COBRA and Medicare, Part II

Continued health care coverage authorized by the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as COBRA, provides a great step forwarded in reducing gaps in insurance for people between jobs or losing coverage due to the death of the covered worker in a family.  The rules for COBRA coverage are, nonetheless, complicated.  This is especially true when COBRA intersects with Medicare.

A prior article discussed the pitfalls of enrolling in Medicare Part B at the end of a period of COBRA coverage. Because COBRA coverage is not considered coverage due to current employment, an individual is not entitled to a Special Enrollment Period (SEP) for Part B when COBRA coverage ends and is not permitted to enroll in Medicare Part B until the next General Enrollment Period (GEP), which runs January through March of the year, with coverage beginning July 1.  Moreover, the individual will pay a lifetime late enrollment penalty of 10% for every 12 months of delayed enrollment.

COBRA can be considered creditable coverage for purposes of Medicare Part D.  Thus, if an individual has prescription drug coverage through a COBRA plan that is considered "creditable" (at least as good as what he or she can get through a Part D plan), the individual has a SEP to enroll in a Part D plan at the end of COBRA coverage, without a waiting period and without a penalty.[1]

COBRA and Medicare/Medicare and COBRA: When Can You Have Both?

Whether an individual has the right to COBRA in addition to Medicare depends on whether the individual has Medicare before or after he or she begins to receive COBRA.  An individual who has qualified for and chosen COBRA before enrolling in Medicare will lose the right to COBRA when their Medicare becomes effective.  In other words, the employer has the option of canceling the COBRA coverage when the individual enrolls in Medicare.[2]  An employer can terminate COBRA coverage only when an individual actually obtains Medicare coverage.[3]

If, on the other hand, an individual enrolls in Medicare first – even if just in Part A – he or she would also be eligible to purchase COBRA coverage.[4]  Indeed, Medicare enrollment is a qualifying event for the purpose of COBRA coverage when it causes the individual to lose existing health care coverage. So if an individual wants COBRA in addition to Medicare, it is important to sign up for Medicare before the COBRA qualifying event (which could be signing up for Medicare or could be termination of employer sponsored health care coverage due to retirement).  Since, as we noted last week, loss of COBRA does not entitle one to a SEP to enroll in Medicare Part B, it is important to enroll in Part B at the time one applies for Part A.

When Acquiring Medicare Coverage IS the COBRA Qualifying Event

Mandatory COBRA coverage periods vary depending on several factors. The maximum COBRA coverage period for a qualified beneficiary who loses health insurance as a result of a covered employee enrolling in Medicare is 36 months. The 36-month period begins to run at the time of Medicare enrollment, even if the qualified beneficiary does not lose health coverage until he or she experiences a subsequent qualifying event occurring less than 18 months after Medicare enrollment. As a result of this complicated provision, the qualified beneficiary often will not have COBRA coverage for the full 36-month period.

Consider the following examples involving Medicare entitlement as a qualifying event:

Example 1:

An employee enrolls in Medicare on May 1, 2011, causing his or her dependents to lose health insurance as of that date. In this situation the dependents are entitled to 36 months of COBRA, starting on May 1, 2011.

Example 2:

Again, the employee enrolls in Medicare on May 1, but the dependents do not lose their health coverage until the employee retires on October 1, 2011. They are technically entitled to 36 months of COBRA starting on May 1, 2011, the date of Medicare enrollment. Because of the way the coverage period is calculated, and because they do not lose insurance until October 1, they only have COBRA coverage for the 31-month period starting in October.

Example 3:

If the same dependents do not lose health insurance until the employee retires on May 1, 2013, they are not entitled to the coverage period for a qualifying event based on Medicare enrollment. The subsequent qualifying event that caused the loss of health coverage occurred more than 18 months after the employee enrolled in Medicare. The dependents are entitled to the coverage period for a qualifying event of termination of employment, which is 18 months from the date of retirement, May 1, 2013.

Which Coverage is Primary?

Medicare coverage is primary to COBRA, except for a 30-month coordination of benefits period for people who are entitled to Medicare because of End Stage Renal Disease (ESRD).[5]

How Does COBRA Work with Medigap Coverage?

People with Medicare and COBRA have the right to purchase certain Medigap plans within a guaranteed issue period in certain circumstances wherein the COBRA coverage that is supplementing Medicare terminates. The statute and related interpretive materials are somewhat ambiguous about whether such rights only arise when the employer sponsored health plan that gave rise to the right to COBRA terminates due to the employer going out of business.[6]

During guaranteed-issue periods, companies must sell the individual one of the required Medigap policies at the best price for the individual's age, without a waiting period or health screening.

People with Medicare can usually apply for a guaranteed-issued Medigap policy as early as 60 days before the COBRA benefits end to avoid a gap in coverage. In most cases, the individual must also apply for one of these plans no later than 63 days after COBRA coverage ends. The application usually requires evidence of the date coverage ends or ended.

The Medigap policies to which this guaranteed issue right applies are A, B, C, F (including F with a high deductible), K, or L.[7]

Conclusion

COBRA coverage is useful but qualifying events, length of mandatory coverage and interactions with rights under other insurance options are complex.  People with Medicare, and their advocates and advisors, should be very clear about important timing issues when considering COBRA and Medicare options.