Maximizing Your Retirement Benefits with FEHB and Medicare

Planning for healthcare in retirement is one of the most critical aspects of ensuring financial security for federal employees. Understanding how your Federal Employees Health Benefits (FEHB) work alongside Medicare can significantly impact your retirement healthcare costs and coverage quality. With important changes in 2025, now is the perfect time to examine this crucial relationship and ensure you’re making informed decisions about your healthcare coverage.

Understanding FEHB and Medicare Coordination

When you retire from federal service, the coordination between your FEHB plan and Medicare creates a powerful combination that may help lower your healthcare expenses. (For a deeper dive, see our guide on FEHB retirement and Medicare coordination.) This coordination determines which program pays first for your medical services and how remaining costs are handled.

The relationship between these two programs hinges on a primary and secondary payer system. For active federal employees who continue working past age 65, FEHB serves as the primary payer, with Medicare as secondary if you choose to enroll. However, once you retire, if you’re enrolled in both Medicare Parts A and B, Medicare typically becomes the primary payer, while your FEHB plan shifts to secondary coverage.

This automatic coordination can help you receive the maximum benefits available. When you visit a healthcare provider, Medicare pays its portion first according to its coverage rules. Your FEHB plan then steps in to cover many of the remaining costs that Medicare doesn’t fully pay, potentially eliminating most or all of your out-of-pocket expenses for covered services.

The true value of this coordination becomes apparent when you examine what happens to deductibles, copayments, and coinsurance when both plans work together. Many federal retirees find that with Medicare as primary and FEHB as secondary, they pay little to nothing for most medical services, creating a comprehensive safety net for healthcare expenses.

Medicare Enrollment Considerations for Federal Employees

As you approach retirement, understanding when and how to enroll in Medicare becomes crucial to avoiding penalties and coverage gaps. Most federal employees become eligible for Medicare at age 65, but the rules regarding enrollment timing and requirements deserve careful attention.

Medicare Part A (hospital insurance) is premium-free for most federal employees or their spouses who have paid Medicare taxes for at least 10 years. Enrolling in Part A is generally recommended since it comes at no additional cost and provides valuable coverage for inpatient hospital care.

Medicare Part B (medical insurance) requires paying a monthly premium, $185 in 2025, and enrollment decisions require thoughtful consideration. If you’re weighing the pros and cons, read Should federal retirees elect Medicare Part B? A critical point to understand is that FEHB is not considered creditable coverage for Medicare Part B purposes. This means that if you decide to delay Part B enrollment when first eligible and later want to enroll, you may face late enrollment penalties (10% for each 12-month period you could have had Part B but didn’t) and coverage gaps.

If you continue working past age 65, you’ll have access to a Special Enrollment Period (SEP) that allows you to delay Part B enrollment without penalty. This SEP lasts for 8 months after retirement or loss of employer coverage. For details on qualifying SEPs and required forms (including CMS-L564), review our Medicare SEP overview.

For prescription drug coverage, the situation is different. The Office of Personnel Management has determined that FEHB prescription drug coverage is, on average, comparable to Medicare Part D coverage. FEHB is therefore considered creditable coverage for Medicare Part D, and you can typically avoid enrolling in a separate Part D plan without facing penalties later. (More information: Medicare Part D for FEHB enrollees.)

2025 Changes Impacting FEHB and Medicare

The current year saw substantial changes to both FEHB and Medicare that affect federal retirees, particularly regarding prescription drug coverage and costs.

The 2025 Federal Employee’s Health Benefit Open Season ran from November 11 through December 9, 2024, providing the annual opportunity to evaluate and adjust your FEHB coverage. Keep an eye on the latest plan options via our FEHB Open Season 2026 resource center.

On the Medicare side, the standard monthly premium for Part B increased to $185 in 2025, up from $174.70 in 2024. The annual Part B deductible will also rose to $257. Higher-income beneficiaries face Income-Related Monthly Adjustment Amounts (IRMAA) based on their 2023 Modified Adjusted Gross Income; brackets are summarized in our update on 2025 IRMAA brackets.

Perhaps the most significant development for 2025 is the expansion of Medicare Advantage Prescription Drug (MAPD) plans within FEHB. Approximately 30 FEHB plans now offer MAPD Employer Group Waiver Plans (EGWPs), and 7 plans offer both MAPD EGWP and Prescription Drug Plan (PDP) EGWP options. These integrated plans often provide enhanced benefits while covering a substantial portion of Medicare premiums, potentially offering greater value for federal retirees.

Additionally, thanks to the Inflation Reduction Act, Medicare Part D implemented a $2,000 annual cap on out-of-pocket prescription drug costs beginning in January 2025. The “donut hole” coverage gap was eliminated, streamlining prescription benefits and making costs more predictable. Federal retirees with high medication expenses stand to benefit significantly from these changes.

Cost Benefits of Combined Coverage

The financial advantages of proper FEHB and Medicare coordination can be substantial. When Medicare serves as your primary coverage with FEHB as secondary, most of your medical costs may be covered in full with minimal or no out-of-pocket expenses.

Consider this comparison using a standard FEHB plan, showing the difference in costs with and without Medicare as primary:

As this table demonstrates, with Medicare as primary coverage, many services that would normally require copayments become fully covered, eliminating those out-of-pocket expenses. The coordination between these programs often means that Medicare pays approximately 80% of approved charges for covered services, while your FEHB plan covers most or all of the remaining 20%.

The cost savings extend beyond just eliminating copayments. Many FEHB plans waive their deductibles when coordinating with Medicare, and some plans even offer reimbursements for a portion of your Medicare Part B premium, further offsetting your costs.

Out-of-Pocket Maximums with Medicare

An important benefit of combining FEHB with Medicare is the cap on annual out-of-pocket expenses. FEHB plans establish maximum limits on how much you’ll pay for covered services each year, providing essential financial protection against high medical costs.

When Medicare A and B serve as your primary coverage, FEHB plans have specific out-of-pocket maximums that apply to any remaining costs not covered by Medicare:

Putting It All Together

FEHB and Medicare are stronger together—especially when you understand how enrollment timing, plan choice, and upcoming rule changes affect your bottom line. If you’d like a personalized analysis of your options, consider working with a financial planner for federal employees who understands the intricacies of federal benefits.

At PlanWell, every advisor on our team holds the Chartered Federal Employee Benefits Consultant (ChFEBC), CERTIFIED FINANCIAL PLANNER™ (CFP®), and Accredited Investment Fiduciary (AIF) designations. Through our proprietary Fed-Expert Financial Blueprint, we help federal and military employees integrate FEHB, Medicare, TSP, and pensions into a cohesive retirement strategy—so you can retire with confidence.

Ready to maximize your retirement healthcare benefits? Schedule a complimentary consultation and let’s craft a plan tailored to your federal career and life goals.