10%, butt whooping. We'll call it what it is, an increase in your premium that never goes away. And that's if you miss your initial enrollment, your special enrollment, and you had to have missed one of these, I believe, 12 months, I think before that penalty kicks in.
Tommy Blackburn: I believe you're correct. You have to go a full 12 months. So, it is possible if you missed it, you may be able to try to pick it up at the open enrollment before you go the full 12 months. But that's never a situation you want to intentionally put yourself in.
John Mason: And going back to your example, Tommy, when you talked about group coverage and people misunderstanding that rule about delaying past age 65 and waiting for that special enrollment period, it's kind of confusing because Federal Employee Health Benefits is group coverage and it's qualifying group coverage if you're working, but it's not qualifying group coverage if you're retired.
So, retired employees, federal employees at 64 and nine months, you're enrolling because you don't meet that criteria. But an active federal employee, that person does meet the qualifications of qualifying group healthcare.
Tommy Blackburn: Yeah, thanks for clarifying. I think that hopefully drove that point home. So, we've been talking about Medicare A and B, and we like coupling it with FEHB. Perhaps we can talk about what we see at least for our employees here, what FEHB combination we tend to go with. And also, take a look at what does maybe TRICARE situation look like.
Michael Mason: And Tommy, that's a great point. Before we get up to our elbows in that one, let's make sure that you can have FEHB in retirement. So, you have the five-year rule. So, the rule says you must have had federal employees health insurance for the five years leading up to retirement to keep it in retirement.
But many people mess this rule up. If you had TRICARE retired military and then went federal; if you've had TRICARE and chose not to have FEHB you can still enroll in FEHB and have it into retirement.
If you're covered under a spouse's Federal Employees Health Benefits, it's like you’re having it. Even if you're both federal employees, it's like you’re having it and then you probably want to go self at retirement at some point, so understanding that rule.
And then I guess one other thing, and we'll probably one other thing ourselves to death here, but as FEHB retirees, you don't have to enroll in Medicare if you don't want to.
If you're healthy and you've loved your FEHB coverage all the way up to 64 years, 11 months and 30 days, and you've been able to handle the deductibles and whatnot, you could currently husband and wife save $340 by not enrolling in Medicare Part B.
You should still take A, but we've had many retirees opt to just keep the same health insurance and save $340 a month. That's the $4,000 a year. That's pretty good savings.
John Mason: It's a scary recommendation. It's one that we're not scared to make at the appropriate time, but it is scary.
And typically, in that scenario, we would have $200,000, $300,000 of guaranteed income, really big required minimum distributions. We would find ourself in a position, Mike, where that IRMAA, that income-related monthly adjustment amount, is significant.
So, instead of paying $170 for Medicare, these folks maybe were paying $300, $400, $500 a month in addition to their FEHB premium. So, that's where the decision becomes pretty easy if you're impacted by IRMAA. 9 times out of 10, if you're in that lowest tier of Medicare $170, we’re most of the time, recommending a combo.
But to your point, you made it 30, 40 years as a federal employee without two coverages, we think you could probably do the same in retirement, although that's not typically what we recommend.
And then two points, and then back to Tommy because he asked very good questions about how we combine or what combination are we typically using. I've never had in 11 years, anybody complain to me saying, “John, I really wish I didn't have two health insurance. I really wish I didn't have Medicare and FEHB.” That complaint has never happened.
I can imagine a world where somebody says, “I really, really wish I would've enrolled in part B at 65.” So, the flip side is similar to survivor benefits, most of the time we don't have people come in and say, “I'm so upset that I took survivor benefits.” That's most of the time like a three-to-six-month adjustment period when they retire, if any.
But what do we see six months after retirement? Terminally ill, I wish I would have taken SBP. So, I think this is one of those scenarios as well. One other point, one more thing, like you said, one other point is the five-year rule, Tommy, does not mean you have to be in the same plan for five years.
Tommy Blackburn: Right, I think there's a lot of misinformation or confusion around this five-year rule. So, hopefully, that helps clear that up. I thought it was great Mike, when you said think about self plus self and brings us back to a point of really what you both were talking about of don't get complacent with the plans we have in place.
Like, let's see, maybe self and family made sense at one point, and now, self plus one, or if we have two federal employees, it’s self and self.
So, want to look at our options, realize each open season, we can make changes to this. We can go from a higher, the standard plan to the basic or back. So, you're not necessarily locked into that decision, it's just an annual one.
Some other ones we wanted to talk about as we kind of, as I visually think about transitioning to retirement as a federal employee with FEHB, is we hit on TRICARE that satisfies the five-year rules and sometimes, they want to enroll in that FEHB just to keep the option open. But there's another special thing about our TRICARE federal retirees that's not available to others.
