Losing health insurance from your employer while being Medicare eligible, you may have the same question.
In most situations, keeping COBRA while being on Medicare is not a good idea. Not only is COBRA meant to be a bridge, but it also is extremely expensive, and is not considered credible coverage. If you have COBRA but don’t have Part B, Medicare will charge a penalty. There are many affordable alternatives that provide the same, if not more, benefits. Medicare Advantage Plans and Medicare Supplements are great options to consider instead of COBRA.
Many people, who are Medicare eligible decide to keep COBRA from an employer instead of applying for Medicare.
Although this is an option, it is not the ideal solution and there are a few things to consider.
Today we will talk about what happens when you have COBRA coverage and become eligible for Medicare.
Continue reading to learn more.
What is COBRA?
It stands for “Consolidated Omnibus Budget Reconciliation Act of 1985.”
Any health insurance that you are allowed to keep if you lose employer health insurance is called COBRA.
It is a law that allows you to keep employer health insurance for a certain period should you or your spouse lose employment.
It is usually very expensive and becoming eligible for Medicare helps relieve a significant financial burden.
You can keep it for a maximum of 18 months. However, in certain special circumstances, the company providing it may extend this time.
It is meant to be a bridge from one health insurance company to another, not a long-term solution.
You’ll Pay a Penalty
When you have COBRA and become eligible for Medicare, you should consider enrolling in Medicare. If you wait to enroll you will likely be subject to a late enrollment penalty.
This is because, according to Medicare, COBRA is not creditable coverage.
Creditable coverage is health insurance that meets a minimum set of guidelines (that the government sets for all health insurance). One of these guidelines is that health insurance needs to be guaranteed renewable.
Cobra can drop you at any time, so it’s not guaranteed renewable, thus not being considered creditable.
If You Have COBRA, Enroll in Medicare as Soon as You Can.
People get Part A automatically when they turn 65 but not always Part B. (Click here to read more about Part A eligibility and enrollment).
If you have COBRA, Medicare recommends you enroll in both Part A and Part B as soon as you are eligible.
It is important to note that while losing employer coverage entitles you to a Special Enrollment Period, losing COBRA coverage does not.
So you’ll want to be sure to enroll in Part B as soon as you are eligible, even if you are still entitled to keep your COBRA coverage.
Read about different enrollment periods here.
If you miss the chance you’ll have to wait until the General Enrollment Period (January 1st – March 31st) and coverage cannot start until July 1st.
Remember, the longer you go without Part B while you are eligible for it, the higher your late enrollment penalty is.
Individuals whose employer subsidizes their COBRA premiums usually prefer to keep it as long as they can instead of paying a monthly Medicare Part B premium, but doing so will subject you to a late enrollment penalty with Medicare. Something definitely worth considering.
Pro Tip: If your employer is willing to subsidize your COBRA premium, ask them to subsidize your Medicare/Supplement instead. Not only will it cost them less money, but you’ll also avoid paying a penalty by not delaying your Part B Enrollment.
Let’s look at an example:
Jan lost her job in March 2020.
She can only be able to keep her employer-sponsored health insurance through the end of March.
Her employer sends her a letter stating she is entitled to COBRA continuation coverage.
She chooses to elect COBRA continuation coverage.
It begins on April 1st, and she is eligible to keep it for 18 months.
However, Jan is turning 65 in November of 2020.
This means she should enroll in Medicare no later than February 2021.
Unfortunately, Jan chooses to delay enrollment into Medicare until her COBRA coverage runs out in October 2021.
She now has to wait to enroll in Part B until the General Enrollment Period from January 1st, 2022-March 31st, 2022.
Her Part B coverage will not begin until July 1st, 2022, and her premium will be higher because Medicare will charge her a late enrollment penalty.
If You Lose COBRA You Won’t Get a Special Election Period.
A Special Election Period with Medicare (SEP), allows you to get a Medicare Supplement without going through any health underwriting.
In most cases, if you lose your current health insurance (i.e. Medicare Supplement, Employer Coverage, Medicare Advantage) you’ll be allowed a SEP.
If you prefer a Medicare Advantage Plan, a SEP allows you to get one without having to wait for the Annual Election Period (Oct 15th – Dec 7th).
Although losing COBRA does not give you any SEP for health insurance, it does for Part Drug coverage.
Keep reading to learn more.
COBRA and Part D Drug Coverage
Losing COBRA coverage does not entitle you to a Special Enrollment Period for enrolling in Part B, but it may for Part D.
COBRA prescription drug coverage is considered creditable so you won’t have to pay a Part D penalty.
You may be able to delay enrollment into Medicare Part D for as long as you are eligible to keep COBRA.
So if your COBRA runs out, you’ll have a SEP for Prescription drug coverage.
Just like with health insurance, prescription drug coverage is creditable if Medicare considers it just as good, if not better than Part D coverage.
The company that provides your COBRA coverage should give you a letter notifying you that your coverage is creditable.
COBRA Is Too Expensive
Even if your employer pays a portion of your premiums, COBRA is really expensive.
In most cases, a Supplement costs about a fourth less than COBRA.
If you get sick, and you lose your COBRA coverage, you may not be able to qualify for a Supplement and you won’t be given a special enrollment period like you would if you lost traditional health insurance. So you may not be able to get the coverage you need.
Read about qualifying for a Medicare Supplement here.
How Are Claims Paid With Medicare and COBRA?
Let’s say for some reason you decide to keep COBRA, even after applying for Medicare.
In this case, Medicare is your primary insurance and pays first, and COBRA is secondary and pays after Medicare.
Remember DO NOT drop Medicare to enroll in COBRA, but you can keep both (not recommended)
Remember, Medicare pays for most of your medical coverage and COBRA will act as the Supplement.
As we mentioned above, dropping Medicare to enroll in COBRA will likely mean you will have a late enrollment penalty for signing up later and perhaps a lapse in your health coverage.
Additionally, COBRA is typically very expensive, and having secondary coverage, such as a Medicare supplement, would likely be much more cost-effective than having COBRA as secondary coverage.
It can also be much harder, if not impossible, to get a Medicare Supplement if COBRA drops you and you have some kind of medical condition.
Medicare Supplements are plans you can purchase in addition to Part A and Part B to help minimize your out-of-pocket expenses on Medicare.
We talked about the different Supplements in more detail in another post, which you can read here.
As you can see, when you have COBRA coverage, it is essential to know what you need to do when you become eligible for Medicare.
You should enroll in Medicare as soon as you are eligible.
This way you’ll avoid any lapse in coverage and a late enrollment penalty.
Unlike Medicare Part B, you may very well be able to delay your enrollment in a Part D drug plan.
When you have Medicare and become eligible for COBRA, you can enroll in it as secondary coverage.
Still, it is usually quite expensive and can hinder your ability to get other secondary coverage later on.
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