Understanding Medicare and COBRA: What You Need to Know

If you’re eligible for Medicare, whether you enroll in it or not, COBRA insurance can still affect you. But what exactly is COBRA? The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that allows you to keep your employer health benefits after job loss, divorce, or death. Employers of a certain size must offer you COBRA when you retire or leave a job, continuing the same health coverage you had while employed. However, the payment rules for these benefits change if you’re eligible for both COBRA and Medicare after leaving your job.

Paying Primary Amounts, Paying Secondary Amounts, and Who Knows What in Between.

When you are enrolled in both COBRA and some Part of Medicare, COBRA benefits are designed to be secondary to those Medicare Parts. The rules are not as clear, however, when one has COBRA and Medicare Part A, but not Medicare Part B. How might one get in this situation? Since Medicare allows eight months to join Part B once you retiree, someone who elects COBRA might forget to sign up, or they think they can use Medicare Part A and COBRA, like they had been doing as an active employee, delay Part B Premiums, and assume COBRA will pay primary for their Part B type services, like doctor visits. This may or may not be true.

Some Employers/Carriers may in fact instruct more fortunate employees not to enroll in Part B as they are happy to take the Primary Payer Position for Part B type services. Other Employers/Carriers may not say anything. And unfortunately for some, their COBRA carriers insisted on secondary status based on mere Medicare eligibility after the fact. If a COBRA carrier thinks it mistakenly paid benefits that Medicare Part B could have covered, they may pull back the primary payment made to your doctor or other Part B type service provider and insist that you pay the primary amount. In some cases, amounts reached tens of thousands of dollars in charges. Surprisingly, the COBRA carrier insists on paying a lower secondary amount for such Part B type services despite receiving the same premium when the active employee’s Group Health Plan was primary.  Contrast this with a more reasonable situation where a retired Medicare beneficiary with Federal Employee Health Benefits (FEHB) has Part A but not Part B. Doctor services (normally covered under Part B), would be covered to the full extent allowed by a retiree FEHB plan, not as a secondary amount.

Now let’s talk about when you can keep COBRA with Medicare. It’s about the timing, but please remember failing to sign up for Medicare Part B within eight months of leaving your job could result in a permanent late Part B enrollment penalty, even if you have COBRA coverage remaining.

Here are the timing rules:

• If you’re on Medicare Part A or B, and the earliest entitlement date (i.e. effective date) precedes the date you elect or will elect COBRA, then you can continue with both. Any Medicare Part you are enrolled in would be primary to COBRA, and as mentioned above, a COBRA carrier may consider itself secondary to a Medicare Part that you do not yet have but are eligible for.
• If you’re on COBRA and then become eligible for Medicare, your COBRA benefits can be terminated by the employer.
• If you’re under 65 with Medicare due to End-Stage Renal Disease (ESRD), these rules do not apply.

Employer Group Health Insurance and Medicare: How They Work Together

If you or your spouse is still working and eligible for Medicare, here’s how your options look when your employer has at least 20 employees (for Medicare persons aged 65 and older) or 100 employees (for Medicare persons with disabilities):

1. Delay Medicare Enrollment: Continue using your (or your spouse’s) employer’s health plan benefits. Your benefits won’t change due to Medicare eligibility. You can enroll in Medicare later without a penalty if you do so within eight months after the month employment ends.
2. Enroll in Medicare and Keep Employer Insurance: Pay the Medicare Part B premium while retaining the employer’s health insurance. The employer’s plan while working will be primary, and Medicare can help cover additional costs like deductibles and copayments.
3. Opt for Medicare Only: Reject the employer coverage and use Medicare as your sole insurance. Employers can’t offer you supplementary medical coverage or coverage that is less than what is offered to non-Medicare eligible employees.

Leaving Employment: Transitioning to Medicare

When either you or your spouse stops working and employer health benefits end, you must enroll in Medicare Part B in a timely manner to avoid a late Part B penalty. Most people who have worked and paid Medicare taxes for 10 years likely signed up for Part A already. You would then decide on additional insurance available to you.

Your Options:

• Supplemental/Retiree Benefits: If offered by your employer, Medicare will pay first, and your retiree benefits may cover additional costs. Check if your retiree coverage includes prescription drugs; if not, apply for Medicare Part D.
• Medicare Part C Medicare Advantage or Part D with a Medigap to Supplement Original Part A/B coverage: Either of these two arrangements are available to Medicare beneficiaries. The plan pricing and options are based on where a person lives.
• COBRA Coverage: Extends your existing health benefits, but Medicare A or B pays first. COBRA requires paying the full premium, including the portion your employer previously covered, plus an administrative fee. Some employers may cover COBRA costs for a limited time after employment ends.

Important Considerations:

• Timely Enrollment: Enroll in Medicare within eight months after employer benefits end to avoid penalties and coverage gaps. Delayed enrollment in Medicare after starting COBRA can result in COBRA termination.
• Mistaken Payments: COBRA carriers may seek reimbursement for benefits paid that it thinks should have been covered by Medicare, where one has Part A, COBRA, but not Part B.

Assistance and Additional Options:

• Medigap Policy: Purchase this insurance to supplement Original or Traditional Medicare and manage its out-of-pocket cost risks. Do doctors take all Medigap Plans? Instead ask, “Does the doctor take Original Medicare?” If so, then any Medigap Plan will pay the doctor the out-of-pocket cost per the Medigap Plan standardized benefit.
• Medicare Advantage Plan (MA Plan): Private plans designed to lower Medicare’s costs by limiting your access to providers (stay in network) and services (requiring prior authorization). They may offer prescription drug coverage and some non-medical extras which might be good enough to make some overlook the above limits.  Check to make sure the providers you want to see, or continue to see, are in the network of the plan you are being sold.
• State Health Insurance Assistance Program (SHIP): Offers help with these choices. For instance, California’s SHIP is the Health Insurance Counseling and Advocacy Program (HICAP), available in every county.

Note: This information is general and may vary based on specific circumstances. It doesn’t cover scenarios where COBRA eligibility is due to factors unrelated to leaving employment.

This project was supported by the Administration for Community Living (ACL), U.S. Department of Health and Human Services (HHS) as part of a financial assistance award totaling $1,923,099.00 with 100 percent funding by ACL/HHS. The contents are those of the author(s) and do not necessarily represent the official views of, nor an endorsement, by ACL/HHS, or the U.S. Government. Support provided by the California Department of Aging.

CA Health Insurance Counseling & Advocacy Program (HICAP) 1.800.434.0222