Medicare Has More Moving Parts Than You Think—Especially When You’ve Got Federal Benefits Too

Key Takeaways

• If you’re a federal retiree or a public sector worker nearing retirement, you must carefully align your Medicare decisions with your federal health benefits, particularly FEHB and PSHB.

• Enrolling in Medicare at the wrong time, or skipping critical parts, can cause higher lifetime costs, loss of coordination benefits, or even the risk of gaps in your health coverage.

Understanding What Happens at 65

Turning 65 is more than just a birthday when you’re a government employee. It’s a Medicare milestone, and for most, it’s the first window into a complex set of decisions that intersect with your existing federal benefits.

Medicare becomes available to you starting the month you turn 65, with a 7-month Initial Enrollment Period (IEP) that includes:

• 3 months before your birthday month

• Your birthday month

• 3 months after

If you miss this window and aren’t covered by active employment (either yours or your spouse’s), late penalties can apply permanently.

Your Federal Health Benefits Don’t Go Away

Federal retirees usually keep their FEHB or PSHB coverage into retirement as long as they meet eligibility requirements. But when Medicare enters the picture, the interaction between the two becomes critical.

Most federal retirees use FEHB or PSHB as secondary coverage once they enroll in Medicare. However, it only works efficiently if you make the right choices with Parts A and B.

Let’s break down how each part fits with your federal plan.

Medicare Part A: Hospital Insurance

For most, Medicare Part A is premium-free because of payroll taxes. As a retiree, you should almost always enroll in Part A when eligible.

Why it matters with FEHB or PSHB:

• It becomes your primary payer for inpatient hospital stays.

• Your federal plan picks up the remainder, often leaving you with minimal out-of-pocket costs.

• If you delay Part A without a valid reason, you could face late enrollment penalties.

Medicare Part B: Medical Insurance

Part B has a monthly premium, which increases based on income. In 2025, the standard premium is $185 per month, and the deductible is $257.

Why it’s a harder decision:

• Some retirees assume their federal plan covers enough and skip Part B.

• But many FEHB and PSHB plans waive deductibles and lower copayments if you’re enrolled in both Part B and the plan.

• Skipping Part B can mean higher out-of-pocket costs in the long run, especially if your plan coordinates benefits conditionally.

If you don’t enroll in Part B when first eligible and later decide to join, you’ll pay a late enrollment penalty of 10% for every 12 months you delay.

Timing Coordination Is Everything

Your choices depend on your retirement status:

• If you retire before age 65, enroll in Medicare during your Initial Enrollment Period (IEP).

• If you work past 65, you can delay Part B without penalty as long as you’re covered under active employment (not retiree coverage).

Once your employment ends, you’ll have an 8-month Special Enrollment Period (SEP) to sign up for Part B without penalty. But don’t rely on this alone. Gaps can occur if your FEHB or PSHB is misclassified or if employer documentation isn’t submitted correctly.

Part D: Prescription Drug Coverage Isn’t Always Necessary

Most FEHB and PSHB plans already include comprehensive prescription drug coverage that qualifies as creditable. That means you don’t need to enroll in Medicare Part D.

But starting in 2025, PSHB plans automatically include a Medicare Part D component for Medicare-eligible Postal Service retirees and their dependents through an Employer Group Waiver Plan (EGWP).

You can opt out, but doing so removes drug coverage under your PSHB plan. Re-enrollment later is limited. It’s important to know that FEHB plans haven’t adopted this EGWP model—yet.

Why It Gets More Complicated with PSHB

If you’re a USPS retiree, your health benefits switched from FEHB to PSHB starting January 1, 2025.

That also means Medicare Part B enrollment is now mandatory for most Medicare-eligible Postal retirees and their eligible family members, unless you:

• Retired on or before January 1, 2025

• Are age 64 or older as of January 1, 2025

• Live overseas

• Receive VA or Indian Health Services benefits

Failure to enroll in Medicare Part B if required can result in a complete loss of PSHB coverage.

Income Affects Your Costs

Your Medicare Part B premium is based on your modified adjusted gross income (MAGI) from two years ago. For 2025, IRMAA (Income-Related Monthly Adjustment Amount) kicks in if:

• You earned more than $106,000 (individual)

• Or more than $212,000 (joint filers)

This additional charge can increase your monthly Part B premium significantly.

If you’re planning retirement, lowering your taxable income before your Medicare effective date can help manage your Part B premiums in future years.

How Medicare Works as a Payer

Once you’re enrolled in Medicare and have FEHB or PSHB:

• Medicare becomes the primary payer

• FEHB/PSHB becomes secondary

That means:

• Medicare pays first for covered services.

• Your federal plan covers what’s left (copayments, coinsurance, and services not paid by Medicare).

This coordination usually results in very low out-of-pocket costs.

But if you don’t have Part B:

• Your federal plan becomes the primary payer.

• You may be responsible for higher copayments and deductibles.

• You lose secondary payer benefits and cost-sharing advantages.

What Happens When You Delay Medicare

If you skip Medicare enrollment, even while keeping FEHB or PSHB:

• You can face permanent late penalties (especially with Part B).

• Your out-of-pocket costs can increase significantly.

• Some PSHB plans require Part B and will drop your coverage if you don’t enroll.

Delaying Medicare works only if you have active employment coverage. Retiree coverage doesn’t count.

Don’t Rely on Automatic Enrollment

Unlike Social Security, Medicare doesn’t automatically enroll you unless you’re already receiving Social Security benefits at age 65. If not, you must proactively enroll during:

• The Initial Enrollment Period (IEP)

• The Special Enrollment Period (SEP) if delaying past 65 while actively working

• The General Enrollment Period (January 1 to March 31) if you miss both IEP and SEP (coverage starts July 1, with penalties)

Don’t Forget to Coordinate with Your Federal Plan

Once enrolled in Medicare:

• Contact your FEHB or PSHB plan to notify them.

• Provide your Medicare Beneficiary Identifier (MBI).

• Ensure your coordination of benefits is processed properly.

This ensures:

• Proper claims processing

• Lower cost-sharing under the coordination model

If you fail to update your plan, claims may be denied or processed incorrectly, costing you money and frustration.

What You Need to Review Before Age 65

Start reviewing your options at least 6 to 9 months before your 65th birthday.

Use this checklist:

• Confirm your retirement date

• Estimate your MAGI to evaluate Part B premium brackets

• Verify if you need to enroll in Part B based on FEHB/PSHB plan

• Compare cost-sharing under Medicare + FEHB/PSHB vs FEHB/PSHB alone

• Review PSHB rules if you’re a USPS retiree

• Confirm if your prescription coverage is creditable

• Review upcoming income that may trigger IRMAA charges

These decisions often depend on plan-specific details, income forecasts, and long-term healthcare expectations.

The Strategy Isn’t One-Size-Fits-All

You may be tempted to follow what a coworker did or rely on general advice. That’s a mistake. Your retirement timeline, income level, and family eligibility all affect your best course of action.

Especially with the changes under PSHB, these aren’t static decisions. They need to be reassessed regularly.

Medicare with Federal Benefits Requires Proactive Planning

Timing, income, coordination rules, and plan-specific provisions all affect how Medicare interacts with your federal benefits. Overlooking any one of these can cost you money, delay your care, or cancel your coverage.

Start planning early, ask questions, and review your options carefully. For the most accurate support, reach out to a licensed professional listed on this website who understands both Medicare and public sector retiree benefits.