The recent substantial increases in Federal Employees Health Benefits (FEHB) premiums have caused significant concern among federal workers and retirees.
As you prepare for this Open Season, understanding the factors driving these unprecedented cost hikes and exploring strategies to mitigate their impact is more critical than ever.
According to OPM, the main culprits are the increased costs and utilization of services. Increased costs refer to higher prices for providers, prescriptions, and supplies.
Increased utilization means people are using their benefits more—seeking out-patient services, undergoing surgeries, and accessing mental health care.
While we can’t prevent FEHB and other healthcare cost increases, such as Medicare Part B premiums, from happening, the key question is: what can be done to offset these rising costs?
Key Facts on FEHB Premium Increases
Premium Percentage Remains Constant
While the dollar amount of your premium increases, the percentage split between the government and the enrollee remains the same.
The government continues to pay approximately 72% of the overall premium, leaving employees and retirees responsible for the remaining 28% in 2025.
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Historical and Projected Increases
In 2024, the FEHB saw a substantial 7.7% increase, pushing the 10-year average premium increase to 4.63%.
The increase for 2025 was an alarming 13.5%. This is the largest increase witnessed in decades and will inflate the 10-year average to 5.66%.
In 2026, the projected increase is 12.3%.
Impact on Federal Employees
The 13.5% average increase in FEHB premiums far outstrips the modest 2% federal pay raise in 2025. This significant disparity means the rising cost of health insurance will consume an ever-larger portion of federal employees’ income throughout the year.
Medicare Part B Premiums: Annual Changes and Income Considerations
The premium for the base portion of Medicare Part B is subject to annual adjustments.
Federal employees, in particular, should be aware that if their Modified Adjusted Gross Income (MAGI) is high—stemming not just from a salary but also from investment earnings—they may face a higher Medicare Part B premium.
Medicare assesses the MAGI from two years prior to determine the premium amount. Given that federal employees often have good incomes and are astute investors, this is a crucial consideration.
While the increase in the Medicare Part B premium has historically been less dramatic than the FEHB premium increase, any rise in cost demands attention. It directly impacts your personal budget and necessitates preparedness.
For context, the base monthly Medicare Part B premium was $174.70 in 2024, reflecting a 10-year average increase of about 3.79%. For 2025, a slight increase to $185.00 reflecting a 10-year average of 4.38%. For 2026, Medicare is projected to increase to $206.50.
What Can You Do About It?
Rising premiums are never welcome, but the increase in 2025 and the projected increase in 2026 have been particularly steep. Despite this, health insurance remains essential for covering your healthcare costs.
The encouraging news is that you do have an option to help mitigate the increased expense. You can partially offset the higher cost and save some money through tax advantages.
Flexible Spending Accounts
A Flexible Spending Account (FSA) is a tax-advantaged arrangement allowing employees to allocate pre-tax dollars for specific expenses.
There are different types of FSAs available, including the Healthcare FSA, the Limited Expense FSA, and the Dependent Care FSA.
Health Care / Limited Expense FSA Limits (Annual)
For both the Health Care and the Limited Expense Flexible Spending Accounts (FSAs), the annual contribution limit for 2024 was set at $3,200.
This provision allows you to essentially shield $3,200 of your income from taxes in that year. If you didn’t utilize the entire $3,200, you were permitted to carry over up to $640 into the subsequent year.
For 2025, the contribution limit has increased to $3,300, and the allowable carry-over amount has also risen to $660, which can be transferred into 2026.
2026 looks much the same, with an increase of $100 in what you can save, $3,400, and an increase in carryover into 2027 of $680.
Dependent Care FSA Limits (Annual)
The annual limit for the Dependent Care FSA was $5,000 in 2024, with no carryover permitted. These limits and the lack of a carryover provision will remain unchanged for both 2025 and 2026.
Does This Solve Your Problem?
No, not entirely. But it’s important to use programs like the Flexible Spending Accounts to your advantage anyway.
It’s also important to have a financial professional who you trust to help you with your overall financial picture. If this increase to FEHB premiums has you worried about your retirement goals, speak to one of our trusted professionals. They are knowledgeable about all of your federal benefits and can help you create a clear, well-grounded plan for your future.
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