Michael Mason: Yeah, and Tommy, what I was thinking as you were going down that path; many of our dual retirees — military and then federal, sometimes TRICARE is just enough for them, and they just have that. But then as they're approaching retirement, they meet us. We're like, “How about you just sign up for one-year FEHB so you have it as a backup?”
And what do we mean as a backup? Once you're 65 and on Medicare A and B and you've got TRICARE for life, you definitely don't need FEHB, although we've seen that, and we should avoid that.
But you're able to suspend FEHB when you have TRICARE for life, and you suspend it and you just keep it on the back shelf. Because there may be a time where … and I won't go down to scenarios, but there may be a time where you want to pull it off the shelf because you never know what the future holds. So, suspending FEHB is a good option.
Tommy Blackburn: That's a really nice flexibility tool to be aware of. And I think it brings us back to, John was talking about IRMAA, that's one of those situations where maybe that person on Medicare and TRICARE for life may decide, hey, this has gotten to a point that these premiums, I'm reconsidering this and FEHB is looking like a good option, it could be a scenario.
Another one, if we will, if you guys wanted to talk about it, is for folks, we have the deferred versus the postponed retirement and whether who's eligible for FEHB later.
John Mason: So, Tommy, I think that's a great point and we don't see a ton of this, but occasionally, there'll be the federal employee who has five or more years of federal service and leaves or separates before they've attained minimum retirement age. So, like 57-years-old. And in that scenario, they have a deferred, right, deferred?
John Mason: Yes, deferred. So, as we talking about preparing for this podcast, the lingo that's used sometimes is even a little difficult for us to keep it straight, we deal with it all the time.
So, I think postponed is the, you met MRA at minimum retirement age and you could have taken a pension, but you decided not to, to avoid the early penalty. So, that's, I believe postponed. And deferred is you were not eligible to start the pension yet.
John Mason: And the biggest difference between those two is so deferred you were vested, you had years of service, but when you left, you couldn't physically activate a pension at all. It wasn't even an option. So, in that scenario, you're now, waiting for 60 or 62 to activate that pension.
And in this scenario, when you leave, your FEHB is gone forever, never to be seen again. Can never be reactivated, you lost it. So, we really need to think like, are we leaving our federal job at 54-years-old to never have Federal Employee Health Benefits ever again? Probably not.
Versus the postpone says, we'll see this typically guys in like a military retiree more often, somebody who went to the federal government after military service, had an MRA, 57 or older and 10 years of service.
In that scenario, they had an option, to Tommy's point of an immediately electing an annuity at retirement, although be reduced or penalized for retiring early, you had an option.
So, in that scenario, you could have done it, maintained your FEHB, you're all good. Or you postpone. And if you postpone to 62, you go into a blackout period where you have no federal health benefits until such time that that pension's activated. Whew, and then once you've activated your pension, bam, FEHB comes back into the fold.
Tommy Blackburn: All I can say is if they're not talking to you, hopefully, that scenario right there just drove home knowing working with folks who know you and your benefits and all the different nuances that can present themselves.
John Mason: Yeah, Tommy, I was just thinking we've covered a lot and I think maybe it'd be helpful for our audience to maybe break down a couple age groups and just talk about like how we see this working for retirees.
So, let's talk real quick about somebody who's retiring at 57, what health insurance do they have from 57 to 64? Then what happens at 65? And we'll do our two main categories somebody with Federal Employee Health Benefits only and somebody who has FEHB and maybe TRICARE out there as well.
So, let's talk a little bit maybe first about that 57 to 64, what are we typically seeing in that federal employee health benefit scenario?
Tommy Blackburn: Great, this is going to be some great scenarios to go through. So, for that 57 to approaching 65 age, that Medicare age, for FEHB only, for our federal FEHB only situation, they're going to keep that FEHB coverage.
Now, they may each open season look at, do you want basic standard? What type of options do you want? But you want to keep that FEHB coverage that you've known and you've loved throughout your entire career.
For our military federal, so we have TRICARE plus FEHB in that scenario retiring 57 before Medicare, we're typically going to see suspend FEHB and just have TRICARE leading up to Medicare.
However, you may have your reasons as to why you want FEHB, perhaps that's what satisfies you. You could keep FEHB and TRICARE, that combination, and then again, make some decisions once you get to age 65.
John Mason: Perfect. And for those thinking about, well, how do I suspend Federal Employee Health Benefits, what's the process? Well, we've seen this time and time again, unfortunately, human resources and retirement counselors don't know this form.
It's the RI 79-9, and on page two of that, there’s a little check box that says, “I am suspending Federal Employee Health Benefits in favor of TRICARE, TRICARE for life and Medicare.” And you have to submit proof that you're enrolled in those coverages.
