FEHB - Clearing Up Some Myths and Some Confusion
Mark Twain once said, “If you don’t read the newspaper, you’re uninformed. If you do read the newspaper, you’re misinformed.”
From my experience, the same thing can be applied to FEHB. Man, do I hear all kinds of contradictory information on this highly underrated FERS benefit. Let’s see if we can clear things up. And provide you some good resources for further study.
First of all, the FEHB is the Federal Employees Health Benefit Program. It has its own page at OPM.gov, and its own Handbook. It is governed by Chapter 89 of Title 5 of the U.S. Code. I would encourage you to always go to the authoritative source when researching this stuff, rather than just an article on FedSmith or GovExec. (Although there is good information to be had at both of those sites.) They are not authoritative. What I’m trying to say is that OPM is not going to care if you start your argument with, “But I read on FedSmith…..”
Eligibility for Employees
This is pretty standard. Don’t see too many misunderstandings here. Full-time employees are obviously eligible (unless for some reason you have a job that specifically excludes FEHB—rare, but they are out there). Temporary, seasonal, and intermittent employees are eligible as well, given certain criteria. Civilian employees that are activated by the military: you can continue FEHB in most cases up to 24 months. Further research can be located HERE.
Eligibility for Annuitants
This is where we start to have problems. For some reason, people have confused existing requirements, created requirements that don’t even exist, and generally have spread confusion on a mass scale. Let’s break it down.
Cost
This should be easy but it’s apparently not. I will quote OPM verbatim because this is something they actually say very clearly: “Federal annuitants and their surviving spouses retain their eligibility for FEHB health coverage at the same cost as current employees.”
I hear this ALL the time. “My FEHB premiums go up a lot in retirement.” False. They don’t go up at all. If you are 60 years old and retired in Blue Cross Standard, you are paying the same premium as the 22-year-old current government employee who is also in Blue Cross Standard. You do not pay a higher premium just because you retired. Perhaps the confusion is with the fact that it looks like it’s higher because in retirement you pay monthly (12 times a year), while you pay bi-weekly (26 times a year) when you’re still employed. But if you actually do the math, you’ll find they’re the annual same cost, whether divided into 12 or 26 installments.
Now, each year, your insurance company may (and probably does) raise rates. Which means your rates go up each year. But the rates apply to everyone, not just the retired people. So you still pay the same amount as anyone else in the same plan
Immediate Annuity
Carrying FEHB into retirement is not automatic, however. You have to cross a few hurdles. The first one is that you are retiring on an immediate annuity. What’s that mean? A regular retirement. Like, you’ve met your age and service requirement, you can leave the government, and they start paying you your annuity immediately. In other words, not a deferred retirement. We start to get into some confusion here, so we are going to take it step by step.
Some examples:
Special Category Employee (SCE) FBI Agent retires at 49 years old with 25 years of service. They qualify for an immediate annuity.
A Regular FERS employee retires at 57 with 30 years of service. They qualify for an immediate annuity.
A Regular FERS employee retires at 57 with 10 years of service. They qualify for an immediate annuity.
A Regular FERS employee leaves at 52 with 30 years of service. They DO NOT qualify for an immediate annuity. (And therefore they do not qualify for FEHB).
A Regular FERS employee retires at 57 with 10 years of service. They qualify for an immediate annuity. But it is reduced 25% because they are under 62. They POSTPONE their annuity until age 62 when it will no longer be reduced. They can have FEHB in retirement, but only if they are receiving the annuity. So from age 57 to age 62 (the period they have postponed their annuity), they will not have FEHB coverage. FEHB coverage will start once they start receiving their annuity.
So, hurdle number one: You need to be eligible for an immediate annuity, and be taking it.
5 Year Rule
This is one of the most misunderstood, and misquoted rules of the whole program. So please read carefully. And just as important, please do not read anything ELSE into this. That’s probably the more common mistake.
