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Medicare Series: Part 2 – Understanding how Medicare and COBRA interact

How do Medicare and COBRA interact?

Welcome to Part Two of our Medicare Series. Our first post addressed how Medicare and HSAs interact. It included two lessons about how HSAs and Medicare interact.

This post will address how Medicare and COBRA interact. We will cover two main topics:

  1. When someone enrolled in COBRA becomes eligible for Medicare
  2. Medicare extension eligibility

It can be a little complicated, but we’ve broken it down and provided examples to make it more understandable. For starters, we are only going to focus on two people. We’ll get to that in one minute. Second, we’ll provide a high level overview of COBRA to lay groundwork before jumping in to the two main topics.

The two people we are focusing on are a covered employee and the covered employee’s spouse. In other words, a covered employee is someone who had coverage, lost coverage, and enrolled in COBRA for coverage. This person will be referred to as “the covered employee” through the blog. Again, the second person is the covered employee’s spouse (who is a dependent).

Typically, when a covered employee enrolls in COBRA, they and their dependent receive 18 months of benefits through COBRA. This may include medical, dental and vision benefits. The main change is that the employee is now paying the full cost of coverage directly instead of receiving a partial subsidy through an employer.

COBRA and Medicare – a matter of timing

The most important factor in how COBRA and Medicare interact is timing. A qualifying event does not occur upon eligibility.

If a covered worker became entitled to Medicare after enrolling in COBRA, their spouse would still be eligible for COBRA if there is a loss of coverage. If a covered worker became entitled to Medicare before enrolling in COBRA, their spouse is eligible for COBRA from the date the covered employee became eligible for Medicare.

Section 1: When someone enrolled in COBRA becomes eligible for Medicare

If a person becomes entitled to Medicare after enrolling in COBRA, they must cancel the medical portion of their COBRA coverage. (And they will not be eligible for an extension). However, the covered employee can usually continue dental and vision coverage under COBRA, since Medicare does not cover these expenses.

The covered employee’s spouse can continue to receive full COBRA coverage (including medical, dental and vision) for the full 18 months. (A secondary qualifying event could extend this to up to 36 months).

The Medicare extension comes in because it impacts how long a covered employee’s spouse can receive COBRA coverage.

Section 2: Medicare extension eligibility

First, let’s start by answering the question “What is the Medicare extension?”

The Medicare extension is an extension of COBRA that has nothing to do with extending Medicare.

The Medicare extension got its name because it reveals precisely what happens when Medicare and COBRA interact. In other words, Medicare is one of the causes of a COBRA extension.

The most important aspect to be aware of is that the covered employee is never eligible for a Medicare extension. A covered employee’s dependents, however, may be eligible for a Medicare extension, depending on if certain criteria are met.

What criteria need to be met for the Medicare extension?

The spouse of a covered employee is potentially eligible to receive an extension of up to 36 months from the date the covered employee became eligible for Medicare if and only if the covered employee became entitled to Medicare before enrolling in COBRA.

The first piece to pull from that sentence is who is covered. That would be the “spouse of a covered employee”. A covered employee is never eligible for the Medicare extension. Only a covered employee’s dependent(s) is eligible for the Medicare extension.

The second piece to note is the date the covered employee became eligible for Medicare. The covered employee must have become entitled to Medicare before enrolling in COBRA. If the covered employee became entitled to Medicare after enrolling in COBRA, scroll back up to Section 1.

In short, a dependent is only eligible for an extension of COBRA if and only if the covered employee was enrolled in Medicare before the event that lead to qualifying for COBRA.

Let’s look at some examples to provide clarity.

Example 1

A covered employee becomes entitled to Medicare 8 months before they are terminated and they enroll in COBRA.

Because the covered employee was entitled to Medicare before enrolling in COBRA, the spouse would be eligible for 36 months of COBRA coverage from the date the covered employee became eligible for Medicare.

To determine how long the spouse will have COBRA coverage, you have to subtract the Medicare coverage from the available COBRA coverage. The equation would be:

[COBRA coverage available] – [Medicare coverage] = Total time COBRA coverage provided. Drawing on the example above, the numbers would be:

[36 months] – [8 months] = 28 months of COBRA coverage

We’ll do one more example to explain the Medicare extension.

Example 2

Let’s say you went on Medicare March 1 and you were terminated on March 31. In this scenario, your spouse would get 36 months of COBRA coverage from the date you went on Medicare.

Since you went on Medicare March 1, your spouse would only receive 35 months of COBRA. (From March 31 minus the one month you were terminated and had Medicare coverage).

Let’s use the equation again:

[COBRA coverage available] – [Medicare coverage] = Total time COBRA coverage provided

[36 months] – [1 months] = 35 months of COBRA coverage

If you are a covered employee, you can use this equation to determine how long COBRA coverage will be available for your spouse and dependents (as long as you became entitled to Medicare before enrolling in COBRA).

Need more help with the details?

If you still have questions about COBRA, please visit our COBRA FAQs page or reference our additional COBRA blogs.