So, if you are interested in suspending FEHB, know it's not irrevocable because you can enroll the next open season and the RI 79-9 is your form to use to suspend.
And then just one important note on that too, if you're enrolling in FEHB, the open season before retirement, you have to make sure you actually physically have coverage for a little bit before you retire.
Meaning, if you're enrolling November of 22, you probably can't retire until February of 23. That way, you had that coverage, guys, at least for a few days before you submitted that retirement up.
Michael Mason: Maybe you can't suspend until February. You said you can't retire until February, so you could-
John Mason: Well, you can't retire because you never had it and you suspend at retirement.
Michael Mason: I see your point, I see your point. That's why we're so good.
One other thing I would add to this 57 through age 64, is even if all you have is FEHB and you have no other choice to carry it, just make sure, and we've said this earlier in the podcast, make sure if you both have an option to carry FEHB, that you're carrying it in the cheapest format that you can.
And that would be self-self. If somehow or another you’re that age and you're still having family members, and you could be 57 and still have a 24, 25-year-old child, well, then, the cheapest is probably family coverage. So, just make sure that you cover all your bases.
John Mason: Transitioning to that age 65 Medicare window, again, we're in that Federal Employee Health Benefits only scenario. Again, we're often recommending Medicare part A and B. Again, we're assuming you're retired enrolling during your initial enrollment period into Medicare A and B for a couple reasons.
One, you virtually have not out of pocket expenses once you have these two coverages in combination or in tandem. Secondly, in this scenario guys, we would almost always recommend rolling back from Blue Cross Blue Shield Standard to Blue Cross Blue Shield Basic, that saves our clients $200 to $250 a month in premium.
It's very rare that we've ever seen that additional premium be worth it once you have those two coverages. So, there may be compelling reasons 57 to 64 to have the Cadillac coverage.
At 65, we're not seeing that unless it's like a prescription drug scenario where maybe that tier five or whatever is not covered like it would be basic and standard. So again, enrolling in Medicare A and B is a recommendation. Consider rolling back from the Cadillac Blue Cross Blue Shield to just the normal car.
Tommy Blackburn: I was going to say you're rolling back from like the Cadillac Limited extraordinary addition to just the base Cadillac because they're both still great policies.
John Mason: We're not in a different class of vehicle, we're just in a different trim at that point. And then, one other reason to enroll in that lower trim coverage is that makes you eligible for a Blue Cross Blue Shield Medicare reimbursement of $800 per person.
So, $1,600 rebate guys, if you are 65 and enrolled in Blue Cross Blue Shield Basic and Medicare Part B, effectively Blue Cross is paying 39% of your family's Medicare premiums thanking you for being enrolled in both coverages. So, that's what we're seeing on a FEHB-only both pre and post 65.
Michael Mason: And for a society that sees things like this, okay, you're going to take my standard coverage to basic and charge me $200 a month less, and then you're going to give me $800. We've been ingrained to believe that if you hear something like that, it's a scam. So, let me just explain why it's that way.
Blue Cross Blue Shield wants to keep your business and they realize that when you have Medicare A and B, paying for standard is not in your best interest. They don't want to lose your business, they don't want you doing the math at some point.
They don't want GEHA or one of these other companies coming to you and say, “Why are you spending that much? You can spend less with us and we'll send a rebate to you.” So, they want you to be in basic, they can't lower the cost of basic for everybody because everybody's not on Medicare.
So, they don't lower the premium, they give you the rebates. So, it's real and it's an incentive because they want to keep your business.
John Mason: So, now, Mike, if you would, we're 57 to 64, we covered the FEHB and TRICARE combination, what do we typically see now at 65 for somebody that has two coverages and possibly now, we're entering the realm of having three coverages at 65; a TRICARE, a Medicare, and a Federal Employee Health Benefit?
Michael Mason: Yeah, and sometimes when we see this, John, it's legitimate. You should have all three. I've seen it with a client where the husband is a retired military and he's 65. He’s on TRICARE for life, but his wife is 62 and she doesn't have FEHB, she doesn't have health insurance in any other fashion.
And this couple had a daughter that was still on the plan, so they had to have the three. So, we don't want to say having three is bad all the time, but once both of you can be on that TRICARE for life and Medicare A and B, you definitely are getting no extra benefit by spending $400 a month or more for FEHB. So, that would be a time to suspend it.
John Mason: So, typically, in that scenario, suspending Federal Employee Health Benefits in favor of TRICARE for life and Medicare A and B. Also, noting that it's TRICARE for life is contingent on your enrollment in both of these Medicare coverages, which we know is a point of contention for a lot of military retirees across the country.
But yes, TRICARE for life is contingent on your Medicare A and B enrollment. And guys, we've danced around this topic. I just want to say it out loud for the audience and for us.
