FEHB vs Medicare: do federal retirees need both?

The four main paths

Path 1: FEHB only, skip Medicare Part B. You keep your federal health plan and pay your normal FEHB premiums. You get no Medicare benefits. Risk: if you ever drop FEHB later and try to enroll in Medicare, you face a permanent Part B late enrollment penalty (10% per year you were eligible but didn't enroll). Most advisors discourage this path unless your FEHB premium is very low and you're confident you'll never want Medicare.

Path 2: FEHB + Medicare Part A only. Part A is premium-free for most people. You keep FEHB as your primary coverage. Part A picks up some hospital costs as secondary. This is a common middle path because Part A costs nothing and provides a safety net, while you avoid Part B premiums and IRMAA exposure.

Path 3: FEHB + Medicare A and B (most common). You enroll in both. Medicare becomes primary, FEHB becomes secondary. Out-of-pocket costs typically drop dramatically because FEHB picks up Medicare's deductibles, coinsurance, and many uncovered services. Many FEHB plans waive their own deductibles for Medicare-enrolled members.

Path 4: Suspend FEHB and use Medicare Advantage. Federal retirees uniquely have the right to suspend (not cancel) FEHB to use Medicare Advantage and reinstate FEHB later if Medicare Advantage doesn't work out. This optionality is valuable.

How to decide

The decision rests on three variables.

Your FEHB plan's coordination with Medicare. Some FEHB plans (like Blue Cross Federal Employee Program Standard) waive deductibles and copays for Medicare enrollees. Others don't. Read your plan's brochure section on Medicare coordination — that's where the decision is actually made.

Your IRMAA exposure. Medicare Part B and Part D premiums get IRMAA surcharges if your MAGI is above the thresholds. For higher-income federal retirees, those surcharges can run several hundred dollars per month per spouse, making the cost-benefit math of Part B less favorable.

Your healthcare usage. If you anticipate significant medical needs (specialists, hospitalizations, expensive prescriptions), the dual coverage of FEHB + Medicare A+B usually pays for itself. If you're healthy and rarely use medical care, the value is lower.

The Part D question

Most FEHB plans include prescription drug coverage that is "creditable" — meaning it's at least as good as Medicare Part D. As long as your FEHB plan is creditable, you don't need Part D and you can skip it without penalty even if you delay enrollment. Check your plan's annual notice for the creditable coverage statement.

The most common mistake

Dropping FEHB. Once you cancel FEHB, you cannot re-enroll. This is permanent. There are very few situations where dropping FEHB is the right call. Suspending (using the Medicare Advantage option above) preserves the right to come back. Canceling does not.

Bottom line

The default for most federal retirees is FEHB + Medicare A + Medicare B, with Part D handled by FEHB's creditable drug coverage. Don't drop FEHB. Read your plan's Medicare coordination section. Run the IRMAA math before deciding on Part B if your income is high.