By: HUB’s EB Compliance Team
The U.S. Department of Labor (“DOL”) recently released updated notices (available here) and FAQs under the Consolidated Omnibus Budget Reconciliation Act of 1985, better known as “COBRA.” The revised notices are intended to better educate Medicare-eligible individuals regarding the interaction between COBRA and Medicare. This expanded guidance is welcome and very helpful information for Medicare-eligible individuals who have the opportunity to elect COBRA.
COBRA allows employees and covered dependents to continue their employer-based health coverage after certain “qualifying events” for up to 18, 29, or 36 months, depending on the event. Qualifying events include termination of employment, reduction in hours, divorce, disability, and death of the covered employee, among others. The most common COBRA event is termination of employment. To be able to elect COBRA, the qualifying event must cause a loss of the employer coverage. COBRA generally applies to employers who employed at least 20 employees on an average business day in the prior calendar year. More detail on COBRA is available in our prior articles here.
Medicare and COBRA
As we have detailed in this specific prior article, the interaction between COBRA and Medicare is confusing (and often counterintuitive) even for benefits professionals. For example, an individual already enrolled in any part of Medicare before a COBRA qualifying event occurs still must be offered COBRA. However, if the individual enrolls in Medicare after electing COBRA, then COBRA coverage ends.
The bigger concern for Medicare eligible individuals, however, is that late enrollment in in Medicare Part B results in a late enrollment penalty that is paid monthly for the rest of their lives. It is true that individuals can delay enrollment in Medicare if they have other creditable coverage, but COBRA coverage does not count. This means an individual who elects COBRA, and delays enrollment in Medicare Part B until after COBRA ends, would pay more for Part B monthly than they would if they had enrolled in Part B on a timely basis. By contrast, there are not late enrollment penalties if an individual has non-COBRA coverage (e.g., employer sponsored group health coverage) as an active employee and enrolls in Medicare shortly after that coverage ends.
Additionally, if an individual has both Medicare and COBRA coverage, Medicare will typically pay first. Even if an individual does not actually enroll in Medicare, some plans will pay as if the COBRA-covered individual is enrolled in Medicare. This means the COBRA coverage will pay less for medical claims, assuming that Medicare will pay its share first. If the individual is not enrolled in Medicare, then that will increase their out-of-pocket costs by having to pay the portion that would have been covered by Medicare.
New Notices and FAQs
Given these issues, it is important for Medicare-eligible individuals to understand the implications of electing COBRA and delaying enrollment in Medicare. To help with this education effort, the DOL updated the model general notice and model election notices, both in English and Spanish (all available here). It has also provided an FAQ on the updated notices.
Use of the model notices is optional, but is treated as complying with the COBRA disclosure requirements (if they are properly completed and timely sent). The new guidance does not specify a date to start using the new notices, so employers should consider using them as soon as they reasonably can. Employers should reach out to their COBRA administrators to determine when they plan to implement these new notices.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.