COBRA and Medicare… Oil and vinegar or two peas in a pod?


There are lots of things that are consistent when it comes to Medicare. It runs very smoothly, is a pretty well-oiled machine, and policy holders are overall very pleased. But we also see a lot of uncertainty or overwhelm when trying to fully understand it all. It can be intimidating with the regulations and guidelines to follow that could result in financial penalties if not abided by appropriately. But it doesn’t have to be scary or stressful. That’s what we’re here for.

One of the areas that can seem confusing is when people are approaching age 65 (Medicare eligible) and planning to no longer work. There are options to select COBRA coverage, essentially extending the employer’s group coverage, or enroll in Medicare. Here, we’ll break this down as simply as possible to provide a little guidance.

First, let’s be sure we’re on the same page with what exactly COBRA is. COBRA (Consolidated Omnibus Budget Reconciliation Act) gives employees the right to choose a continuation of the previous employer’s group health plan for a limited time. Usually, that time frame is 18 months but may be extended up to 36 months in some situations. There may be some instances where the coverage changes slightly and the premium is usually a little higher than it was for an active employee prior to retirement, up to 102% of the cost of the plan. Employers with 20 or more full time equivalent employees are generally required to offer COBRA. Spouses can also be eligible for COBRA if:

• The covered employee either voluntarily or involuntarily leaves the job
• The covered employee’s number of hours are decreased making them ineligible for benefits
• The covered employee becomes eligible for Medicare
• Divorce or legal separation from the covered employee
• Death of the covered employee

A commonly used term when entering the Medicare world is “creditable coverage”. This is referring to coverage outside of Medicare being qualified to take the place of Medicare so that there are no late enrollment penalties if you don’t enroll on time. “Creditable” also means that the coverage is expected to pay on average as much as the Medicare coverage would. COBRA is NOT considered creditable for Part B of Medicare. Only active employer group coverage for an employee still working would suffice for that. Regarding Part D prescription drug coverage, it is plan specific whether or not it’s creditable.

Real life example: Bill decides to retire right at age 65. He’s been on his employer’s group plan for 25 years. He can elect COBRA to keep that plan but also needs to enroll in Medicare, now that he’s eligible. Medicare would then become his primary. If he didn’t enroll in Medicare and stayed just on COBRA, he could face a substantial gap in coverage. Let’s say he sees a doctor, they bill Medicare A&B for the standard 80% payment but he doesn’t have any Medicare. So then they bill COBRA, who could pay just 20% of the total cost or possible nothing at all, since they’re secondary with him being 65+ now and he technically doesn’t have any primary coverage. Bill could now be stuck with a bill (see what we did there?) for 80-100% being his responsibility to pay out of pocket. So, Bill, lesson learned… what he should have done is upon retirement, enroll in Parts A&B as soon as he stopped working and then compared his COBRA coverage and premium to that of a supplement or advantage plan to decide on the best secondary coverage.

A few things to consider if you’re going to stop working or are 65+ with COBRA:

• What are the options for your spouse or family?
• Is your employer’s COBRA coverage “creditable” for Medicare?
• What is the cost of COBRA vs a Medicare supplement or advantage plan?
• You have 8 months from when you stop working to enroll in Parts A&B without penalty

It may seem like a lot but this is a big transition from working to not, so don’t take it lightly. We can help work through the details and relieve some of the stress. The positive part of it all is that there are options for care and you get to pick the best fit for you.

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