financial planner Stephen Zelcer

What’s better: FEHB or Medicare?

What's better: FEHB or Medicare?

What's better:
FEHB or Medicare?

Important note:  In this article I am only referring to Medicare A, B and D; I’m not getting into the various Medicare Part C plans (known as Medicare Advantage plans.

So, which is better – Medicare or FEHB?

While it’s not a fair question because there are dozens of FEHB plans and only one Medicare plan, there are still some key differences to be aware of.  Here are 6 of them:

  1. Access to the doctors you want: Most people select insurance plans that their doctors accept.  This allows a patient to see their doctor of choice while having much, or all, of the expense covered by the insurance. 

Do the doctors you want participate in Medicare?  Why wouldn’t a doctor participate Medicare (or any health plan)?  One of main reasons is the compensation rate, meaning does the plan pay them well?  Medicare typically pays the doctors less than private plans.  Not surprisingly, an increasing number of doctors opt out of Medicare due to weaker compensation rates.  

  1. FEHB may be cheaper: Which plan costs less?  This is tough to answer because there’s only one Medicare plan while there are dozens of FEHB plans.  But there’s grounds to say that, thanks to the government subsidy, FEHB will often cost less than Medicare.   You don’t need to take my word for it.  Compare the numbers yourself.  You can view Medicare part B prices HERE and part D prices HERE, and compare them to your FEHB.  Remember, these are the monthly prices per person, so if your spouse is also on Medicare, you’ll need to double both the Part B and Part D premiums. 

Medicare’s price depends on your income level: The lower your income, the lower your Medicare premium.  The higher your income, the higher your Medicare premium.  FEHB premium levels don’t change based upon your income but rather change based on the coverage of your FEHB plan.  FEHB has the added benefit that OPM still subsidizes the bulk of the premiums for retirees. 

Since no FEHB plan is exactly like Medicare, it’s hard to make an apples-to-apples comparison.

However, if we start at the lowest premium level we find the lowest Medicare premium is more expensive than the lowest FEHB premium.  As your income rises in retirement, especially at age 72 when you must take Required Minimum Distribution (RMDs), your Medicare premiums will rise but your FEHB premium will stay the same.

Also, another consideration is the historical increase in pricing for Medicare vs FEHB.  While I haven’t seen anyone who measures the historical increase in FEHB pricing, I have find HERE that suggests historical medical increase is 5.12%, vs. Medicare’s 7.7% increase as presented HERE

  1. Coverage outside of the USA: Planning on living or travelling abroad?  Medicare does not provide coverage outside of the USA.  FEHB offers plans that have degrees of coverage outside the USA. 
  2. Dental and Vision coverage: Some FEHB plans provide dental and vision coverage.  Medicare does not.
  3. No maximum out-of-pocket: All FEHB plans have an “maximum out-of-pocket” (MOOP), which sets a limit to your OOP costs.  This way, you know that even in the most catastrophic year, you will not pay more than your MOOP, thus your losses are capped.  Medicare has no MOOP.  This means that in a catastrophic year your losses are not 
  4. Ability to participate in HSA: If you are enrolled in any part of Medicare, even the free Part A, you can no longer contribute to a Health Savings Account (HSA).  An HSA is essentially a souped-up form of FSA, it’s what I call “FSA on steroids!”  FEHB allows for HSA participation for those with high-deductible plans.  For more about this see here.

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