FEHB in retirement and the five-year rule

FEHB is the health insurance program for federal employees and retirees. Unlike a typical private-sector job, your coverage does not end when you stop working. You can take it into retirement and keep it for life.

Keeping it is not automatic. You have to meet three requirements, which the next section lists. Most federal employees meet them without trying, because they have been enrolled for years.

The cost does not jump, either. As a retiree you pay the same share of the premium as an active employee, and the government keeps paying its larger share. The premium is deducted from your annuity instead of a paycheck.

One difference matters for some people. If you leave federal service before you are eligible to retire, or you postpone or defer your pension, the rules change. The five-year rule and your type of retirement decide whether FEHB follows you.

Three requirements decide whether FEHB follows you into retirement. You must be enrolled on the day you retire, retire on an immediate annuity, and have been covered by FEHB for the five years before retirement. All three must be true. Miss one, and the coverage stops when your job ends.

The first two are simple to check. The five-year rule is the one worth understanding in detail, so the next section walks through it.

• Enrolled on your retirement date. You must be in an FEHB plan, or covered as a family member, the day you retire.
• An immediate annuity. Your FERS pension must start right away, which includes an immediate MRA+10 retirement.
• The five-year rule. You must have been covered by FEHB for the five years of service right before retirement, or your full service if shorter.

The five-year rule says you must be covered under FEHB for the five years of service immediately before your annuity starts. If your whole federal career is shorter than five years, then all of it counts instead. This rule decides most FEHB retirement questions.

Coverage, not a single plan, is what counts. You can change plans every year and still pass. Time you were covered as a family member under someone else's FEHB enrollment counts too. So does time under TRICARE, as long as you are enrolled in an FEHB plan on the day you retire.

The clock runs against your retirement date. You count back over the five years of service right before you retire. If you were enrolled that whole time, you pass.

What if you fall short? In limited cases OPM can waive the rule. The most common waivers go to employees who take a buyout or are involuntarily separated in a downsizing. Outside those cases you can ask OPM for a waiver, but approval is not guaranteed.

The type of retirement decides whether FEHB follows you. An immediate annuity keeps it. A postponed MRA+10 annuity suspends it, then lets you reinstate it later. A deferred retirement generally ends it for good. This is the biggest FEHB trap for people leaving before full eligibility.

An immediate retirement is the clean case. If you meet the five-year rule, your FEHB continues the day your annuity starts, with no gap. Most FERS retirees, including those taking an immediate MRA+10 annuity, are in this group.

A postponed MRA+10 annuity is different. You separate at your MRA, but delay the pension to shrink the age reduction. Your FEHB is suspended when you separate, then reinstated when the annuity begins, if you met the five-year rule.

A deferred retirement is the hardest on coverage. A deferred retiree separates before being eligible to retire, so they cannot keep FEHB in their own right. The coverage ends at separation, with only temporary continuation of coverage for a limited time.

Once you retire with FEHB, the coverage works much like it did at work. You keep the same plan choices and the same premium share, now deducted from your annuity. At 65, Medicare enters the picture, and you decide how the two programs fit together.

Your plan options do not shrink. You can change plans during open season every year, just as an employee does. The benefits, the network rules, and your share of the cost stay on the same terms.

Premiums come out of your monthly annuity instead of a paycheck. One tax change: retirees cannot pay FEHB premiums with pre-tax dollars, a benefit active employees get through premium conversion. So the premium is withheld after tax.

At 65 you become eligible for Medicare, and your FEHB continues whether or not you enroll. Most retirees take premium-free Part A. Part B is optional and carries its own premium, so the choice is yours. If you have Medicare, it usually pays first and FEHB pays second. A separate lesson covers Medicare and FEHB in depth.

To protect your FEHB, confirm three things before you set a retirement date: that you are enrolled now, that you will retire on an immediate annuity, and that you will have five years of coverage by then. The five-year check is the one to start early.

Count your coverage back from your planned retirement date. If you enrolled late, or dropped FEHB for a year, you may fall short of five years. Knowing now gives you time to re-enroll and still qualify.

If you are weighing an early exit, factor coverage into the choice. An immediate or postponed MRA+10 retirement protects your FEHB; a deferred retirement does not. For many federal employees, keeping FEHB is reason enough to choose one path over another.

There is no single right answer; it depends on your service, your coverage history, and your timing. To see how a retirement date affects your pension and income, run your free readiness score. Then confirm your FEHB enrollment history with your HR office before you commit.