COBRA and Medicare Coordination

When you leave or lose your job, or cut back on the hours you work, a federal law known as COBRA (Consolidated Omnibus Budget Reconciliation Act) allows you to keep your existing employer-sponsored health insurance plan for 18 to 36 months, depending on your situation.

If you are eligible for Medicare and also ready to leave your job or reduce your hours to part time, you may be able to maintain your current health plan through COBRA while also enrolling in Medicare. Learn more about what each type of coverage offers and gain insight into how COBRA and Medicare benefits can work together. 

How to Have COBRA and Medicare at the Same Time

If you are already enrolled in Medicare when you become eligible for COBRA, it is possible to have both Medicare and COBRA at the same time. For example, if you’re currently employed and are 67 years old, you may be using a combination of your employer-sponsored health insurance plan and Medicare coverage. When you decide to retire or cut back on your hours, you could be eligible to take advantage of COBRA continuation while also maintaining your Medicare coverage.

However, if you are already enrolled in COBRA when you become eligible for Medicare, your COBRA primary coverage typically terminates. For example, if you lost your job 5 months ago and have been on COBRA since then and are now newly eligible for Medicare, your COBRA coverage will likely end so that Medicare becomes your primary healthcare option moving forward.

Does Medicare End When COBRA Begins?

No. As long as your Medicare Part A benefits go into effect on or before the day you elect COBRA coverage, you typically can keep both if you choose. This is true even if you have Part A coverage but don’t enroll in Part B until later. 

Does COBRA End When Medicare Begins?

If you’re already enrolled in COBRA and subsequently become eligible for Medicare, COBRA may cease being your primary insurance coverage on the date your Medicare coverage begins. For example, if you are 64 years old and enrolled in COBRA, this coverage typically ends when you turn 65 and enroll in Medicare.

Why Keep Your COBRA Coverage?

COBRA allows you to continue participating in your previous group health plan for a limited period of time. However, COBRA is not free. Qualified individuals are typically required to pay the entire premium for their coverage, up to 102% of the cost of the plan.

Since COBRA coverage can come at a significant expense, it can be unclear why you would want to have both Medicare and COBRA coverage. One important thing to consider is that  COBRA may cover medical expenses that Original Medicare does not. For example, your COBRA plan may include coverage for dental care, vision care, and prescription medications.

COBRA can also sometimes help cover additional costs associated with Medicare. For example, if your Medicare Part B requires a 20% coinsurance payment but your COBRA plan has a lower deductible or coinsurance amount, you may be able to use it to pay the remaining 20%.

In some cases, combining Medicare and COBRA coverage in this way can save you money. This may be particularly true if you have health conditions that can result in high medical bills. But simultaneous enrollment in COBRA and Original Medicare is not the only way to bolster your Medicare coverages. You may consider enrolling in a Medicare Advantage Plan instead, as these plans also typically cover services Original Medicare doesn’t and tend to cost less than COBRA continuation. 

Note that some states offer continuation of coverage plans that function similarly to COBRA by allowing policyholders to extend their employer-sponsored health insurance coverage. Those who may not be eligible for COBRA may be able to extend their health insurance coverage through their state’s continuation plan. However, but these plans are not the same as COBRA and so do not work with Medicare in the same manner.

Why Keep Your Medicare Coverage?

Medicare eligibility typically begins when you turn 65. The Initial Enrollment Period (IEP) includes the month you turn 65 as well as three months before and three months after.

If you are covered by an employer-sponsored health insurance plan, you do not have to enroll in Medicare during the IEP. In this case, you can enroll during a special enrollment period, which begins when your employment ends and continues for 8 months. If you do not enroll during this 8-month period, a late enrollment penalty applies.

People sometimes incorrectly think they do not need to enroll in Medicare at age 65 if they already have COBRA coverage. However, this is not true. Once you become eligible for Medicare, COBRA primary coverage benefits cease. If you fail to enroll in Medicare and COBRA is no longer providing primary coverage, you could end up uninsured and at risk of having to pay your medical bills entirely out of pocket.

In addition, since COBRA is not considered employment insurance, you don’t get a special enrollment period. In this case, if you fail to enroll in Medicare during your IEP, you could end up paying late enrollment penalties.

If you decide to take advantage of COBRA continuation, it’s important not to cancel your Medicare plan to avoid enrollment penalties later on when your COBRA term ends.

