Medicare entitlement of the employee is listed as a COBRA qualifying event; however, it is rarely a qualifying event. In situations where it is a qualifying event, it is only a qualifying event for the spouse or children that are covered under the group health plan.
For Medicare entitlement of the employee to be a qualifying event, the employer’s eligibility rules must specifically state that employees who gain access to Medicare cannot participate on the group health plan. This is prohibited in most instances by the Medicare Secondary Payer rules (MSP rules) which provide that employers must allow employees to continue coverage on the group health plan, even once enrolled in Medicare. This is best illustrated by an example:
John works for XYZ Company which has 200 employees and is subject to COBRA and the MSP rules.
John is enrolled in the group health plan offered by XYZ Company, and he also has elected to cover his spouse Jill under the plan. John just turned age 65 and has become eligible for Medicare, but Jill is only 62 years old and is not yet eligible for Medicare. John has decided to drop coverage for himself on the group health plan and enroll in Medicare, and consequently, Jill will be losing coverage under the group health plan
Does XYZ Company have to offer COBRA to Jill? No.
John voluntarily dropped coverage under the group health plan. XYZ Company did not, and is prohibited from, changing John’s eligibility for coverage under the group health plan because he enrolled in Medicare. John could have continued coverage under the group health plan even while enrolled in Medicare. As a result, John’s Medicare entitlement does not trigger a COBRA qualifying event for Jill.
Medicare entitlement will usually only be a qualifying event when an employer offers retirees under the age of 65 access to a retiree health plan. In this situation, the MSP rules permit (but do not require) the employer to terminate coverage on the retiree plan upon the retiree’s entitlement to Medicare. If coverage for the retiree is terminated as a result of their Medicare entitlement, the covered spouse and children would be eligible for up to 36 months of COBRA coverage on the retiree plan.
Generally, termination of employment or reduction in hours results in a maximum COBRA coverage period of 18 months for those covered on the group health plan at the time of the event, but there are special rules when either event occurs shortly after an employee becomes entitled to Medicare. These rules extend the maximum coverage period for spouses and children, but not for employees.
If an employee terminatesemployment shortly after becoming entitled to Medicare (e.g. he/she retires) or experiences a reduction in hours shortly after becoming entitled to Medicare, the covered spouse and children are eligible for 36 months of COBRA coverage less the number of months the employee has been entitled to Medicare (but not less than 18 months of coverage). This is best illustrated with an example:
John works for XYZ Company. He and his wife Jill are covered by a group health plan which is subject to COBRA. John becomes entitled to Medicare on July 1st. John and Jill also remain covered under the group health plan offered by XYZ Company. On January 1st (6 months later), John retires and therefore John and Jill both experience a termination of employment qualifying event.
An employer may terminate COBRA coverage early when a qualified beneficiary becomes entitled to Medicare after electing COBRA coverage. This is best illustrated with an example:
John works for XYZ Company. He and his wife Jill are covered by a group health plan which is subject to COBRA. John retires on July 1st. John and Jill are both offered and elect COBRA for a maximum period of 18 months because of experiencing a termination of employment qualifying event. On January 1st (6 months later), John becomes entitled to Medicare. XYZ Company may terminate John’s COBRA as of January 1st. Jill can continue coverage under COBRA for the maximum 18-month duration provided she does not become entitled to Medicare during this time.
If COBRA is terminated early because of entitlement to Medicare, employer’s must send an early termination notice to the qualified beneficiary who is affected.
COBRA rules seem simple on the surface but are far more complex once you take a deeper dive into the rules. Our parent company, Flexible Benefit Service Corporation (Flex) provides COBRA administrative services for employers to help them comply with this challenging administrative requirement.
This information should not be used for tax or legal advice. It is up to the plan sponsor to determine compliance with COBRA and other employee benefit rule and regulations.