The Complex Intersection of Medicare and COBRA: Some Helpful Guidelines

Remember those old Reese’s peanut butter cup commercials? Chocolate and peanut butter … two great tastes that taste great together.

Complex roadway

Medicare and the Consolidated Omnibus Budget Reconciliation Act (COBRA), alas, are nothing like chocolate and peanut butter: Two incredibly complex laws that are more than doubly confounding together.

Medicare entitlement affects the eligibility for and length of COBRA coverage for employees, spouses, and dependents. But the rules are confusing not just because the laws themselves are Byzantine—which they are—but also due to conflicting language issued in official government guidance and rules.

Today, I’m going to try to help clear up some of the confusion, with a hat tip to Paul M. Hamburger, Esq., author and contributing editor of BLR’s publication Mandated Health Benefits: The COBRA Guide, which I used as research for this article.

Medicare Eligibility vs. Medicare Entitlement: An Important Distinction

Under COBRA, Medicare:

  • Is an initial qualifying event;
  • Is a multiple qualifying event; and
  • Terminates COBRA coverage.

But what, exactly, is the “event” when it comes to Medicare? Turning 65? Actually filling out the Medicare paperwork? Something else?

As a starting point, it’s important to get crystal clear on the distinctions between two very different concepts that are often (mistakenly) used interchangeably: Medicare eligibility and Medicare entitlement.

A person is generally eligible for Medicare due to age when he or she reaches age 65 and is qualified to receive Social Security benefits. The person then must actually apply to commence Social Security income payments or file an application for hospital insurance benefits under Part A (hospital insurance) of Medicare to become entitled to Medicare.

In addition, certain folks who are under age 65 and disabled also are entitled to Medicare after they have received Social Security disability payments for 24 months.

Now here’s where that distinction is important: For COBRA purposes, the significant event is Medicare entitlement; not Medicare eligibility. Merely being eligible to enroll in Medicare is not considered as being entitled to Medicare for COBRA purposes.

So when does Medicare entitlement happen? The regulations specify that a qualified beneficiary becomes entitled to Medicare upon the effective date of enrollment in Medicare Part A or Part B, whichever occurs earlier.

Thanks a lot, Department of Labor

In 1989, the federal Department of Labor (DOL) issued a model COBRA notice that inaccurately refers to Medicare eligibility rather than entitlement. For this reason, employers that use the DOL model notice should change the appropriate references to “entitlement to” Medicare.

Quick rule of thumb…

As a rule of thumb, for COBRA purposes employers should ask this basic question: If a particular qualified beneficiary actually submits an otherwise reimbursable medical claim to Medicare, would Medicare pay that claim? If the answer is yes, then the qualified beneficiary is probably entitled to Medicare (assuming the effective date of the Medicare coverage has already happened).

… With one key exception.

There is one COBRA-related exception for when Medicare eligibility as opposed to entitlement makes a difference: In the context of the COBRA premium subsidy, Medicare eligibility matters.

The American Recovery and Reinvestment Act of 2009 (ARRA) added new rules for a COBRA premium subsidy. For a period of up to 9 months, an “assistance-eligible individual” is treated as having paid his or her COBRA coverage in full if he or she actually pays 35% of the applicable premium. The other 65% of the premium is subsidized by the government via a payroll tax credit, described more fully below.

Assistance-eligible individuals generally are those qualified beneficiaries who (1) lose coverage due to an employee’s involuntary termination from employment between September 1, 2008, and December 31, 2009; (2) elect COBRA coverage; and (3) are not eligible for other group health coverage or Medicare.

So if an assistance-eligible individual is eligible for Medicare, the individual will lose the benefit of any ARRA COBRA premium subsidy otherwise available. The person still will be entitled to continue COBRA coverage; it is just that the right to a premium subsidy will end.

The bottom line

As long as an individual is entitled to benefits under Part A or Part B of Medicare—and not merely eligible for Medicare—he or she is considered entitled to Medicare for COBRA purposes.

Practical implications for active employees

Note that, as a practical matter, an active employee’s entitlement to Medicare is not usually a qualifying event. Under the Medicare statutory rules, employers generally may not automatically reduce or eliminate group health coverage for active employees (or their spouse or dependents) who become entitled to Medicare due to age.

The Medicare Secondary Payer (MSP) provisions of the Social Security Act restrict the ability of group health plans to terminate coverage (and force Medicare to be primary) in the following situations:

  1. Group health plans with 20 or more employees are not permitted to treat an employee or an employee’s spouse any differently under the plan because either of them has become entitled to Medicare because of attaining age 65 (the “working aged” rules).
  2. Large group health plans (those of employers with 100 or more employees) cannot treat an employee or employee’s family member any differently under the plan because either of them has become entitled to Medicare because of disability.
  3. All group health plans cannot treat an individual differently due to Medicare eligibility or entitlement due to end-stage renal disease.

More commonly, Medicare entitlement acts as an initial qualifying event in retiree health plans, and we will turn to those in a future article.

JenJennifer Carsen, JD,is a Senior Legal Editor for BLR’s human resources and employment law publications, focusing on benefits compliance. In the past, she served as the managing editor of California Employer Resources (CER), BLR’s California-specific division, overseeing the content of CER’s print and online publications and coordinating live events and webinars for both BLR and CER.

Before joining CER in 2005, Ms. Carsen was a Legal Editor at CCH, Inc. and practiced in the Labor & Employment Department at Sidley & Austin, LLP in Chicago. She received her law degree from the New York University School of Law and her B.A. from Williams College. She is a member of the New Hampshire Bar Association.

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