COBRA and Medicare – What Advisors Must Know
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In normal times, COBRA coverage presents challenges for those people who are eligible for Medicare.
Throw in COVID-19 and your clients face perilous decisions about their health care.
There has been an accelerated pace of people having to decide if they should take COBRA, go to Medicare, do nothing or do something. Workers are being offered early retirements. Some are accelerating their own timeline of retirement, if they can. Many are facing unemployment at an historical pace.
Decisions about healthcare coverage often have to be made quickly and at times of duress. Mistakes can easily be made.
Let’s talk through what COBRA is and I’ll tell you what I mean by “mistakes.”
COBRA stands for Consolidated Omnibus Budget Reconciliation Act. In 1983, this federal law was passed to provide for continuing group-health insurance as coverage for some employees and their dependents after a job loss or another qualifying event. COBRA is the insurance that someone had at work and were used to having while employed. Thus, in the employee’s head, “it’s just regular insurance like I had at work.” They intend to take that coverage “with them” as they separate from the employer.
Because this coverage looks and feels like their “normal” coverage, in comes the potential for mistakes.
I find that COBRA paperwork is often provided to a person who is over age 65 with no disclaimers or even the suggestion of “Please talk to a person about Medicare and how it can affect COBRA coverage.” Not to pin anything on human resource departments, but the typical statement I hear from the employee leaving the employer is that, “HR said it’s the same coverage that I had.”
Yes, it is indeed. The company will allow you take that exact same coverage with you for typically up to 18 months. Often, you (the employee) will pay 102% of the cost. You’re buying the same coverage that you had at work.
To the ex-employee, it’s the exact same coverage until the day the COBRA coverage officially kicks in. You’re no longer insured under active employer coverage. You’re on this thing called “COBRA.” Same insurance carrier? You bet.
But if you’re over age 65 and you wake up the next day on COBRA, things have changed.
You just didn’t know it. Oh, and nobody told you anything other than, “It’s the same as what you had.” Why would you question anything?
What’s the difference? When you went to bed last night, you had employer insurance. When you woke up this morning, you have COBRA. When you went to bed last night, your primary insurance company was your employer health plan. When you woke up this morning, your primary insurance company is Medicare, because you happen to be 66 years old.
Why does it matter which insurance is “primary”? It comes down to billing.
The fact that you are eligible for Medicare because you are over age 65 means that immediately Medicare becomes the primary payer to your COBRA coverage, which drops to secondary payer. You didn’t enroll into Medicare because you took your employer coverage with you when you left, remember?
You woke up with only COBRA. As luck would have it, you need emergency surgery. You have two stents placed in your heart. You leave the hospital and learn that the doctors and hospital billed Medicare first because you’re on COBRA coverage. Technically, the COBRA carrier can pay 20% of the claim because Medicare “should have” paid 80% of the claim. But you didn’t know you should sign up for it, “because you took employer coverage with you.”
I use this document, Who Pays First Guide. Look at page 7. This is a guide is from Medicare.gov. Look to the far left column. You’re 65 and over… Next column to the right? You’re eligible for Medicare…. Who pays first? Medicare. Bam.
I know HR didn’t tell you that. I know the insurance carrier didn’t tell you. I know the benefits person didn’t mention it.
But, I know what happens in the eyes of Medicare. And, I know who will be ultimately responsible for payment.
Real life: Greg called and said he’s being let go, so his retirement will start sooner than he thought. With mixed emotions about retiring early, he was excited to tell me that, “my employer has given me four months of health insurance 100% paid for by them. After that time I’ll have to get with you for Medicare.”
Nope. Greg already turned 65. I sent him our YouTube video about COBRA and Medicare. It’s my absolute favorite way to have someone understand the message. Greg called me back after watching. He was surprised but kept saying, “But they’ll be paying for my COBRA.” That is right, and it’s still COBRA, regardless of who is paying for it. But he needs to get Medicare A and B set up. Now, he can certainly keep the no-cost-to-him coverage provided by the employer, but he needs to get his Medicare started.
Greg went to HR to ask them about needing Medicare. He was told that his coverage was the same as while working, so he was still rather insistent that he didn’t need Medicare yet. I asked him to get this for me in writing and I’d be satisfied. “Ask HR and the group broker to sign off that the COBRA coverage will pay primary to Medicare and you don’t need to enroll into Medicare yet.” Oh, and please attach the Who Pays First guide for them to read.
Greg sent the email and the response was, “Your Medicare broker is correct.” Never have I seen it put into writing that the Cobra plan would pay first.
Greg got his Medicare set up, took the four months of COBRA and, instead of his paying for COBRA in month five, we put his Medigap and Part D plans into place for the rest of his retirement.
It’s not about our being right. It’s about the proper coverage if and when a claim hits. HR and the insurance carrier aren’t on the line; the insured is.
Might it make sense to keep COBRA along with Medicare, since COBRA is also more expensive than other Medicare products?
There have been a handful of times when I recommend that the person stay with the COBRA for 18 months in addition to having their Medicare Parts A and Part B activated. In every one of those cases where I suggested remaining with Medicare plus COBRA, coverage involved high-priced medications.
For example, Bob has some medications that are really pricey in the Medicare landscape. But, in the commercial market (which COBRA is considered), he can get those same medications with a $30.00 co-pay, for example. When you analyze the cost of the premium plus the low co-pays for medication, it can in some cases make sense to stay with the COBRA coverage until it ends and then go to a Medicare product to replace the COBRA where the inevitable high pricing will occur.
Bob still gets his Medicare A and B set up, but stays on the COBRA for 18 months. However, this is dicey. He needs to be careful leaving his COBRA plan because he has pre-existing conditions. There’s a different way (called “guarantee issue”) to be able to get his Medigap plan if that is what he chooses. That topic is a whole different article. Just realize that his tricky coverage issues aren’t ending with COBRA.
Side note: You’ll meet people who didn’t have Medicare in place, had a big claim and months later insisted that all is well. Just realize that the big claims are the ones that are likely to be audited by an insurance carrier. I’ve seen bills delivered to clients years later when it was discovered that, “they should have been on Medicare.”
Another common mistake made with COBRA is that the coverage can last for 18 or 36 months. However, Medicare rules require that a person enroll into Medicare within eight months of having COBRA coverage or they will indeed receive a late-enrollment penalty.
I haven’t seen this happen very often. However, once in a while I’ll see someone who is in rather good health at age 65, takes COBRA coverage and calls me when it’s expiring after 18 months. And, if they didn’t Medicare A/B along the journey, they will be forced to accept a late-enrollment penalty that lasts for life. They are relegated to having to enroll during the general election period of Medicare that runs January 1 through March 31 each year. It’s a huge hassle and the mistake will ding the person financially forever.
As with the rest of Medicare, it’s difficult to have a cut-and-dried list of exactly what to do when presented with a COBRA offer. If it were easy, you all wouldn’t need me.
Joanne Giardini-Russell is a Medicare nerd with Giardini Medicare, which was created to help those approaching Medicare eligibility or those currently enrolled in Medicare better understand what they are purchasing and how their choices may affect their long-term outcomes regarding care, finances, etc.
 Those that are eligible for Medicare are people age 65 and over, those who have been on Social Security Disability Income for 24 months, and those who have end-stage renal disease or ALS.