Surprise: You’ve gotta work another 5 years, sorry!

You work for Uncle Sam. Government has been your career. Your spouse is in the private sector. Their health insurance is cheaper and better than any of the 20 to 30 plans available to you under the Federal Employee Health Benefits Program — or it’s more convenient. Whatever. In any case, you’ve piggybacked on the plan for years. But you realize that when you both retire you’ll have to switch to one of the FEHBP plans. They are better, less expensive and Uncle Sam pays most of the premium. A no-brainer. So far, so good. Right?

As you approach retirement you both discover that, in retirement, your significant others’ private sector health plan won’t hack it. Coverage is down and premiums are up compared to FEHBP options. So you play the Fed Card. You decide that during next open season — which starts next week — you’ll switch to one of the FEHBP plans. That way the two of you will have excellent and relatively low cost health insurance for life. For retirees, the FEHBP’s cradle-to-grave coverage with Uncle Sam paying up to 75 % of the premium is the best deal around. Anywhere. So what could possibly go wrong? Short answer: Plenty. As in just about everything. How come?

Ever hear of the 5-year rule? Many haven’t — until it’s too late.

If you ignore the 5-year rule, you could wind up working for Uncle Sam a lot longer, as in at least 5 years more than you planned. How so?

Got a call earlier this week from a frantic fed. She’s been carried on her private sector husbands’ health plan for years. They like it and it worked for them. Until now.

She happened to mention to a coworker that she’s going to retire in December 2020. Her friend asked, “what about health insurance after you retire?” The woman answered, “what about it?” She would just switch to one of the FEHBP plans for herself and her husband. His insurance will cost more and cover less in retirement. Not the first time I have heard this. So what’s the problem?

Enter the 5-year rule. In short, it means that in most cases, you cannot be covered by any of the FEHBP plans in retirement unless you belonged to one of them for the five years prior to retirement. Period.

Some feds, who use their spouses non-FEHBP plan, get around it by enrolling in one of the less expensive federal plans. They pay minimal premiums but it guarantees that when they retire, after 5 years under the federal health program, they can continue it in retirement. When it counts most.

Here’s how benefits expert Tammy Flanagan explained the 5-year rule:

“Health benefits coverage can be continued into retirement for employees who retire on an immediate — not deferred — benefit and who have been enrolled continuously in the program for at least five years immediately preceding retirement, or for the entire period before retirement in which they would have been eligible for coverage if that period happens to be less than five years. An `immediate’ annuity under the Federal Employees Retirement System (FERS) includes retirement under the MRA (minimum retirement age) plus 10 years’ service provision, even if the annuity is postponed to a later date to lessen the age reduction. Health benefits (as well as life insurance coverage) in those situations are suspended until the annuity commences.
“Employees are considered covered if they are enrolled under a spouse’s federal health plan. Additionally, their coverage need not have been in the same plan. They may have always had a Mailhandler’s benefit plan, but the open season before retirement switched to GEHA or , SAMBA, Aetna, Blue Cross or an HMO. They still are considered to have continuous coverage in the federal program. In some cases, coverage under CHAMPUS (the military health plan) may be creditable toward meeting the coverage test.

“The problem of not having five years’ continuous coverage mainly will affect those married employees who are covered under a spouse’s private-sector (non-federal) plan.

“Some employees are eligible for a waiver of the five-year rule due to a policy related to the buyout program. It states that employees retiring with a buyout can continue federal health coverage regardless of those restrictions so long as they were enrolled in a federal health plan (or as a family member) as of March 30, 1994. In addition, this policy covers those separating under early retirement without a buyout and those taking discontinued service retirement because of job abolishment, reduction-in-force, transfer of function outside the commuting area, etc.”

Nearly Useless Factoid

By Alazar Moges

Have you ever wondered why pen caps have holes at the top? Probably not. Turns out one of the primary reasons companies design pens that way is to prevent people from choking on them. It’s an obvious hazard for kids, like many things, but a lot of adults like to chew on them. Roughly 100 people in the U.S. die each year choking on pen lids —that number used to be much higher. BIC was the first to add the life saving design feature with other pen manufacturers following suit.

Source: Science Alert 

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THRIFT SAVINGS PLAN TICKER

Sep 27, 2021 Close Change YTD*
L Income 23.2138 -0.0077 4.43%
L 2025 12.0290 -0.0081 8.33%
L 2030 42.5733 -0.0381 10.54%
L 2035 12.8017 -0.0125 11.50%
L 2040 48.5030 -0.0512 12.46%
L 2045 13.3020 -0.0148 13.28%
L 2050 29.1725 -0.0341 14.12%
L 2055 14.3824 -0.0188 17.18%
L 2060 14.3824 -0.0188 17.18%
L 2065 14.3823 -0.0189 17.18%
G Fund 16.6706 0.0019 0.88%
F Fund 20.9571 -0.0264 -0.55%
C Fund 66.8284 -0.1847 21.56%
S Fund 85.8323 0.3347 16.31%
I Fund 39.2865 -0.0576 11.70%
Closing price updated at approx 6pm ET each business day. More at tsp.gov
* YTD data is updated on the last day of the month.