By Liliana Salazar

With the increase of Baby Boomers approaching retirement and staying on the job past the standard retirement age of 65, more employees anticipate that their employer will help them navigate the complexities of Medicare. 

It’s not only important to understand the basics of Medicare Parts A, B, C (Medicare Advantage), D and Medicare Supplement (Medi-gap) coverage, but also how Medicare interacts with your organization’s group health benefits plans. An aging workforce places new burdens on HR and benefits managers, who are expected to help employees navigate their benefit plan options, which may also include Medicare.  

Where Medicare and COBRA intersect is a major area of confusion. 

COBRA is a federal law that applies to employers with 20 or more employees in the prior calendar year. It requires the continuation of health plan coverage for employees who lose employer-sponsored coverage due to:

  • A voluntary or involuntary termination of employment (other than for “gross misconduct”);
  • A reduction in hours or employment;
  • Certain other specified events. 

COBRA allows for coverage to continue for these former employees and their covered dependents for 18, 29, or 36 months, depending upon the nature of the qualifying event. 

Understanding how COBRA and Medicare intersect is critical, as enrollment in one may result in the loss of eligibility to enroll in the other. It also may expose individuals to large out-of-pocket expenses or, more critically, result in penalties stemming from untimely enrollment.  

It’s very common for retirement-aged employees to choose  COBRA enrollment over Medicare because it may be:  

  • More comprehensive than Medicare (in some cases); 
  • More accessible, as it may  offer a larger provider network; 
  • Less expensive (while not generally recommended, an employer may subsidize all or part of COBRA premiums for former employees);
  • Less complicated to understand. 

 Problems That Often Arise 

  1. Former employees are often unpleasantly surprised by substantial medical bills after electing COBRA coverage over Medicare. They are probably unaware of the fact that insurance carriers and self-funded plans typically consider Medicare to be the primary insurance payer, based on Medicare eligibility alone, even if the individual is not enrolled in Medicare. Therefore, the COBRA plan will only pay the amount that Medicare would not have paid.
  2. When they learn how claims are processed, former employees will frequently pursue enrollment in Medicare only to encounter another problem: If they didn’t enroll within eight months of losing employer-sponsored coverage (based on their active employment or that of their spouse), they are subject to Medicare late enrollment penalties.

So who pays for what when? 
Here’s an overview of the interplay between Medicare and COBRA coverage:

When enrollment in Medicare (Parts A, B, C, and/or D) occurs before becoming eligible for COBRA (COBRA qualifying event):

  • Access to the full COBRA term -- The full COBRA term of 18, 29 or 36 months must be offered to the former employee if they enrolled in Medicare before COBRA.
  • Enrollment in Medicare Part B, C or D while on COBRA -- If the employee was enrolled in Medicare Part A and/or B prior to COBRA enrollment, COBRA will not end when the individual later enrolls in Medicare Parts B, C and/or D.
  • Order of payment -- Medicare is the primary payer; COBRA is secondary payer.

When enrollment in Medicare (Part A, B, C  and/or D) occurs after COBRA enrollment:

  • Impact on COBRA coverage -- COBRA coverage ends on the date the employee becomes entitled to (enrolled in) Medicare Parts A, B, C, or D.
  • Delaying Medicare enrollment -- Medicare enrollment can be delayed, and COBRA coverage can be retained, however, in these circumstances:
    • Medicare Late Enrollment Penalties -- If Medicare enrollment does not occur within eight months of losing coverage based on active employment or a spouse’s active employment, Medicare late enrollment penalties will apply. The individual also will be required to wait until the general enrollment period to enroll in Medicare – which runs January 1 to March 31 with coverage effective on July 1.
    • Limited Medi-gap/Medicare Supplemental Plans -- There is a six-month window after enrolling in Medicare Part B to enroll in a Medicare Supplement/Medigap plan. Failure to enroll in such a plan in that period limits the individual’s ability to enroll in the most comprehensive Medigap plans.
    • Medicare is primary payer over COBRA: Insurance carriers and self-funded medical plans will take Medicare eligibility into consideration when processing claims, even if the individual has not chosen to enroll in Medicare. COBRA coverage will pay claims as secondary payer, which means the individual will be subject to significant out-of-pocket expenses..

 Spousal and Dependents Complicate the Matter Further

If an active employee, working for an employer with less than 20 employees (not subject to MSPR) enrolls in Medicare mid-year losing employer-sponsored plan coverage, coverage for the spouse and covered dependents also terminates. However, the spouse and covered children have the option of continuing coverage under COBRA for up to 36 months counted from the date coverage is lost. Note that Medicare entitlement will not be considered a COBRA QE for employers with 20 or more employees who are subject to MSPR, if Medicare entitlement does not result in the loss of group plan coverage for the employee and dependents.

For employers subject to MSPR, if a COBRA QB becomes entitled to Medicare while on COBRA, Medicare entitlement will not extend the period of COBRA coverage for the spouse and/or children (from 18 to 36 months). The former employee’s entitlement to Medicare while on COBRA will not constitute a second qualifying event for the spouse or children if enrollment in Medicare (while an active employee) would not have resulted in their loss of coverage.

HUB International’s experts are ready to walk you through the implications of Medicare and COBRA enrollment. You can also listen to our on-demand webinar