How COBRA Intersects with Medicare and Retiree Health Plans

In a recent article, I talked a bit about the complicated intersection of Medicare and The Consolidated Omnibus Budget Reconciliation Act (COBRA), with assistance from Paul M. Hamburger, Esq., author and contributing editor of BLR’s publication Mandated Health Benefits: The COBRA Guide, which I used as background research.

Today, we’re going to look at Medicare entitlement in the context of retiree health plans—as well as what happens to participants in your retiree plan if you decide to eliminate this coverage.

Stepping Back: COBRA Qualifying Events

As our COBRA columnist Damian A. Myers notes, employers are required to offer COBRA coverage only when a qualified beneficiary loses coverage upon certain specified events. These events are called COBRA “qualifying events,” and they include the following:

• For covered employees, termination of employ­ment (other than for gross misconduct) or a reduc­tion in hours of employment;
• For spouses or dependent children, the covered employee’s termination of employment (other than for gross misconduct) or a reduction in hours of employment, the covered employee’s death, a divorce, or legal separation of a spouse from a cov­ered employee, the covered employee’s entitlement to Medicare, or the child’s loss of dependent status; and
• For retirees, their spouses, and dependent children, the start of a bankruptcy proceeding.

As I mentioned in the previous piece, an active employee’s entitlement to Medicare is not usually a qualifying event in practical terms due to the Medicare Secondary Payer (MSP) provisions of the Social Security Act, which restrict the ability of group health plans to terminate coverage (and force Medicare to be primary) in a variety of situations. Accordingly, it’s more common for Medicare entitlement to act as an initial qualifying event in retiree health plans.

Retirees Still Considered ‘Covered Employees’

If an employer offers retiree health coverage that is a non-COBRA alternative to COBRA coverage for eligible retirees, then the retirees are still considered “covered employees” for COBRA purposes.

Furthermore, the Medicare statutory rules allow employer-sponsored group health plans to reduce or terminate coverage if retired employees become entitled to Medicare. Thus, if a covered retiree becomes entitled to Medicare, and that entitlement would cause a loss of coverage for his or her spouse and dependents under the terms of the employer’s retiree coverage, then a qualifying event has occurred.

When Medicare entitlement is a qualifying event, COBRA requires that affected qualified beneficiaries be allowed to elect up to 36 months of COBRA coverage from the date of Medicare entitlement. However, the group of affected qualified beneficiaries consists only of the spouse and any dependent children. Employers should analyze how Medicare entitlement will affect the offering of retiree plans as alternative coverage.

Example. Active employee George retires. He and his family choose a retiree plan and waive COBRA. When George becomes entitled to Medicare, and if Medicare entitlement results in a loss of coverage under the retiree plan for George’s family, then his family must be offered 36 months of COBRA under the retiree plan from the date of Medicare entitlement.

Note that Medicare entitlement as an initial qualifying event for CO­BRA purposes affects only spouses and dependent children. Employers should note that a covered employee’s entitlement to Medicare is never a qualifying event for that employee.

What Happens When an Employer Eliminates Retiree Coverage?

Here’s a hypothetical for you: Let’s assume an employer maintains a group health plan for both active employees and retired employees (and their families). The coverage for active employees and retired employees is identical, and the employer does not require retirees to pay more for coverage than active employees. The plan does not make COBRA continuation coverage available when an em­ployee retires (and is not required to because the retired employee has not lost coverage under the plan).

But the employer amends the plan to eliminate coverage for retired employees effective January 1, 2017. On that date, sev­eral retired employees (and their spouses and dependent children) have been covered under the plan since their retirement for less than the maximum coverage period that would apply to them in connection with their retirement.

So what happens? In this situation, the elimination of retiree coverage is a deferred loss of cover¬age for those retirees (and their spouses and dependent children) and, thus, the retirement is a qualifying event. The plan must make COBRA continuation coverage available to them for the balance of the maximum coverage period that applies to them in connection with the retirement.