COBRA is a law that helps people continue their employee medical insurance if they lose it. It can sometimes work alongside Medicare.
COBRA continuation coverage helps people who have lost employee health insurance, while Medicare plans usually provide medical coverage for people over the age of 65. COBRA and Medicare can sometimes work together.
In this article, we discuss what COBRA is, who is eligible, how it works with Medicare, and some important rules to consider.
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act and became law in 1986. It is also known as continuation coverage.
COBRA can help a person keep the health insurance that they received through their employer for a short period after their employment ends.
An employer’s group health plan usually qualifies for COBRA only if there are 20 or more employees. However, some states have mini-COBRA laws that mean the plan will qualify for COBRA if there are fewer than 20 employees.
Who is eligible?
An employee may lose their health insurance coverage for several reasons, but for a person to be eligible for COBRA continuation coverage, they must meet specific criteria.
COBRA set out rules known as qualifying events. When a person experiences a qualifying event, they may be entitled to COBRA benefits.
Qualifying events include:
- when a person is fired (with the exception of gross misconduct)
- when an employer has reduced a person’s working hours
Qualifying events for the covered employee’s spouse or dependent child include:
- when a person is legally divorced or separated from a covered employee
- when the covered employee becomes eligible for Medicare
- if the covered employee dies
A person must also be a qualified beneficiary, which means that they are in employment and covered by their group insurance plan on the day before a qualifying event. A beneficiary can also be a family member, including a spouse, a former spouse, or a dependent child.
Who pays for COBRA?
When a person is employed, the employer and the employee share the cost of the premium. Once a person is no longer employed, they must pay all COBRA premiums themselves.
According to the U.S. Department of Labor, under COBRA, the insurance company offering the plan may charge up to 102% of the cost that those still registered on the same plan pay, meaning that a person may pay 2% more than the entire plan’s cost.
If a person receives the 11-month disability extension, the premium for the additional months can increase to 150% of the total cost of coverage.
An employer must notify their group insurance provider of a qualifying event within 30 days. The insurance provider will then have 14 days to provide an election notice to the employee and their spouse or dependents.
An individual then has 60 days to choose COBRA. The 60-day period begins on either the date of the qualifying event or the date of the election notice, whichever is later.
Any qualifying beneficiaries are entitled to decide on and receive COBRA continuation coverage independently.
What is Medicare?
Medicare is a federal health insurance plan for those:
- ages 65 and older
- younger than 65 years old with end stage renal disease
- younger than 65 with amyotrophic lateral sclerosis (also known as Lou Gehrig’s disease)
Medicare Part A covers the cost of eligible medical services that a person receives during a hospital stay.
Medicare Part B covers eligible medical costs from doctor’s office visits, limited prescription medication, and other outpatient services.
Medicare Advantage, or Part C, combines the benefits of parts A and B. It also usually includes Part D, which offers a more wide-ranging prescription medication coverage.
Medicare and COBRA can work together depending on which policy a person has first.
Medicare before COBRA
If an employee already has original Medicare and experiences a qualifying event while employed, they are eligible for COBRA.
Medicare would become the primary insurer, with all medical claims going to them first.
COBRA would become the secondary insurer, and any costs not covered by Medicare would be assessed by the COBRA insurance provider.
COBRA before Medicare
If a person has COBRA continuation coverage and becomes eligible for Medicare but has not yet enrolled, COBRA may only pay for a small part of a person’s healthcare services.
Once a person signs up for Medicare, their COBRA insurance will likely end.
It is important to remember that a person may have to pay a penalty charge if they delay enrolment with Medicare. They will have 8 months after they stop working or lose their health insurance to sign up for Medicare Part B without a penalty.
In some cases, COBRA insurance may allow a person to keep coverage that Medicare does not have. For example, some COBRA plans cover dental services that Medicare does not. The insurance company may allow a person to remove the medical insurance but keep the dental coverage.
Insurance via COBRA can be costly, and a person may wish to consider all options before deciding on continuation coverage.
There may be more affordable options through a family member’s employer, the Health Insurance Marketplace, or Medicaid.
HIPAA
Congress passed the Health Insurance Portability and Accountability Act (HIPAA) in 1996.
Providing a person meets HIPAA eligibility criteria when COBRA continuation coverage has been exhausted, HIPAA protects benefits when purchasing individual health insurance.
When COBRA continuation coverage is no longer available, HIPAA helps protect benefits when a person purchases individual health insurance. Individuals with preexisting conditions may be less likely to be subject to additional charges or exclusions that some private insurance companies apply.
The U.S. Department of Labour states that, in most cases, COBRA continuation coverage is available for 18 months. The number of months of eligibility depends on when the person is eligible to enroll in Medicare.
If a person becomes eligible for Medicare up to 18 months before a qualifying event, COBRA can extend an employee’s spouse and dependent children’s coverage for up to 36 months.
For example, if a qualifying event occurs 6 months after a person becomes eligible for Medicare, their spouse and children could have COBRA continuation coverage for 30 months. This is 36 months of eligibility minus the 6 months before the qualifying event.
A person may also qualify for an 18-month COBRA extension if subject to a second qualifying event.
The following table outlines some examples of qualifying events, qualified beneficiaries, and the maximum period of continuation coverage:
| Event | Beneficiaries | Maximum period of continuation coverage |
|---|---|---|
| Reduction in hours of employment or job loss | The employee, spouse, and dependent child | 18 months |
| The employee enrolled in Medicare | The spouse and dependent child | 36 months |
| Divorce or separation | The spouse and dependent child | 36 months |
| The death of the employee | The spouse and dependent child | 36 months |
Understanding the rules and exceptions for COBRA continuation coverage and Medicare may help people decide which option is best for specific circumstances.
If an individual has any questions, Medicare recommends several resources:
- Benefits Coordination & Recovery Center at 855-798-2627
- Department of Labor, if a person has a group plan from a private employer and not a government agency
- Centers for Medicare & Medicare Services (CMS), if the group plan was from a state or local government agency
- Office of Personnel Management, if the coverage was with the federal government
COBRA continuation coverage is health insurance following an employee’s qualifying event. An example of a qualifying event is a loss of employment or reduction in hours.
A person is required to cover the full cost of a COBRA plan. Insurance companies are allowed to charge an individual up to an extra 2% of the original premium.
COBRA and Medicare will work together when a person already has Medicare and experiences a qualifying event.
Medicare will become the primary insurer, and the COBRA continuation coverage will become the secondary insurer. However, if a person has COBRA first, the coverage will end on the first day of Medicare coverage.
COBRA usually lasts for 18 months, but it is sometimes possible to extend it for up to 36 months.
