One of the first things federal employees want to understand when they start thinking about carrying FEHB into retirement is what the premiums will look like. The answer is one of the most consistently surprising numbers in federal benefits planning: FEHB premiums in retirement are exactly the same dollar amount as FEHB premiums while you are an active employee.

That is the headline. It is also the place where most of the confusion begins, because the headline does not tell you what is going to happen to your total out-of-pocket cost when other variables change.

How FEHB premium math works.

OPM negotiates FEHB premiums with each carrier every year. The total premium for a given plan and enrollment type is published during Open Season. The government contributes a percentage of that total premium (on average, about 72%), and the enrollee pays the remainder. For active employees, the enrollee’s share is deducted from salary pre-tax. For retirees, the enrollee’s share is deducted from the monthly annuity check, also pre-tax (more on that in a separate article).

In dollar terms, the enrollee’s share for a given plan is the same for an active employee in that plan and a retiree in that plan. There is no “retiree surcharge”. There is no separate rate for annuitants. The same $X.XX per pay period deduction that you see today is the same deduction that will appear on your annuity statement when you retire.

The surprise most federal employees miss.

If the premiums are the same, why does the cost feel higher in retirement? Two reasons, and they are both real.

1. Pay periods change.

Active federal employees are paid on either a biweekly or a monthly schedule, depending on the agency. Retirees are paid monthly, in arrears. Twelve deductions a year instead of twenty-six (or twelve instead of twenty-four, for monthly-pay active employees). The total annual cost is the same. The amount of each individual deduction is larger, because there are fewer of them. The bigger monthly line item on the annuity statement is what causes the perception of a price increase that did not actually happen.

2. Net annuity check changes.

Annuities are smaller than the salaries that produced them. Deductions that felt invisible on a GS-13 or GS-14 salary feel much more visible on the net of an annuity. The percentage of take-home pay consumed by FEHB is generally higher in retirement than it was during employment, even though the dollar amount is the same.

The change that actually shifts the cost.

The single largest variable in a federal retiree’s actual health-care cost is whether one or both spouses is on Medicare. Medicare Part B becomes primary at 65, and most FEHB plans coordinate with Medicare in ways that reduce out-of-pocket costs for the Medicare-eligible spouse. The premium does not change. What changes is the deductible, the copay structure, and which plan pays first.

A retiree couple with one spouse on Medicare and one not (a common situation when there is an age gap of a few years) often finds that the optimal FEHB plan changes when the second spouse turns 65. Plans that look expensive when both spouses are working through the FEHB deductible can become dramatically cheaper when one of them is on Medicare as primary.

What you should model before retirement.

Before you retire, take an honest look at the FEHB plans available to you in your geographic area and run the following:

  • Annual premium totalfor each plan at your current enrollment type (Self Only, Self Plus One, Self & Family). The dollar difference between the cheapest and most expensive plan can be several thousand dollars a year.
  • Annual deductible and out-of-pocket maximum for each plan. The cheapest premium often carries the highest deductible. In a high-usage year, the lowest-premium plan can be the most expensive plan.
  • Provider network for each plan. If your doctors are not in the network, the cheapest premium is irrelevant.
  • Coordination with Medicare if you or your spouse are within a few years of 65. Some FEHB plans are designed to coordinate with Medicare in ways that materially change out-of-pocket costs.

Most federal employees do not run this exercise during Open Season while they are working. They should — because the plan they end up with at retirement is the plan they will live with on a smaller annuity check, possibly with one or two spouses on Medicare. The model is different.

The one rate that does change.

There is one narrow exception to the “same premium” rule. Federal employees who separate before retirement eligibility and elect Temporary Continuation of Coverage (TCC) pay the full premium (employee share plus government share) plus a 2% administrative fee. That is a real increase, and it ends at 18 months. It is not the FEHB-in-retirement premium. It is the cost of bridging coverage after separation.