Medicare and Cobra Coverage

Question: I was offered Cobra insurance coverage by my now former employer, do I really need to sign up for Medicare?

Answer: You sure do. Read on…

What is Cobra in and of itself? Here’s the definition from the Department of Labor website: The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102% of the cost to the plan.

The federal COBRA law generally applies to job-based insurance from employers with 20+ employees in the prior year. It applies to health plans in the private sector and those sponsored by state and local governments—but not those sponsored by the federal government and certain faith-based organizations.

Pay close attention to the words “continue group health benefits provided by their group health plan”. Remember that these are the same benefits that you had while you were employed. The actual insurance coverage is the same coverage that you had while you were an active worker. As you separated from the employer, you were assured that the coverage is the same. It is. Same insurance carrier; same benefits. Generally, you will assume the entire monthly bill for the coverage.  

That’s the easy part. The complexity arises when we introduce Medicare ELIGIBILITY into the equation. 

We’ll address 2 very common situations related to Medicare and Cobra. 

1. A person that is over age 65, has Medicare Part A and/or Part B and is offered Cobra coverage;
2. A person that is under age 65, accepts Cobra coverage and then becomes Medicare-eligible after enrolled into the plan.

(Additional consideration should be given to those with End Stage Renal Disease and coordinating with Cobra coverage)

Situation 1: A 66 year old that is enrolled into Medicare Part A retires and leaves the employer with his Cobra coverage. He intends to keep this coverage for the next eighteen months and does not enroll into Medicare Part B. He learns that he has eight months after his Cobra coverage ends to enroll into Medicare Part B without incurring a penalty, thus will keep his Cobra coverage in place. 

Reality: When a person enrolls into Cobra while he/she is currently ELIGIBLE for Medicare (our 66 year old is both eligible and enrolled in Part A), the very day that the employer coverage transitions from “active worker coverage” to true “Cobra coverage”, the primary payer rules of Medicare change. 

When a Medicare eligible person is covered through Cobra health insurance coverage, Medicare becomes the primary payer. The Cobra coverage will shift to become the secondary payer. 

See the Medicare coordination of benefits guide HERE from Medicare.gov.

Please see page 7. Note that a person entitled to Medicare who is then covered through Cobra coverage; Medicare is the primary payer. 

This means that Medicare will be billed first for this person’s claim. In order to have coverage as primary, the person MUST be enrolled into both Parts A and B of Medicare and have both parts showing as active. 

Example: Our 66 year old. He left work in May and had employer coverage through May. He began his Cobra coverage on June 1. He did NOT enroll into Medicare Part B. 

He had a stroke in July. Medicare will be billed first in this situation and remember that he did not enroll into Medicare Part B coverage. There is no coverage. The bill will go to the Cobra insurance carrier. Note that the Cobra carrier certainly may pay at the time of the claim, leaving him to believe that all is well.  

However, do understand that many insurance carriers will investigate claims long after occurring. When determining that this 66 year old SHOULD have enrolled into Medicare Part B, the Cobra insurance carrier can come back and recoup from him any payments made on his behalf because Medicare should have been the primary payer.

Recommendation: Any person that is eligible for Medicare and presented with a Cobra offer should immediately become enrolled in both parts of Medicare (A and B). They may certainly accept the Cobra coverage but know that it is secondary insurance to Medicare’s primary role. 

At that point, we always advise comparing the Cobra coverage and pricing to that which you can secure in the private marketplace. 

Most of the time in a situation as above, opting for a Medigap policy instead of Cobra coverage is more economical and provides for better coverage.

When might it make sense to enroll into Medicare A and B AND purchase Cobra coverage? This is on a case by case basis, but we do find on occasion that a person should remain in the Cobra plan. This is often due to a person taking high priced medications that can be covered through the Cobra insurance plan more economically than with a standalone Part D prescription plan. 

Additionally, some employers may pay most or all of the Cobra premium for a certain time period for the former employee. If that is the case, it is fine as well to remain on the Cobra coverage but you still need to enroll into Medicare Part A and B. 

Lastly and a point to consider is that if a person enrolls into Parts A and B of Medicare and retains Cobra coverage for eighteen or thirty six months, when they finally leave the Cobra coverage, they will have exhausted their Medigap open enrollment window (LINK) and may have to rely on guarantee issue options to secure a Medigap policy. This will generally reduce a person's options in terms of policy types and more. 

Before you accept a Cobra offer, be sure to look at all of the things that might affect you related to Medicare.

Situation 2: Now let's look at a person that is 64 years old and decides to enroll into Cobra coverage. What happens at age 65 when she is Medicare eligible? 

If you elect COBRA continuation coverage and later enroll in Medicare Part A or B before the COBRA continuation coverage ends, the plan may terminate your continuation coverage.  

We don’t see this happen very often, but just know that it can by law. 

Typically, when a person is 64, then enrolls into Cobra coverage and then turns 65, they will enroll into Medicare A and B and look to purchase a Medigap plan or enroll into a Medicare Advantage plan leaving Cobra coverage behind. 

Again, the same assessment should be made regarding possible high priced medications, the coverage details and pricing of the Cobra coverage. This must be compared to options available in the Medicare market. 

Do I need to enroll into Medicare A and B if I accept Cobra health insurance coverage?

Yes, you do.