How COBRA and Medicare Work Together

When you have both Medicare and other health insurance, including COBRA coverage, the coordination of benefits rules determine which payer is responsible for paying first. Medicare is nearly always the primary payer, meaning that it pays what it owes up to the limits of your coverage first. Then, either you or the secondary payer (in this case, COBRA) is responsible for whatever is left.

In some cases, coordinating these benefits could reduce your out-of-pocket costs. For example, a $50,000 Medicare-covered procedure with a 20% coinsurance payment would result in an out-of-pocket cost of $10,000. However, with COBRA coverage as a secondary payer, a portion of this cost may be covered.

In addition, if you incur medical expenses not covered under Medicare, COBRA could reduce or eliminate the amount you need to pay. For example, if you had a $5,000 dental procedure that isn’t covered, the primary payer (Medicare) pays nothing. However, when the secondary payer (COBRA) receives the bill, it may cover all or part of the expense, depending on the coverage limits, deductibles, and other details of your plan. 

When Deciding COBRA vs. Medicare, Which Should You Choose?

While having both COBRA and Medicare coverage could save you some money, this may not be the case. When weighing your options, it’s important to consider the cost and potential benefits of COBRA continuation versus the cost of your Medicare options.

Some may find that it’s more cost-effective to choose either Medicare or COBRA instead of keeping both. Here’s a look at the pros and cons of choosing each option on its own.

Pros of COBRA

• COBRA may cover more services than Medicare, including dental care, vision care, and prescription medications. This can help lower your out-of-pocket expenses and may be particularly advantageous if you have certain types of medical conditions. Having this coverage may also allow you to receive preventative dental and vision procedures at little or no out-of-pocket cost to you. 
• In some cases, your COBRA plan may offer higher benefits and lower deductibles, copays, and/or coinsurance when compared to your Medicare options. This could result in lower out-of-pocket expenses.
• COBRA may allow you to access a wider range of medical professionals, hospitals, and facilities. While Medicare limits your access to those that are enrolled in Medicare and accepting new Medicare patients, your COBRA plan may have a wide network and may also allow you to choose out-of-network options at a higher cost, depending on your plan. 
• In addition to yourself, COBRA typically also extends to your spouse and dependents. This allows them to continue on your employer’s group health insurance coverage. Medicare does not offer this benefit. 

Cons of COBRA

• COBRA continuation can be expensive. While your employer may pay a portion of the premium while you’re employed, when you choose to continue coverage, you’re responsible for up to 102% of the total premium. This may be far more than you are used to paying and, depending on your budget, the cost may not be feasible.
• COBRA coverage is available for a limited time (18 to 36 months, depending on your circumstances). In contrast, Medicare can continue to provide coverage for your entire lifetime.
• If your employer doesn’t have 20 or more employees, COBRA continuation may not be available to you. In addition, even large companies do not have to offer COBRA.
• COBRA coverage typically ends when you turn 65 and become eligible for Medicare. At that point, keeping COBRA coverage on its own is no longer a viable option.

Pros of Medicare

• Medicare is typically a more affordable option when compared to COBRA coverage. Many eligible individuals pay no premiums for Part A coverage and $170.10 per month for Part B.  Adding a Part D or changing to a Medicare Advantage plan for more coverage may still be less than the cost of COBRA coverage. It may even provide coverage that is comparable or better. 
• Medicare allows you to choose any physician, hospital, or medicare facility that is enrolled in the Medicare program and accepting Medicare patients. This could be an advantage over COBRA coverage, which may require you to stick with in-network physicians, hospitals, and medical facilities unless there is an emergency.
• Once you enroll in Medicare, you may be eligible to receive coverage for the rest of your life. This is a benefit over COBRA, which is available for a limited period of time.
• Delaying your Medicare coverage can lead to late enrollment penalties, which can increase your premium costs for the rest of your life. In addition, since Medicare enrollment is restricted to certain time periods, it’s possible to find yourself without medical coverage when you need it. Enrolling in Medicare when you become eligible would help to avoid these late enrollment penalties.

Cons of Medicare

• Original Medicare doesn’t cover certain medical expenses such as dental, vision, and prescription drugs. If you want coverage for these expenses, you need to purchase additional policies, such as Part D and/or a Medicare Advantage plan.
• Original Medicare has deductibles and coverage gaps. Without additional forms of coverage, out-of-pocket expenses can quickly add up. Medicare supplement insurance, also called Medigap, could help offset some of these expenses.