Before You Assume Medicare Will Cover Everything, Here’s What Feds Learn Too Late in Retirement

Key Takeaways

• Medicare is essential, but it doesn’t cover everything. Many federal retirees face unexpected expenses because they overestimated Medicare’s scope.

• Coordinating Medicare with FEHB or PSHB is not automatic. Poor timing or missed decisions can lead to coverage gaps or higher out-of-pocket costs.

Medicare Only Covers Part of the Story

You might think enrolling in Medicare at age 65 guarantees you full protection in retirement. Unfortunately, that’s not the case. Medicare is valuable, but it has coverage limits, deductibles, and exclusions that surprise many federal retirees.

In 2025, Medicare Part A covers hospital services, but not custodial care, long-term care, or routine vision and dental services. Part B covers doctor visits and outpatient care, but it comes with a standard monthly premium of $185 and a deductible of $257. Beyond that, you typically pay 20% coinsurance on most covered services.

This leaves many retirees vulnerable unless they’ve kept their federal health plan active or planned for supplemental costs.

The Misunderstanding Around FEHB and PSHB in Retirement

Many federal employees assume that once they retire, their Federal Employees Health Benefits (FEHB) or Postal Service Health Benefits (PSHB) will automatically continue with full benefits alongside Medicare. That’s not guaranteed.

Here’s what actually happens:

• If you meet the eligibility criteria and have carried FEHB or PSHB for the five years before retirement, you can continue your coverage in retirement.

• However, to benefit from reduced cost-sharing under many PSHB plans in 2025, you must also enroll in Medicare Part B, especially if you’re Medicare-eligible.

• If you opt out of Part B, your federal health plan may still cover you, but with higher deductibles and coinsurance.

You also need to coordinate enrollment timelines carefully to avoid penalties or lapses.

The Late Enrollment Penalty Trap

One of the biggest missteps retirees make is assuming they can enroll in Medicare Part B at any time without consequences. That’s a costly error.

If you don’t enroll during your Initial Enrollment Period (the 7-month window around your 65th birthday), and you don’t qualify for a Special Enrollment Period, you’ll likely pay a late enrollment penalty. For Part B, this is an additional 10% for every 12-month period you were eligible but didn’t enroll.

In 2025, this penalty is permanent and can significantly increase your monthly premium for the rest of your life.

FEHB and PSHB Don’t Waive Medicare Rules

Having FEHB or PSHB does not exempt you from Medicare’s rules. Some retirees mistakenly believe their federal health coverage counts as employer coverage after retirement. It doesn’t.

Once you stop working, the clock starts ticking on your Medicare eligibility. The government doesn’t consider FEHB or PSHB as creditable employer coverage for delaying Part B once you’re retired. That means if you skip Part B, you risk penalties and coverage coordination issues later.

Prescription Drug Coverage Isn’t Always Automatic

Another point often missed is how drug coverage works in retirement.

Under Medicare rules, you need creditable drug coverage or you’ll face a penalty for late enrollment in Part D. Thankfully, many PSHB plans include integrated prescription drug coverage through an Employer Group Waiver Plan (EGWP). But here’s the catch:

• If you don’t enroll in Medicare Part B, you may be ineligible for the integrated Part D coverage.

• Opting out can also limit access to certain medications or increase your pharmacy costs.

Careful review of your plan materials is essential. Just because you have federal health insurance doesn’t mean your drug coverage automatically meets Medicare’s standards.

Gaps Medicare Will Never Fill

Medicare does not cover everything, and this is where many federal retirees face budget surprises:

• Long-term care: Custodial care, assisted living, and nursing homes are not covered.

• Dental and vision: Routine exams, glasses, dentures, and most dental procedures are excluded.

• Overseas care: Medicare generally does not cover treatment outside the United States.

• Hearing aids: These remain excluded under Part B.

Even with Medicare and FEHB/PSHB, you may still be responsible for thousands in out-of-pocket costs annually unless you budget or plan separately for these categories.

Understanding Coordination of Benefits

Once you enroll in Medicare, it becomes your primary payer, and your FEHB or PSHB plan becomes secondary. This coordination can reduce what you owe—but only if both plans are active.

Failing to enroll in Medicare means your federal health plan will be your only coverage. In this case, you pay:

• Full plan deductibles

• Higher copays and coinsurance

• Potential denials on services Medicare would have covered

On the other hand, when you coordinate both, many PSHB plans waive cost-sharing, leading to significant savings over time. But these benefits only kick in when Medicare is in place.

Retiring Abroad? Medicare May Not Travel With You

If you plan to retire outside the U.S., don’t assume Medicare will follow. It won’t. Medicare rarely pays for care abroad, which means you’ll either need:

• International coverage through your FEHB/PSHB plan (not all offer it), or

• A private policy tailored to expats

Without this, you’ll pay the full cost of any medical treatment overseas.

Also, you still need to decide whether to keep paying your Medicare premiums, even if you’re not using the coverage. Dropping Medicare may reduce your costs now but limit your options if you return to the U.S. later.

Ignoring Plan Notifications Can Be a Costly Mistake

Each year, you receive updates such as the Annual Notice of Change (ANOC), which details updates in premiums, benefits, and provider networks. Many retirees overlook these documents, assuming their plan remains the same year after year.

In 2025, you’ll likely see adjustments in:

• Deductibles and coinsurance

• Specialist copays

• Out-of-pocket limits

Failing to read your plan documents or attend Open Season could mean missing out on new benefits or being hit with unexpected costs in January.

Part B Enrollment Is Mandatory for Some PSHB Members

If you’re a Medicare-eligible annuitant or family member covered by a PSHB plan, you must enroll in Medicare Part B to maintain full PSHB benefits—unless you fall under specific exemptions.

For example, those who retired on or before January 1, 2025, and weren’t already enrolled in Part B are exempt. But everyone else must comply or risk losing significant portions of their PSHB coverage.

If you were unsure whether to enroll, this requirement makes it a necessity, not a choice.

What to Do Before You Hit 65

If you’re approaching your Medicare eligibility age, you need to act before your birthday month arrives. Here’s your checklist:

• Review your FEHB or PSHB plan’s Medicare coordination benefits

• Enroll in Medicare Part A and Part B unless you’re still working and have employer coverage

• Understand the costs: $185/month for Part B premium in 2025; $257 deductible

• Examine your prescription drug benefits and whether you’re automatically covered

• Track enrollment periods carefully to avoid penalties

Use the 3 months before your 65th birthday to complete your paperwork and set your coverage in place.

Waiting to Plan Can Backfire in Retirement

Too many retirees learn the hard way that Medicare alone doesn’t cover enough. By the time the coverage gaps become obvious, it’s often too late to fix the problem without financial pain.

Retirement health care planning must happen before you retire, and ideally before age 65. This includes:

• Learning how Medicare integrates with your federal benefits

• Assessing long-term care insurance or savings

• Budgeting for dental, vision, and hearing

• Staying alert to annual plan changes

Taking the time to prepare now can protect your future lifestyle.

Smart Planning Now Can Prevent a Coverage Shock Later

Public sector retirees who understand their Medicare and FEHB/PSHB integration avoid the common pitfalls that lead to coverage disruptions, late enrollment penalties, or surprise bills.

In 2025, more changes and coordination requirements make it even more important to take ownership of your retirement health care decisions.

If you’re not sure whether you’ve taken all the right steps, now is the time to ask questions. Contact a licensed professional listed on this website to review your Medicare enrollment timeline, FEHB or PSHB coverage, and plan options for 2025.