Maintaining access to health insurance is a huge priority for both employers and employees right now. With some employers having to make hard decisions about layoffs, furloughs and terminations, one of the situations plan sponsors should be mindful of is the integration of COBRA and Medicare—a situation that is always complex and made even more complex today when dealing with COVID-19–related issues as well.
On April 29, 2020, the Department of Labor (DOL) published a series of Frequently Asked Questions (FAQs) and updated COBRA notices for plan sponsors that include new information addressing the issue of Medicare eligibility and enrolling in COBRA. The FAQs are meant to assist both plan sponsors and individuals who may be eligible for Medicare.
The notices, now in a modifiable electronic form, include model initial and election notices for plan sponsors to use as the basis for creating their own notices. As noted in the article New DOL Model COBRA Notices Explain Medicare Interaction, but Litigation Exposure Remains, a best practice for plan sponsors is to start with the DOL’s model language and then incorporate the requirements under COBRA regulations.
The notices include language for individuals age 65 and above who may otherwise lose their group health insurance. In general:
If individuals don’t enroll in Medicare Parts A or B when first eligible because of being employed, after the initial enrollment period for Medicare Parts A or B, there is an eight-month special enrollment period to sign up, beginning on the earlier of:
- The month after your employment ends; or
- The month after group health plan coverage ends based on current employment ending.
In addition to new COVID-19-related situations, below is a series of common scenarios that demonstrate the coordination of Medicare and COBRA.
Medicare Eligibility vs. Medicare Entitlement—What’s the Difference and How Is COBRA Affected?
The words eligible and entitled are not the same thing. The final regulations under Title XVIII of the Social Security Act do not clarify what “entitled” to Medicare means. However, the common practice is to use “entitled” to mean enrollment in Medicare Parts A or B. So, for practical purposes, being eligible for Medicare means that a person can enroll because of turning 65—or, if a person is under 65, disabled—and receiving Social Security benefits. Being entitled for Medicare means you have already enrolled.
Medicare entitlement is not a COBRA qualifying event because it does not cause loss of employer plan coverage. Think of it this way: If someone turns 65 and is still working and remains eligible for employer-sponsored health insurance but enrolls in Medicare, there is not a loss of coverage and therefore, no COBRA qualifying event.
Medicare Eligibility but No Enrollment
COBRA coverage is not considered a group health plan based upon current employment. So, if an employee becomes eligible for Medicare but elects not to enroll at that time, believing he or she will enroll in COBRA instead, there are no future “special enrollment rights” for Medicare. The employee would have to wait until the Medicare enrollment period. This situation may also lead to a late enrollment penalty for Medicare Part B when COBRA coverage ends.
COBRA After Reduction in Hours or Termination of Employment
After an employee turns 65 and loses eligibility for employer-sponsored health insurance by reducing hours or terminating employment, the plan sponsor should send the COBRA election notice because this is a COBRA qualifying event. As long as the employee is entitled to Medicare before electing COBRA, they have the right to elect COBRA coverage as well.
Enrollment in COBRA, Then Medicare Eligibility
If you’re already enrolled in COBRA and subsequently become Medicare entitled, your COBRA coverage can be terminated early.
Medicare Secondary Payer (MSP) Rules
The MSP rules are also quite complex but are generally used to explain “Who pays first?” when discussing Medicare coordination with other coverage. Here are several scenarios:
Age 65 and older and group health plan
- Employer with less than 20 employees: Medicare pays primary, group health plan pays secondary.
- Employer with more than 20 employees: Group health plan pays primary, Medicare pays secondary.
Age 65 and older and covered by Medicare and COBRA
- Medicare pays primary, COBRA pays secondary.
Disabled and covered by Medicare and COBRA
- Medicare pays primary, COBRA pays secondary.
End-stage renal disease and covered by Medicare and COBRA (in first 30 months of eligibility)
- COBRA pays primary, Medicare pays secondary.
How Is Coverage for Dependents Affected?
An employee’s entitlement to Medicare is a COBRA qualifying event for the spouse and dependents only. If the employee became entitled to Medicare less than 18 months before the qualifying event, COBRA coverage for the employee’s spouse and dependents is available for up to 36 months after the date the employee becomes entitled to Medicare.
If an employee elects COBRA and then becomes entitled to Medicare, the employee’s Medicare entitlement terminates COBRA early, but this does not affect the COBRA rights of dependents as long as they are not entitled to Medicare themselves.
This information just skims the surface of the coordination between Medicare and COBRA during COVID-19—More great resources to assist with questions are Medicare and You, An Employer’s Guide to Group Health Continuation Coverage under COBRA and COBRA Coverage – FAQ for the COVID-19 Economy.
Visit the International Foundation Coronavirus (COVID-19) Resources page to find helpful information to navigate your organization through the pandemic.
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Anne Newhouse, CEBS
Information/Research Specialist at the International Foundation of Employee Benefit Plans
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