Surging COVID-19-Driven Retirements Spotlight Need for Medicare and COBRA Education

By Liliana Salazar

When the post-pandemic “new normal” eventually arrives, one of the things that will mark it is a notable absence in the workplace of a sizable number of older workers – mainly Baby Boomers who are finding the pandemic as good a time as any to retire.

The surge in retirement was apparent by early April, when 60% of those who left the workforce said they were retiring, compared to 53% in pre-pandemic January. What issues does early retirement raise? For one thing, the decision may jeopardize the long-time financial health of many who may retire before their full Social Security payments kick in. It also points to the need for employers to provide sound education on health care options to employees who are retiring, especially around Medicare and COBRA coverage. 

Continuing healthcare into retirement and the Medicare-COBRA confusion

Employers should help these workers understand their options to avoid decisions that may increase their financial risk in future years. This process starts by educating those who are 65 or older and who will be retiring, on the rules surrounding Medicare and COBRA Future retirees must be made aware of the potential penalties they may be subject to if they pursue enrollment in COBRA for more than eight months over enrolling in Medicare, and the delays they will have in accessing Medicare coverage if they are a late enrollee. Unfortunately, this is a mistake many older workers make as they do not understand that retaining coverage under COBRA will not exempt them from late enrollment penalties under Medicare.

The recurrence of this issue prompted recent revisions by the Department of Labor (DOL) to the COBRA Initial and the Election notices), along with new COBRA Frequently Asked Questions to assist retirees and their dependents in the decision-making process.

It’s not unusual for retirement-aged employees to opt for COBRA if circumstances apply –certainly the case during the pandemic with widespread layoffs, furloughs and reductions in hours of employment. COBRA’s appeal may lie in the comfort factor: navigating Medicare is a challenge compared to the employer’s familiar plan. However, in some cases, Medicare may offer more comprehensive coverage, with access to larger physician networks and a lower cost than COBRA coverage.

Conflicts between Medicare and Cobra Coverage

Retiring employees age 65 or older should know about the three biggest risks in electing COBRA coverage for longer than eight months over enrolling in Medicare coverage:

• Former employees electing COBRA over Medicare will face significant out-of-pocket expenses as insurance carriers and self-funded plans will usually consider Medicare to be the primary payer, based on Medicare eligibility alone. That means the COBRA plan will only pay what Medicare would not have paid, even if former employee is not enrolled in Medicare.
• If the former employee doesn’t enroll in Medicare within eight months of losing their employer coverage, they face Medicare late enrollment penalties. Medicare Part B late enrollment penalties are a 10% surcharge on Medicare Part B premiums for every 12-month period that the individual does not enroll in Medicare Part B. Part B penalties will apply for life.
• As a Medicare late enrollee, individuals are not allowed to enroll in Medicare Part A, B or D until January-March of each calendar year, with Medicare coverage becoming effective on July 1^st of that year. This delay in accessing Medicare coverage, will render these former elderly employees uninsured, which can also expose them to penalties in states that have reinstated individual coverage mandates.

We know of one instance where a retiring executive, as part of a severance agreement was allowed to continue on the employer’s health plan through COBRA (paid for by the employer) for the full three-year period -CA COBRA law, extends federal COBRA by an additional 18 months for a total of 36 months- before signing up for Medicare. This concession subjected this executive to a 30% surcharge on his Medicare Part B premiums for life, as he was subject to a 10% surcharge for every year he failed to enroll in Medicare Part B.

Especially today, when employers and employees are looking for smarter benefits decisions in a challenging economy, improved education on Medicare-related options is critical:

• Employees need to be more aware of their choices for healthcare as they reach retirement, along with their risks and rewards.
• Multi-generational households also can benefit from more education as the more aware younger family members are of the options available to their parents, the easier it will be for them to help their parents navigate into retirement

Medicare is confusing, as it has various parts (A, B, C and D) enrollment guidelines, plan offerings, and supplements which make selecting plans challenging. Add COBRA into the mix and things get that much more complex – for benefits professionals as well as employees with whom they work. Now more than ever, as the pandemic economy takes its toll on employers and their employees, extra guidance on Medicare and COBRA coverage is critical to everyone’s interests.

HUB International’s team is available to work with you on a diverse range of HR needs, from risk management and regulatory compliance to benefits strategy, program design and workplace culture.

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