COBRA administration can be confusing in the best of times. When you add complicating factors, it can seem downright baffling. Take COBRA and Medicare. Dealing with one can be a challenge – but what if your employees are dealing with both? Here’s how COBRA and Medicare interact.
What are COBRA and Medicare?
Before diving into how COBRA and Medicare impact each other, let’s review both separately.
The Consolidated Omnibus Budget Reconciliation Act, or COBRA, is a federal law that requires employers to offer health care continuation to covered employees, their spouses and their dependents after a qualifying event. Enrollees can be required to pay 102 percent of premium costs, which includes the full premium and a 2 percent administrative fee.
Medicare is the federal health care program of the United States. People become eligible when they turn 65. Some younger individuals with certain chronic health conditions may qualify as well. Some of your employees may be disappointed to learn that Medicare is not free, although most enrollees qualify for premium-free Medicare Part A.
Should employees enroll in COBRA or Medicare if they qualify for both?
Be careful. Delaying enrollment in Medicare can result in expensive late penalties.
Normally, people enroll in Medicare during the seven-month period around their 65th birthday. People who miss their initial enrollment period can enroll during the annual enrollment period, but they will pay late fees.
Some people can avoid the late fees by qualifying for a special enrollment period. For example, people who are covered by an eligible group health plan can keep their employer-based coverage instead of enrolling in Medicare. They will qualify for an eight-month special enrollment period after employment ends.
However, the end of COBRA does not trigger a special enrollment period. This means that if your employees enroll in COBRA instead of Medicare, once COBRA coverage ends, they will have to wait until the next annual enrollment period to enroll in Medicare, and they will have to pay late penalties.
The late penalties are not minor, either. For Medicare Part B, for example, the monthly premium goes up 10 percent for every 12-month period enrollment was delayed. Enrollees have to pay this penalty for the rest of their lives.
If your employees are trying to decide between COBRA and Medicare, make sure they understand that they must enroll in Medicare if they want to avoid expensive and ongoing late fees.
What happens if employees have both COBRA and Medicare?
If your employees are already enrolled in COBRA when they age into Medicare, they should enroll in Medicare to avoid late fees. Their COBRA coverage may end at this time. If your employees have Medicare first and then become eligible for COBRA, they may decide to keep both coverage types. This can be expensive, since they will have to pay for both, but they may find it to be worthwhile.
If someone is enrolled in both COBRA and Medicare, Medicare is the primary insurance. In other words, Medicare pays first, and COBRA may pay some of the costs not covered by Medicare.
Certain benefits are not included in traditional Medicare. For example, dental, vision and hearing benefits are generally excluded from Medicare coverage, although some Medicare Advantage plans may provide these benefits. Some people may decide to keep their COBRA coverage along with Medicare in order to retain additional benefits offered through the employer’s health plan.
Do spouses and dependents qualify for COBRA if they lose coverage when an employee ages into Medicare?
Yes. Employee enrollment in Medicare is considered a qualifying event under COBRA.
Imagine this scenario: One of your employees turns 65 and ages into Medicare, but he’s not ready to retire yet. He keeps working. Now he has two health plan options: his group health plan and Medicare. As long as the employer has 20 or more employees, he may qualify for penalty-free late enrollment in Medicare.
But let’s say he decides he prefers Medicare, so he drops the group health plan. His wife is a couple of years younger, so she doesn’t qualify for Medicare yet. She has been covered under her husband’s group plan, but she loses her coverage when he enrolls in Medicare. She now qualifies for COBRA.
What if my employees still have questions?
Individual situations may vary, and it’s important not to make coverage decisions without understanding the implications. Your employees can contact the CMS Benefits Coordination & Recovery Center at 1-855-798-2627 with questions about Medicare and COBRA.
As always, do your best!
This article was reprinted from the July 2019 issue of America’s Benefit Specialist Magazine featuring our very own Robert Meyers.