FEHB & Medicare Coverage Gaps & Costs

Retiring abroad as a federal annuitant

FEHB follows you. Medicare does not. The tax bill does.

The three that decide whether this works
FEHB
travels
Same benefits, but you pay first and claim back
$0
Medicare
Covers essentially nothing outside the US
Taxed
annuity
US taxes worldwide income; the FEIE does not apply

Never cancel FEHB before you go. Cancellation is permanent, Medicare will not cover you abroad, and there is no route back into the program.

Jump to a section
  1. FEHB overseas: what actually changes
  2. Choosing the right plan before you move
  3. Medicare, and the Part B question
  4. Getting paid
  5. Taxes, federal and state
  6. Survivor and estate issues
  7. Before you go
  8. Frequently asked questions
Continues
FEHB coverage, wherever you live
OPM
10%
Part B late enrollment penalty, per 12 months, for life
CMS
Permanent
Cancelling FEHB — there is no re-enrollment
OPM
Worldwide
Scope of US income tax for citizens
IRS

1. FEHB overseas: what actually changes

Start with the good news. OPM confirms that if you travel or live outside the United States you remain entitled to your FEHB benefits, and the same definitions, limitations and exclusions that apply at home apply abroad unless your plan brochure says otherwise.

What changes is the mechanics, and they change enough to matter:

2. Choosing the right plan before you move

The plan that suited you in the US may be the wrong one abroad, and Open Season is the time to fix it.

Plan typeLiving overseas
Fee-for-service, nationwideGenerally the right choice — no network requirement abroad
HMOPoor fit — benefits are tied to a service area you will not be in
Plans with overseas provisionsSome carriers have specific arrangements for members abroad; read Sections 7 and 9 of the brochure

Read the brochure rather than the summary. The overseas provisions live in the sections covering how to file claims and what is excluded, and they vary considerably between carriers.

Suspend, never cancel

If you end up with coverage through a spouse's plan or a national system abroad and want to stop paying FEHB premiums, suspend rather than cancel. Suspension preserves your right to re-enroll; cancellation ends it permanently, and Medicare will not fill the gap overseas. This is the single most expensive irreversible decision available to a federal retiree. See cancelling FEHB in retirement.

3. Medicare, and the Part B question

Medicare generally does not cover care received outside the United States. The exceptions are narrow enough that you should plan as though there are none.

Part A is straightforward: if you or your spouse have 40 quarters of Medicare-covered employment it costs nothing, so take it. It does nothing for you abroad, but it costs nothing and it is there if you return or visit.

Part B is the real decision, and it is not about your health — it is about whether you might come back.

Take Part BDecline Part B
Cost while abroadFull premium, for coverage you cannot useNothing
If you return to the USCoverage is already in place10% penalty per 12 months, for life
Enrollment timing on returnn/aMay have to wait for a general enrollment period
FEHB plan benefitsSome plans waive cost-sharing or reimburse part of the premiumThose provisions do not apply

Frame it as insurance against returning. If a move home is plausible — for family, for health, for anything — the premium is the price of keeping that door open without a lifetime surcharge. If you are certain you will not return, declining is defensible. The penalty mechanics are in the Part B late enrollment penalty, and the broader trade in the Part B decision.

4. Getting paid

OPM pays annuities by direct deposit, and the practical answer for almost everyone is to keep a US bank account and move money yourself. Four things to settle first:

Social Security is a separate system with its own rules, and whether benefits can be paid to you depends on your country of residence. Check SSA's guidance for the specific country before you commit to it.

5. Taxes, federal and state

This is where people are most often surprised.

Your federal annuity remains fully taxable by the United States. US citizens are taxed on worldwide income regardless of residence. And the foreign earned income exclusion — the provision expatriates usually reach for — does not help, because annuity and pension income is not earned income. It excludes wages, not pensions.