OPM again, “…[you] must have been continuously enrolled (or covered as a family member) in any FEHB plan(s) for the 5 years of service immediately before the date of your annuity starts…”
Seems pretty clear—you have to have FEHB coverage for 5 years of service prior to your annuity. Let’s look at a few things though:
SERVICE. It says “5 years of service” not “5 calendar years”. This is a common point of confusion. If an FERSonian works from 50 to 55 for, let’s say Housing and Urban Development, then leaves the government, then comes back at 61 and works for the VA for one year. Then retires at 62. Can they take FEHB into retirement? Yes! They have satisfied the immediate annuity age and service requirement (62 years of age and at least 5 years of service), and they have satisfied the 5 year requirement because the last 5 years OF SERVICE, they were covered. From 61 to 62 they were covered. That’s the last year. The 4 years OF SERVICE prior to that (51 to 55) they were also covered. So they were covered for the 5 years OF SERVICE prior to retirement. (Tired of me emphasizing OF SERVICE? Then stop reading CALENDAR YEARS into the rule!). I’ll quote OPM one more time for the doubters out there, “Breaks in service are not counted as interruptions when the 5 years of service requirement is determined, as long as the individual reenrolls within 60 days after his/her return to Federal service.”
FAMILY MEMBER. Please make a note of this! If you are covered as a family member, this counts towards your 5-year requirement! I’ll say it again. If you are covered as a family member, this counts towards your 5-year requirement! Example: Husband and wife are both federal employees. Husband can carry FEHB their whole marriage all the way up until the day they both retire. Wife is still eligible for FEHB on her own even though she never had FEHB in her own name. The rule states specifically, “The 5 year requirement period can include the following: the time you are covered as a family member under another person’s FEHB enrollment”. I see spouses each paying for their own FEHB because they think they both have to have it in their own names to satisfy the 5-year rule. You just have to be covered, not covered in your own name. If you switched coverage back and forth each open season between spouses, alternating years in each other’s name, you would still both qualify because you would have both been covered. Once again covered does not mean you carry the insurance in your name. It just means you were covered on an FEHB policy.
TRICARE. For military retirees, TRICARE satisfies the 5-year requirement. OPM, “The 5-year requirement period can include….the time you are covered under the Uniformed Services Health Benefits Program (also known as TRICARE) as long as you were covered under an FEHB enrollment at the time of your retirement.” So TRICARE counts for the 5 years, but understand before you retire, you need to be covered by FEHB. You don’t need to be covered by FEHB for 5 years, but you need to be covered by it at the time you retire.
A Real-World Example that illustrates this:
An employee works for DOJ for 15 years. Employee then transfers to a federal agency that does NOT have FEHB by law. They do 6 years at that agency. They then transfer to HHS, and reenroll in FEHB immediately. They work at HHS for 2 years. They are retiring in 2 months from HHS and will take FEHB into retirement. What is the key point here? The LAST 5 YEARS that they were eligible for FEHB, they were enrolled in it. Note that they did not have FEHB for 5 calendar years prior to retirement.
Cancellation vs Suspension (Annuitants)
If you retire (or are retiring) and at some point for whatever reason, you decide you no longer want FEHB, you can cancel it. However, “When the individual cancels his/her FEHB enrollment as an annuitant, he/she will never be able to reenroll.” This is very important to understand. Cancelling FEHB in retirement is a one-way trip. You aren’t coming back from it. So think very, very carefully before you fill out that SF-2809.
There is a difference, however, between cancelling and suspending FEHB. If you merely suspend FEHB in retirement, you can restart it later. So know your terms. Cancelling vs Suspending. Here’s the catch—not everyone can suspend FEHB. To be eligible to suspend, you have to be covered under another, OPM-approved plan. Here they are:
Medicare-sponsored plan under sections 1833, 1876 or 1851 of Social Security Act
Medicaid program or similar State-sponsored program of medical assistance for the needy
Peace Corps insurance
CHAMPVA insurance
TRICARE or TRICARE-for-Life
If you meet one of those and want to suspend your FEHB, you follow the documentation procedures with OPM and you can stop paying for FEHB, but still retain eligibility for the future. If you are going this route, you really want to make sure you’ve researched this thoroughly and have followed the OPM regulations to a T.
Spousal Survivor Benefit
As a recap, if you are retiring under FERS, you have the ability to choose a survivor benefit for your spouse. Most people understand that this includes money—your surviving spouse receives either 25% or 50% of your annuity, whichever you choose.
