Medicare and COBRA: Key Questions HR and Benefits Staff Should Be Ready To Answer
As retirement-age employees prepare to leave the workforce, one of the most common questions they ask employers is: “Should I enroll in Medicare, COBRA, or both?”
Your HR and benefits staff may be familiar with COBRA continuation coverage. But less understood is the interplay between COBRA and Medicare. Understanding how Medicare and COBRA interact can help your organization anticipate employee questions, ease retirement transitions and support compliance efforts.
Providing personalized advice on Medicare enrollment and retirement decisions can trigger unwanted legal and fiduciary responsibilities. But educating employees on Medicare and COBRA basics can benefit your workforce and organization.
Educated employees are less likely to face coverage gaps, unexpected healthcare costs and enrollment penalties. Preparing your workforce can increase financial well-being and retirement readiness. This can bolster productivity, job satisfaction and organizational reputation. It can also guard against claims disputes.
This article will help you:
- Understand the basics
- Dispel a common misconception about COBRA
- Know the importance of COBRA and Medicare timing
- Anticipate questions from employees
We’ll wrap up with actionable steps to support your workforce during a time of transition.
Understanding the basics
Transitioning away from employer-sponsored health coverage can trigger important benefits decisions. Employees approaching age 65 and those who are already entitled to Medicare may not know whether to enroll in Medicare or COBRA continuation coverage, or both.
COBRA allows qualified beneficiaries to continue employer-sponsored health coverage following certain qualifying events. Termination of employment, including retirement, typically qualifies individuals for COBRA.
Medicare is a federal health insurance program available to individuals based on age, disability or certain medical conditions.
When individuals qualify for COBRA and Medicare, the interaction between the two coverages understandably raises questions. Employees may assume that COBRA simply replaces Medicare or allows them to delay Medicare enrollment during COBRA coverage. In many cases, these assumptions can lead to unexpected healthcare costs or coverage gaps.
Dispel a common misconception: COBRA is not the same as active coverage
Employees are often more familiar with Medicare eligibility than COBRA rules and regulations. Many may have heard that Medicare offers a special enrollment period tied to active coverage, but the details can be confusing.
Medicare-eligible individuals covered under an active employer-sponsored group health plan can generally delay their initial enrollment in Medicare Part B* and sign up during a special enrollment period. That’s if they or their spouse is employed and has employer-sponsored coverage.
A special enrollment period applies:
- At any point during which they or their spouse is working and covered by an eligible employer group health plan
- During the eight months after the month they or their spouse retire, or their group health coverage ends, whichever is first
Some employees wrongly assume that COBRA coverage allows them to delay Medicare enrollment. But in most cases, COBRA continuation coverage is not considered active employment-based coverage for this purpose. Medicare.gov notes that the eight-month rule above applies whether an individual selects COBRA or not.
This distinction matters because employees who delay Medicare enrollment while covered only by COBRA may face coverage gaps and late enrollment penalties.
When individuals are eligible for Medicare but not enrolled, COBRA may cover only a small portion of healthcare services, as if Medicare Part B were already in effect. If it’s not, this could increase an individual’s out-of-pocket costs because they would be responsible for the remaining expenses.
*Medicare Part B covers preventive services, ambulance services, durable medical equipment, outpatient mental health care and outpatient prescription drugs.
Primary and secondary payments
Employees need to understand that COBRA should not be viewed as an automatic substitution for Medicare enrollment.
In many situations, Medicare pays first and COBRA pays second. An individual relying solely on COBRA continuation coverage without enrolling in Medicare may face additional expenses because COBRA is considered the secondary payer. As noted above, if an individual has not enrolled in Medicare Part B, they may be responsible for a larger share of costs.
Timing matters when electing Medicare and COBRA
The order in which an individual enrolls in Medicare and COBRA can affect coverage. For example:
- An individual is already enrolled in Medicare. After a qualifying event, they elect COBRA coverage. This is typically allowed, with Medicare being the primary payer and COBRA being the secondary payer.
- An individual elects COBRA coverage. They later become entitled to Medicare. When Medicare coverage begins, it usually becomes the primary payer. If an individual first elects COBRA and later becomes entitled to Medicare, COBRA coverage may terminate under COBRA’s Medicare entitlement rules. However, certain covered family members may remain eligible for COBRA continuation coverage.
Coverage coordination depends on individual circumstances. Encourage employees to review their healthcare options before making enrollment decisions.
Sample questions from employees
The following are common questions employees may ask your HR and benefits teams. Sample answers are provided.
“Can I choose COBRA instead of Medicare?”
In some cases, you may elect COBRA instead of Medicare. However, depending on the circumstances, doing so may lead to enrollment delays, coverage gaps and late enrollment penalties. Evaluate your Medicare and COBRA options before making election decisions.
“Can I have both Medicare and COBRA coverage?”
Assuming you are eligible for Medicare and experience a COBRA-qualifying event, you can have both types of coverage. Depending on your circumstances, Medicare and COBRA may work together. Medicare will often serve as the primary payer, with COBRA being the secondary payer. You should review plan details to understand benefits coordination and determine whether COBRA coverage meets your needs.
“Will COBRA protect me from Medicare late enrollment penalties?”
Most often, COBRA will not protect you from late enrollment penalties. COBRA coverage typically does not satisfy active coverage requirements for delaying Medicare Part B. Therefore, electing COBRA coverage will not extend your special enrollment window for Medicare Part B.
Steps to support your workforce
Your organization does not want to become responsible for providing personal advice for Medicare and COBRA election decisions. However, you can help educate employees on the facts and direct them to qualified resources.
The following best practices can support your workforce:
- Provide COBRA election materials promptly so employees have time to review and understand coverage details.
- Educate employees on COBRA continuation coverage, Medicare and the interplay between the two. Encourage Medicare-eligible individuals to review enrollment deadlines and coverage details.
- Direct employees to vetted resources (See the Center for Medicare and Medicaid Services’ COBRA Coverage webpage and the Employee Benefits Security Administration’s FAQs on COBRA Continuation Health Coverage for Workers). Encourage them to access benefits professionals for individual guidance.
Medicare and COBRA are both important forms of health coverage, but they don’t serve the same purpose. And each has its own set of rules.
Employees who are approaching age 65 or leaving your organization may face complex decisions involving enrollment timing, coverage coordination and continuation of benefits. Educating them about health coverage can help them make an informed decision for their situation.
Because Medicare enrollment and COBRA decisions depend heavily on individual circumstances, encourage your employees to consult a benefits professional before making any enrollment decisions.
For more information on Medicare coverage or COBRA administration, contact us. We can help you understand the interplay between Medicare, COBRA and your group health plan, and identify ways to educate your employees.