Administration Tips

COBRA and Medicare Interaction

Administering COBRA When Medicare Comes into Play, April 18, 2019 has been answering questions regarding COBRA since 1995 and we are often asked, “What is the most common question when administering COBRA?” It is actually a very easy question to answer; how Medicare and COBRA interact. This blog will discuss COBRA and Medicare and how to administer COBRA correctly.

There are six situations where COBRA and Medicare interact and have been interpreted completely different throughout COBRA’s existence. Keep in mind; you cannot use logic when discussing COBRA and Medicare’s interaction. You also will have a difficult time finding confirming information on the internet. Quite frankly, there are many situations where administrative procedures don’t seem logical. Let’s examine those six COBRA and Medicare interactions.

1) Employee's Medicare Entitlement While Continuing to Work

In a situation where an employee voluntarily removes him/herself from a plan, it is recommend seeing if they have dependents on their plan. Prior to contacting the insurer to remove the employee, have a conversation to let them know their dependents will be terminated along with them and will not be offered COBRA. Some employers will have the employee sign a form stating he/she understands this consequence if they still wish to cancel coverage.

2) Medicare as a Multiple Qualifying Event

Once a COBRA Participant has started on COBRA and then becomes entitled to Medicare, has a “multiple COBRA Qualifying Event” occurred? We know that Medicare Entitlement is a reason for COBRA termination but what about covered Qualified Beneficiaries? Prior to 2004, it was deemed as a qualifying event and covered dependents were offered up to thirty-six months of continuation coverage. But with Rev. Ruling 2004-22, 2004-10 I.R.B. 553, the Internal Revenue Service determined that a COBRA Participant’s Medicare Entitlement will rarely be considered a multiple qualifying event. They stated that under MSP (Medicare Secondary Payer) rules, group health plans are unable to terminate covered dependent’s coverage; therefore there they should not experience a loss of coverage.

If a COBRA Participant becomes entitled to Medicare, you will want to remove them from continuation coverage.

3) “Special Medicare Rule”

Just when you thought you knew everything about how COBRA and Medicare interact, ERISA Section 602(2)(A)(vii) [and Treasury Regulation Section 54.4980B-7 Q?A -4(d)(1) ] changes everything. These sections of the law state the if an active employee is terminated (voluntarily or involuntarily) or experiences a reduction in work hours where there is a loss of coverage within 18 months of the employee’s Entitlement to Medicare;

a) The employee should be offered the right to continue coverage for 18 months; but

b) Covered dependents should be offered thirty-six months calculated from the date of the employee’s Entitlement to Medicare.

4) COBRA Participant Becomes Entitled to Medicare

As we explained earlier, Medicare Entitlement is rarely considered a multiple qualifying event. When either an employee (or dependent of) is effective on COBRA and later becomes entitled to Medicare, that individual “can” be terminated from continuation coverage. We are using the word “can” be terminated because by law they should be terminated from continuation coverage but we have found many Administrators allow these individuals to continue ancillary plans (i.e. dental, vision, etc.) if the carrier agrees to continue coverage.

5) Medicare entitled Active Employee Experiences Qualifying Event

Should an active employee age 65+ (who is enrolled under Medicare) be offered COBRA when they are terminated or lose coverage due to reduced work hours? In the previous paragraph we described how individuals should be remove when they are enrolled on COBRA and become eligible for Medicare so it only makes sense that you would not offer a Medicare covered employee COBRA when they experience a qualifying event. WRONG. The law states that the employer-sponsored plan may cover items that Medicare does not. For this reason, employers must offer these individuals COBRA continuation.

6) COBRA Participant Receives “Disability Extension”

Although not directly related to Medicare, the reason for allowing a disabled COBRA Participant an additional eleven months of continuation coverage is to provide time to obtain Medicare. If a Qualified Beneficiary is deemed disabled prior to their sixtieth day on COBRA, notified the Administrator within sixty days of Social Security Administration’s (SSA) Disability Determination and provides that determination prior to the end of their 18 months on COBRA, they should be offered an eleven month Disability Extension. All members of the family unit should be granted the extension as well. If the disabled individual is no longer considered by SSA or becomes entitled to Medicare, they may be removed from the plan.

TIP: When administering COBRA and Medicare, logic seems to go out the window. You need to do what the law says based upon the given situation. With over 25 years of experience, we assist our subscribers in correctly handling COBRA when Medicare is involved. Become a subscriber now.