Your country of residence may tax the same income. Whether you end up paying twice depends on whether a tax treaty covers government pensions and on how the foreign tax credit applies to your situation. Treaties differ substantially, and some treat government service pensions differently from private ones.

State tax depends on domicile, not on where you happen to be. A few states are aggressive about continuing to treat former residents as domiciled there. Severing state domicile deliberately — and documenting it — before moving abroad is worth doing properly. See state taxes on federal retirement income.

Two filing obligations that catch people: FBAR reporting for foreign financial accounts above the threshold, and FATCA reporting on Form 8938. Both are separate from your tax return and both carry substantial penalties for non-filing. This is a point to involve a preparer who handles expatriate returns rather than working it out yourself.

6. Survivor and estate issues

Three things worth settling before you leave rather than after.

The survivor election is unaffected by where you live, and so is the rule that a surviving spouse keeps FEHB only if they receive a survivor annuity and were covered under your enrollment. Living abroad does not change that, but it does make the coverage harder to replace if you get it wrong. See survivor FEHB.

Reporting a death from overseas is slower. Your survivor will need a death certificate acceptable to OPM, which from some countries means an apostille or consular authentication. Knowing the process in advance is a kindness.

Beneficiary forms for the TSP and FEGLI are unaffected by a move, and unaffected by a will. Confirm they are current before you go, since updating them from abroad is more awkward.

7. Before you go

8. Frequently asked questions

Can I keep FEHB if I retire overseas?

Yes. OPM confirms that FEHB benefits continue if you live or travel outside the United States, and the same definitions, limitations and exclusions that apply domestically apply abroad unless your plan brochure says otherwise. What changes is how you use it: most overseas providers will not bill your plan directly, so you generally pay at the time of service and submit for reimbursement. Keep itemized documentation for every claim.

Does Medicare cover me if I live abroad?

Generally no. Medicare does not cover health care received outside the United States except in a few narrow circumstances. That makes FEHB your primary coverage if you live overseas, and it is the main reason cancelling FEHB before moving abroad is a serious mistake. Part A costs nothing if you or your spouse have 40 quarters of Medicare-covered employment, so most people enroll in it regardless; Part B is the genuine decision.

Should I still pay for Medicare Part B if I live overseas?

It depends entirely on whether you might return to the United States. Part B buys you almost nothing while you live abroad, so paying the premium looks wasteful. But if you decline it and later move back, you face a late enrollment penalty of 10 percent of the premium for each full 12-month period you could have had it, for as long as you have Part B, and you may have to wait for a general enrollment period to sign up. Treat it as insurance against returning rather than as coverage for where you live.

Will OPM send my annuity to a foreign bank?

OPM pays annuities by direct deposit, and for most people the simplest arrangement is to keep a United States bank account and transfer funds yourself. Payments to residents of countries subject to United States sanctions are prohibited. Separately, some US banks and brokerages close accounts held by customers with foreign addresses, so confirm your institution’s policy before you move rather than after.

Do I still pay US tax on my annuity if I live abroad?

Yes. United States citizens are taxed on worldwide income regardless of where they live, and a federal annuity is taxable as ordinary income wherever you receive it. The foreign earned income exclusion does not help, because annuity and pension income is not earned income. Your country of residence may also tax it, and whether a tax treaty or the foreign tax credit prevents double taxation depends on the specific country.

Sources
  1. OPM, FEHB reference materials including overseas coverage
  2. OPM, FEHB plan brochures — overseas provisions and claim filing
  3. Medicare.gov, health care when travelling or living outside the United States
  4. Medicare.gov, Part B late enrollment penalty
  5. SSA, payments abroad and country-specific restrictions
  6. IRS, US citizens and resident aliens abroad
  7. IRS, Report of Foreign Bank and Financial Accounts (FBAR)
  8. OPM Retirement Services and Services Online

General information, not tax or legal advice. Rules differ significantly by country, and treaty treatment of government pensions varies; consult a preparer experienced with expatriate returns before relying on any of this.