Medicare and COBRA are both complex laws by themselves, but add the two together, and they require even more knowledge. If you’re the plan sponsor and have employees asking you for assistance, you know how difficult this topic is.
To help, I’ve put together a series of common scenarios on 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, 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.
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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 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 fewer 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, COB.RA 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.
Although this information just skims the surface of the coordination between Medicare and COBRA, two great resources to assist you with questions are Medicare and You and An Employer’s Guide to Group Health Continuation Coverage Under COBRA.
If you have other Medicare questions, check out these recent posts:
- Group Medicare Advantage Plans—Tips for Plan Sponsors
- An Employee Turns 65: How Medicare Enrollment Impacts Their HSA
- Coordinating Employer Health Plans With Medicare
Anne Newhouse, CEBS
Information/Research Specialist at the International Foundation of Employee Benefit Plans