However, what a lot of people still don’t realize is that the survivor benefit is made up of 2 parts: Money and FEHB eligibility. In other words, if you don’t choose a survivor benefit of 25% or 50%, then not only does the surviving spouse not get money every month, they immediately lose FEHB eligibility. This is specifically spelled out in Section D of SF-3107.
Example: Joe doesn’t want to take a 5% hit each month on his annuity for his wife Heather to get 25% when he passes away. So Joe elects 0%. Joe dies. Heather doesn’t get any of Joe’s annuity. Heather also loses FEHB coverage, leaving her with no monthly check and no health insurance.
So the survivor benefit is comprised of two parts: Money and insurance. Understand that before choosing 0%. HOWEVER (BIG however)…….
Remember above when we talked about dual spouses that qualify on their own for FEHB in retirement as long as they were covered by their insurance or a family member’s insurance? Both of those spouses COULD elect 0% survivor benefit, and still both be eligible for FEHB when the other one dies.
Example: Joe and Heather are both FERS employees. Both retire. Joe has always carried FEHB coverage for the entire marriage. He continues to do so in retirement. Joe and Heather both elected 0% survivor benefit when they retired. Joe dies. Heather can continue FEHB after Joe’s death, because she satisfies the requirements of an immediate annuity, FEHB coverage for 5 years, etc.
If you are a dual fed couple, please read that example again. This is where I see all kinds of weird things. If you’re covered, you’re covered. No need to be the policy holder to be covered.
At Retirement
I want to clear up a common misconception regarding when you can change insurance. Generally, any adjustment to FEHB has to be made during open season, which occurs each November and December. However, under very specific circumstances, insurance changes can be made outside of open season. These are called Qualifying Life Events (QLEs). Events like death, births, marriage, divorce, etc. are all situations that may qualify. Everyone needs to know that retiring is NOT a QLE. People that retire in say, June, do not have the option of changing FEHB at retirement, barring some other, independent QLE. So if you are planning to change your FEHB at retirement, you need to plan on doing it the open season before, or the open season after you retire. Because you will not have the option to do it simply because you are retiring.
Also, in general, it is probably not the best decision for those that are retiring 12/31 to switch their FEHB the open season right before they retire. You can do it. There is no policy against it. But it might add confusion to an already complicated time. I’ve had people write me and tell me that it was a mistake to do that right as they were retiring…it caused some issues in coverage and complications. I don’t know specifics, but it seems logical to me—the more moving parts for OPM to deal with, the more potential for errors.
Taxes
Most employees participate in something called premium conversion. That term doesn’t really do a good job at describing what it is. Basically, it simply means that we pay our FEHB premiums with pre-tax money while we are working. In other words, instead of getting taxed on your entire gross salary, they deduct the premiums that you pay for FEHB from the gross pay, and then tax you on what is left. You can see that benefit. FEHB premiums are somewhat equivalent to a tax deduction. At least they operate similarly. (Yes, my fellow CPA’s and snarky HR people, I know it’s not an actual tax deduction, so don’t send your hate mail. But most people understand it better that way and it does operate similarly. So there.) Also, if you are eligible for premium conversion, you already get it. It’s automatic. You don’t have to apply for it. So don’t worry that you have been missing out on some benefit, unless you’ve actively waived participation.
This premium conversion benefit ends in retirement. We no longer pay with pre-tax dollars. We lose that benefit. There are a couple of strategies though that may apply to your situation:
Dual fed couples. If you are a dual fed couple, generally, the last person to retire should be carrying the FEHB if you want to take advantage of the premium conversion. Think about it. If you lose this benefit in retirement, and the person carrying the FEHB retires, then that benefit is lost. But it doesn’t have to be. The person still working could carry the FEHB for both of them and still be taking advantage of the premium conversion. And as we’ve already seen, you don’t have to have FEHB in your own name to have continuous coverage.
Retired Public Safety Officer (PSO). According to our ever-concerned friends over at the IRS, if you are a retired law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew, you can exclude up to $3,000 a year of health insurance payments on your taxes each year in retirement. This has a similar effect of premium conversion in retirement in the sense that you can deduct up to $3k in premiums on your tax return, whether you itemize or take the standard deduction. If both spouses are PSO’s, then it can be $6,000. I already have an article on this so I won’t go into great detail. Read it HERE.