Ask the Expert: Do Medicare and COBRA mix? Or are they more like oil and water?
Our guest expert is Jan Cammack, Broker and Medicare Specialist with GHB Insurance
Q: Bill is an employee of my company who is retiring. He and his wife will have the option of electing COBRA, since he turned 65 before his retirement date. His wife is also over age 65. They have asked if they can enroll on COBRA rather than moving to Medicare (B, D, and Supplement). What advice should I give him when comparing COBRA with his option through Medicare?
A: Unfortunately, Medicare and COBRA do not mix well. If someone is eligible for Medicare, I typically recommend they not elect COBRA and move to Medicare right away. There are a few reasons why.
Reason #1: “Oops. I forgot.”
Bill retires in January. He has the option to elect COBRA or he can opt for Medicare Part B and D with a Supplement. Medicare regulations state he has 8 months after leaving active employment to start Medicare Part B. If he misses that 8-month deadline, he must wait until the next January enrollment period to enroll in Medicare Part B and then his Medicare Part B does not start until the first of July.
Say Bill elects to go on COBRA instead of Medicare. He can stay on COBRA for 18 months. He promptly forgets about the 8-month deadline to enroll in Medicare. In July of the following year at the end of his 18 months on COBRA he can’t start Medicare. He has to wait until January because he missed his Medicare 8-month enrollment deadline. Because his COBRA has expired, Bill now has no insurance. AND to add insult to injury, because he didn’t start on Medicare Part B in a timely fashion, he incurs a 10% penalty tax that will stay with him for the rest of his life.
Reason #2: Is Bill as healthy as a horse?
Say Bill actually started Part B when he left active employment, but also opted for COBRA. Once he enrolls on Medicare B, he only has 6 months from his Part B start date to enroll in a Medicare Supplement Plan. If he misses that deadline, then he is subject to medical underwriting and limited to whatever supplement plan will take him based on his health.
Reason #3: Cash is king.
Typically Medicare (A/B/D/Supplement) will cost less than COBRA, and will also have lower out of pocket costs (deductible, copays, coinsurance).
Caveat for highly compensated employees
If Bill is considered a highly-paid employee, then he might elect to start with COBRA and move to Medicare. On Medicare he would be subject to the Income Related Monthly Adjustment Amount (IRMAA), which is the increased cost for Medicare Part B and D for higher income earners. In this case, it would make sense for Bill to elect COBRA, but only for 8 months. He must remember to switch from COBRA to Medicare before the 8 month window ends.
Jan Cammack has over 25 years of experience in the benefits industry. She specializes in Medicare and Individual coverages. She is currently a Past President of the South Sound Association of Life Underwriters and a member of the board. Shecan be reached at Jan@GHBInsurance.com.