FEHB in retirement and the five-year rule

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

Keeping it isn’t automatic, since you have to meet three requirements (listed in full below). Most federal employees meet them without trying, because they’ve been enrolled for years.

The cost doesn’t 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’re 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.

To see what FEHB does to your monthly retirement income, turn on the optional taxes and deductions estimate in the Benefits step of the RetireCiv calculator. It carries your premium into retirement with healthcare inflation. On the Pro plan, the dashboard then shows your income net of premiums.

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, and if you miss one, 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, and it gets its own section below.

• 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. In practice, 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’re enrolled in an FEHB plan on the day you retire.

The clock runs against your retirement date, so 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 isn’t guaranteed.

The type of retirement decides whether FEHB follows you. An immediate annuity keeps it, while a postponed MRA+10 annuity suspends it and lets you reinstate it later. A deferred retirement generally ends it for good, which makes it the biggest FEHB risk 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 (the 5% a year for each year under 62). 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 can’t 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 don’t 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 can’t pay FEHB premiums with pre-tax dollars, a benefit active employees get through premium conversion (paying the premium out of pay before it’s taxed). Thus 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. Our Medicare and FEHB lesson covers this in depth.

To protect your FEHB, confirm three things before you set a retirement date: that you’re enrolled now, that you’ll retire on an immediate annuity, and that you’ll 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, and knowing now gives you time to re-enroll and still qualify.

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

Which path fits turns on your service, your coverage history and your timing, and those differ from one employee to the next. Your free readiness score prices your pension and income at the retirement date you enter. Then confirm your FEHB enrollment history with your HR office before you commit.