A Retirement Journey: Health Insurance Issues

Over the past two weeks, we’ve focused on the story of Bob, a recent retiree. We’ve gone over his pre-retirement experience and his journey through the processing of his retirement application. This week, we’ll look at his health insurance choices.

Bob has an ongoing dilemma when it comes to health insurance. He arguably doesn’t really need Federal Employees Health Benefits coverage or Medicare, because he is a veteran with a service-connected disability. That means all of his medical needs (service-connected and otherwise) are provided by the Veterans Health Administration, at no charge. VHA does bill private insurers (including those in FEHB) for the non-service connected care it provides.

Nevertheless, Bob enrolled in FEHB during his civilian service at the Federal Aviation Administration for a couple of reasons: in case he should need it for a future spouse, should he remarry, and in order to meet the requirement of being enrolled for the five years prior to retiring. Now that he’s retired, if he cancels his FEHB coverage, it’s a one-way ticket out. Bob isn’t eligible to suspend his FEHB, since having VA health benefits is not one of the reasons an enrollee can take this action. And he isn’t eligible for TRICARE because he isn’t retired from military service. 

Since Bob is over 65, he is enrolled in Medicare Part A. But he chose not to enroll in Part B (coverage for doctors and outpatient services). This won’t put him at great risk, because FEHB doesn’t require Medicare enrollment to maintain coverage. Bob has considered dropping FEHB, but he believes it’s possible Congress may not provide enough funding in future years for the VA to care for all veterans. Veterans who are in one of the lower priority groups could conceivably lose health care benefits in the future.

Bob could enroll in Part B later in a future general enrollment period. These are held each year from Jan. 1 to March 31, with coverage effective July 1. But he might be subject to  a late enrollment penalty for every 12-month period in which he could have been enrolled but chose not to. Currently, Bob has the opportunity to participate in a Part B special enrollment period,during which he can enroll without penalty. It will end eight months after his retirement last December. 

Here’s Bob on his insurance decisions: 

I enrolled in FEHB with the GEHA Standard Option FEHB plan when I onboarded in 2012, but switched to the GEHA High Deductible Health Plan about four years ago. My current premium is $136.95 per month. The HDHP includes a Health Reimbursement Arrangement, since I am not eligible to have a Health Savings Account. Having other health insurance, such as Medicare, disqualifies members from using the HSA, so GEHA establishes an HRA that does not earn interest and is not portable if I switch to another plan. But it does provide $900 annually to spend on co-pays for qualified medical expenses, as defined by the IRS.

The way I see it, having this extra $900 a year benefit effectively reduces my monthly premium. The way it works is when the VA sends the bill for my care to GEHA, GEHA pays the amount that would be covered by the plan. The remainder is covered by the VA, leaving me with $0 out of pocket expense for my care. I don’t have to worry about meeting the deductible or paying copayments since the VA covers my medical expenses.

Upon reaching my 65th birthday, I enrolled in Medicare Part A, since there is no premium for this coverage that helps cover the cost of in-patient hospitalization. Post-retirement, I am continuing my FEHB plan with GEHA but not Medicare Part B. Still, I question whether I really need it, when all of my medical care is free at the VHA. Veterans make up 30 percent of the federal workforce. And some of those veterans, like me, have service-connected disabilities and access to free medical care through the VHA. I also know retired veterans who thought that TRICARE for Life was free, until I told them that they had to enroll in Medicare Part B as well. With very few exceptions, all of my VHA visits are non-service-connected.

Bob’s Bottom Line

Bob’s top piece of retirement planning advice is not to be afraid to ask questions. He told me the people he spoke with at various federal agencies actually seemed to enjoy helping with whatever questions he had. Keep in mind that Bob communicates very clearly and takes his time. Customer service is a two-way street.

Of course, when it comes to retirement preparation, everyone needs to run the numbers. Make some rough financial projections, so you have a general idea of your income and expenses in retirement.

Bob has about half of his retirement income coming from his Social Security benefit, a little less than 20% from his federal retirement benefit, about 30% from a private sector pension that does not receive a cost of living adjustment, and roughly 3% coming from the VA. He doesn’t need to withdraw from his investments yet.

Overall, Bob is in very solid financial shape, due to his foresight, patience and planning.