COBRA & Medicare

Revised on July 25, 2024

COBRA & Medicare: What You Need to Know

COBRA coverage and Medicare are two perplexing topics on their own. And they can become even more confusing when you are eligible for both COBRA & Medicare at the same time. 

So what is COBRA exactly?

COBRA (The Consolidated Omnibus Budget Reconciliation Act) is a federal law that allows certain employees, and their spouse, and/or covered dependents to continue group health care coverage for a period of time after their employment ends or in the case of certain “qualifying events”. “Qualifying events” are events that cause an individual to lose group health coverage such as loss of employment, divorce or legal separation, loss of “dependent child” status under the plan rules, covered employee becoming eligible for Medicare, and a few others. Those entitled to COBRA coverage will have at least 60 days to elect to enroll and are generally required to pay the full cost of the plan premiums plus an administrative fee. 

COBRA rules require coverage be allowed to continue for a limited period of either up to 18 or 36 months. The length of time depends on the qualifying event that gave rise to your COBRA rights. Some states have additional COBRA protections that apply to certain employers. Your employer can provide information about your COBRA rights and costs available to you.  

When Medicare eligibility coincides with a COBRA election opportunity there are special rules to pay attention to. 

• If your Medicare Part A or Part B is effective on or before you elect COBRA, you must be allowed to enroll in COBRA. However, it is important to note that once coverage changes over to COBRA from an active employer plan, Medicare becomes the primary payer, and your COBRA plan is secondary. This means Medicare will pay claims first, and your COBRA plan pays as the secondary payer. 

• Many insurance companies will only pay claims as the secondary payer for a COBRA plan if you are eligible for Medicare, whether you are enrolled in it, or not. Because of this nuance, sometimes referred to as the “COBRA Trap”, it is important to confirm with your COBRA plan as to whether they require Parts A & B to be active to avoid getting stuck with any unnecessary or surprise bills.

• If you become Medicare eligible after you begin COBRA, COBRA typically can’t continue and will likely end on the date your Medicare coverage begins. 

• When you leave your active employer plan, you have a special enrollment period which allows you to enroll into Medicare without any late enrollment penalties. This period lasts for 8-months following the termination of your employer health plan. It’s important to note that Medicare does not view COBRA the same way that it does an active employer health plan. Even though COBRA is a continuation of the exact employer plan you had while working, Medicare no longer views the COBRA plan as an active employer health plan once it becomes COBRA continuation. Therefore, the special enrollment period does not apply.

If COBRA is available to you, and you are Medicare eligible, how do you know whether it is the right option? 

The bottom line is, if you leave your employer health plan, are Medicare eligible, and considering enrolling in COBRA, be sure to confirm with your COBRA plan whether they require you to enroll in Medicare Part A & B to avoid getting stuck with any unnecessary medical bills. If the COBRA plan does not require Medicare enrollment, even if you are eligible, be sure you don’t postpone your Medicare enrollment for more than 8-months, or you will face a Medicare late enrollment penalty when you do sign-up. 

What is the Medicare late enrollment penalty? 

If you do not sign up for Medicare during your 7-month Initial Enrollment Period when you turn 65, and you do not qualify for a Medicare Special Enrollment Period, you’ll have to wait to sign up during Medicare’s General Enrollment Period which runs annually from January 1 to March 31.  And when you do sign up, you will have to pay a late enrollment penalty which is 10% of your Medicare premium for each 12-month period you should have had Medicare but did not. In most cases, you will have to pay that penalty every month for as long as you have Medicare!