Nothing in this podcast can be taken as advice because you just hit a great point, Mike, where you were like, well, there's a disabled child, or there's a family member, or there's a young kid, or somebody was adopted. And it's like, well, now, that's a game changer, that's an entire game changer.
We have a kid in college and TRICARE young adult is more expensive than being on a FEHB family plan or what have you. So, I just want to say this is all general advice. You can't take it as actionable advice from this podcast, but hopefully, it's getting our listeners their minds thinking in the right direction of what opportunities do I have and how do I maximize that coverage.
So, what do you think, guys? We now turn to some action items because the goal of this podcast is not only to educate, but to hopefully motivate and get our federal employees to take action.
So, let's go around the table however many times we have on specific actions or takeaways that we hope our listeners gained from today's show.
Michael Mason: As a senior citizen here, I would ask that once you're over 60 that you don't get complacent in this. Don't just say, “I've always had Blue Cross Blue Shield Standard, I'm always going to have it.” Assess it. And if you don't feel comfortable or don't want to do the work to assess, then seek out professional help.
The decisions you make are only solid for one year. You can always go back and change them. I mentioned earlier about federal employees have that option of not having Medicare A and B.
Maybe you get it when you're 65 and retired and maybe you get to 72 to 75 and your required mandatory distributions are so high, it's making your premiums for Medicare so high. So, you just can't sit back on your laurels and say, “This is what I've been doing.” You should assess it every year.
Tommy Blackburn: Great Mike, and as I think about it brings us back to have a plan, have a tax plan, have a financial plan so that you can begin to map out all these possible scenarios and kind of see a course of action.
And really, as I think about all of the great information we've covered, if you're going to get advice which probably is very warranted, as we think about the complexities here, make sure it's somebody who specializes in your situation or is going to do the homework to really understand your situation.
So, go back and listen to that episode we did about they’re not talking to you. If you're going to get advice on this, they should be talking to you and understand the intricacies of how FEHB and potentially TRICARE, along with Medicare along with all the tax ramifications and various decisions all come together for you.
John Mason: If you're a federal employee and you're not currently enrolled in FEHB, why? You may have a very compelling reason; your spouse has better coverage through Virginia Retirement System or some other public institution.
But at some point, we need to make that switch and we need to understand that FEHB in retirement is probably better than that alternative coverage in retirement. And we need to make sure we satisfy that five-year rule.
And if you haven't heard this, FEHB coverage passes to a surviving spouse, but only if you died with a family plan or a self plus one plan. So, if you're not enrolled in healthcare and you pass away while active, there's no survivor health insurance to your spouse in that scenario.
So, we need to be thinking about if we're not already in that coverage, when do we enroll in that coverage and make sure we satisfy that five-year clock.
Tommy Blackburn: Wonderful, wonderful point to note.
Michael Mason: I would add something that you worked the active angle, so let's work the retired angle. Maybe you did all the right things for FEHB. You retired and you and your spouse are enjoying the FEHB coverage, but you made the wrong decision on survivor benefits and you die. You die without leaving a survivor benefit.
Now all of a sudden, your spouse is not in Federal Employees Health Benefits. So, bad decisions can be made right after good ones.
Tommy Blackburn: Just to bring us back to the beginning, we talked about how wonderful of a benefit this is, how this is another $300,000 or $400,000 of an asset to you to generate this FEHB plan that you have. So, have that Survivor Plan in place, make sure that we're thinking about the various scenarios. I think that's great.
Michael Mason: We spend a lot of time talking to the people that we usually serve which is 59 and a half and older. I would say that, and I don't see the mid-career, the 35 to 55. But you shouldn't just go into the standard Blue Cross Blue Shield plan and not look at the HSA plans.
And you guys, in that group can probably talk a little bit more intelligently about why you shouldn't just go into that highest premium plan versus an HSA.
John Mason: Wonderful action points. And guys, I think I'll leave it with this, with our audience some final actions here; we'd love to hear from you. We appreciate the five-star ratings. If you haven't already, please leave us a five-star rating.
We'd love to hear from you, whether it be on our Facebook page, our LinkedIn page, or a direct email to masonfp@masonllc.net. Future topics questions we can address those on future episodes. Again, this is episode 21, so we'd love to hear from you.
We appreciate the reviews, questions, comments, Facebook, LinkedIn or masonfp@masonllc.net. Thank you for your support. We hope you're enjoying this podcast and we'll see you soon.
The topics discussed on this podcast represent our best understanding of federal benefits and are for informational and educational purposes only, and should not be construed as investment, financial planning, or other professional advice.
We encourage you to consult with the office of personnel management and one or more professional advisors before taking any action based on the information presented.