Do I Need Medicare If I Have FEHB?

This article draws on my October 2025 webinar. The webinar used projected Medicare figures; the numbers below are the 2026 figures CMS published the following month.

Every year around their sixty-fifth birthday, federal employees start asking me the same question: “Stephen, what should I do about Medicare?” And every time, I ask one back. Two weeks ago you were happy with your FEHB. What changed?

That’s the real question, and this article is my attempt to answer it properly. It’s a decision worth thousands of dollars a year over the course of a retirement, so it deserves more than a form letter.

FEHB doesn’t end when you retire

Let’s start with what you already have. You keep FEHB in retirement, and the government keeps paying its share — roughly 72 percent of the average premium, just as it does today. You get an open season every year for the rest of your life, so if you’re ever unhappy with your plan, you switch. And OPM is explicit that the Medicare decision is yours: your FEHB continues whether or not you enroll.

So nothing is being taken away from you at sixty-five. The question is whether you need to add something.

The part you can’t refuse

Medicare has four parts that matter here. Part A covers facilities — hospital, skilled nursing, hospice. Part B covers doctors and outpatient care. Part D covers prescription drugs. Part C, Medicare Advantage, is a private plan that bundles the others and adds extras.

Part A has no premium, because you’ve been paying for it through the 1.45 percent Medicare tax on every paycheck. If you’re collecting Social Security when you turn sixty-five, you’re enrolled in Parts A and B automatically. You can opt out of Part B. You cannot opt out of Part A.

And here is the wrinkle with “free.” Under IRS rules, your HSA contribution limit drops to zero from the first month you’re enrolled in any part of Medicare, Part A included. You keep the money you’ve already saved; you just can’t add to it. So Part A does cost you something: your ability to keep funding an HSA.

What Part B and Part D cost in 2026

Part B costs money. The standard 2026 premium is $202.90 a month, per person. There is no family plan and no self-plus-one; a married couple pays twice. And that’s the floor. Premiums are set by your income from two years earlier, with surcharges — the IRMAA — that push the Part B premium as high as $689.90 a month for the top bracket. Part D adds its own plan premium plus an IRMAA of $14.50 to $91.00 a month depending on income.

Two years prior is worth sitting with for a second. It means that in your first year of retirement, Medicare prices you as if you were still working. You can fix that: retirement counts as a life-changing event, and you can ask Social Security to recalculate using Form SSA-44. But nobody does it for you.

Then, later in retirement, your income climbs again. Required minimum distributions from your traditional TSP, IRA, and 401(k) begin at age 73, or 75 if you were born in 1960 or later, and every dollar counts as income for Medicare purposes. A million dollars in traditional accounts means roughly forty thousand dollars of forced income in year one, and the percentage rises every year after that. Expect your Medicare premiums to rise with it.

Now do the comparison. Take the FEHB premium from your pay stub, multiply by twenty-six, divide by twelve, and set it beside $202.90 per person. For some people Medicare comes out slightly cheaper. For many, FEHB is substantially cheaper. It depends on your plan and your income bracket, but you should know your own number.

What Medicare doesn’t do

Medicare won’t cover you outside the United States. It won’t cover routine dental, eyeglasses, or hearing aids. And it won’t cover long-term care — with one exception my relative, who runs the books at a nursing home in Maryland, pointed out to me. If the stay follows a qualifying hospital admission, Medicare pays for skilled nursing care for up to 100 days per benefit period. In other words, Medicare covers your short-term long-term care. You have to be a financial advisor to enjoy that joke.

The bigger gap is this: Original Medicare has no maximum out-of-pocket. Part A charges a $1,736 deductible per benefit period, then $434 a day for days 61 to 90, then $868 a day for your lifetime reserve days, and after that you pay everything. Part B has a $283 deductible, after which Medicare pays 80 percent and you pay 20 percent — with no ceiling. Only Part D has a cap, $2,100 in 2026, and that’s drugs only.

Every FEHB plan has a maximum out-of-pocket. That is the single most important phrase in this whole conversation. I was teaching this class in Albuquerque when a participant described a heart condition, a couple of procedures, and a bill for more than $500,000. His FEHB plan’s out-of-pocket maximum was $5,000, so that’s what he paid. Under Medicare alone, his 20 percent would have been $100,000.

The penalty letters

At some point Medicare starts sending letters. They’re pushy. They talk about a 10 percent premium penalty for every twelve months you could have enrolled in Part B but didn’t, and they make clear the penalty never goes away. My clients show me these letters, and they read as if you have no choice.

You have two defenses. First, the penalty doesn’t apply while you’re covered by active employment coverage — and your FEHB counts as active employment coverage for as long as you’re working. That protection extends to a retired spouse covered under your plan. Second, notice the name: it’s a late enrollment penalty. If you never enroll, you’re never late. I’m not being cute. If you never enroll in Part B, there is nothing to penalize.

What actually changes at sixty-five

Whenever you hold two insurances, one pays first and the other picks up the crumbs. While you’re working, FEHB is primary and Medicare is secondary. When you retire, they swap: Medicare pays first, and FEHB pays second. Your FEHB plan’s share of your claims shrinks dramatically the day Medicare becomes primary. Its premium does not.

So what happens if you reach sixty-five, retire, and don’t take Medicare? Your plan has a recourse, and it’s written into its brochure. For an annuitant over sixty-five without Medicare, the law requires the plan to pay hospitals and physicians based on Medicare’s amounts rather than its own, higher, negotiated rates.

Who does that hurt? The doctor, who is now paid less for the same work. Does it hurt you? The law prohibits a hospital from collecting more than the Medicare amount, and a physician who participates in Medicare can collect only the Medicare-approved amount, so you are not left holding the difference. And a doctor can’t single you out. To stop seeing you, they’d have to stop accepting your entire plan, under-sixty-fives included. Not many practices are going to walk away from Blue Cross Blue Shield because their Medicare-age patients pay less.

That’s what changed. It’s real, but it lands on your doctor’s ledger, not yours.

The actual decision

So, do you need Medicare if you have FEHB? I give two answers.

Do you need both? No. FEHB is comprehensive, you’re happy with it, and paying a second premium to duplicate coverage you already have is hard to justify.

Is there a benefit to having both? Yes. With a primary and a secondary, whatever the first plan leaves behind the second usually picks up, and your out-of-pocket falls to zero.

That’s the crux. This was never a Medicare question; it’s a question about whether to carry two insurances, and the answer depends on two numbers: what the second insurance costs, and what your out-of-pocket exposure is with the first.

Suppose your Medicare premiums come to $5,000 a year and your FEHB out-of-pocket maximum is $5,000. Paying a certain $5,000 to avoid a possible $5,000 isn’t a wash; it’s a loss, because most years you won’t hit the maximum. Now suppose the maximum is $15,000. Skipping Medicare saves $5,000 a year, so in three years you’ve banked your entire exposure. Medicare only pays for itself if you’re having a $15,000 medical year every three years. Most people have one every thirty, or never. And if your health does decline, open season lets you move to an FEHB plan with a lower ceiling.

People flinch at the phrase “self-insure.” But if FEHB is your only coverage today, you are already self-insuring your out-of-pocket maximum. You’ve been doing it for years. Nothing about turning sixty-five changes that.

There are other routes: some people take Parts A and B and a Medicare Advantage plan and suspend FEHB, which unlike canceling lets you come back at a later open season. TRICARE For Life requires Parts A and B, full stop. But for most federal retirees, the choice comes down to the arithmetic above.

Run your own numbers before you let anyone, Medicare included, tell you what you have to do. And if you’d like a second pair of eyes on them, that’s the kind of conversation I have with federal employees every week.