Reprinted with permission from the February, 2006, newsletter of Mandated Health Benefits-The COBRA Guide, published by Thompson Publishing Group, Inc. Copyright 2006. www.thompson.com
How Medicare Coverage And COBRA Interact
By Juli Hanshaw
Juli Hanshaw has
more than eight years
of experience with
COBRA and works
directly for the president
of Infinisource, Inc.,
which provides COBRA,
flexible benefit and other
administrative services
to more than 14,000
employers nationwide.
An employee walks into your office
and inquires: “I am about to turn 65 and
want to retire from here. What should I do
first: enroll in Medicare or resign and elect
COBRA?”
What would your answer be? This di
lemma points out a few of the ways that
Medicare interacts with COBRA. Employers
should understand five primary issues:
• whether they need to offer COBRA
coverage to individuals on Medicare;
•measuring the COBRA period for those
with Medicare coverage already;
•Medicare as a second qualifying event
for COBRA;
•in a dual coverage situation, which
pays first — COBRA or Medicare; and
•Medicare as a terminating event for
COBRA.
Offering COBRA to Individuals
On Medicare
Geissal vs. Moore Medical Corp. (see
¶1900 of the Guide, Case No. 324) was the
first U.S. Supreme Court case on COBRA.
Geissal clarified differing interpretations
of how other existing coverages affected
COBRA. The Court determined that if an
individual was covered under another group
health plan, including Medicare, before the
qualifying event, the employer still had to of
fer COBRA coverage.
Based upon this court case, any covered
employee who is entitled to Medicare before
experiencing a qualifying event is entitled to
a maximum COBRA coverage period of
18 months.
Measuring the Initial COBRA Period
So how long is the COBRA period for all
qualified beneficiaries when Medicare en
titlement occurs before an employment ter
mination or reduction of hours? The answer
is different for employees and their spouses/
10
dependents and is often referred to as the
“special Medicare extending rule.”
If a termination or reduction of hours oc
curs less than 18 months after the employee’s
Medicare entitlement, qualified beneficiaries
(other than the covered employee) must be
allowed 36 months of COBRA coverage
from the date of Medicare entitlement. If the
Medicare entitlement occurred more than
18 months from the termination date, the
COBRA period is 18 months from the termi
nation date.
Thus, an employer simply needs to know
two dates: the Medicare entitlement date and
the termination date. Two examples clarify
this:
Example 1. An employee becomes entitled
to Medicare on July 1, 2004, and terminates
employment on July 1, 2005. The spouse and
dependents receive more time: 36 months
from July 1, 2004. The employee receives
18 months from July 1, 2005.
Example 2. Same facts as in Example 1,
except Medicare entitlement occurred on
July 1, 2002. Figuring 36 months from Medi
care entitlement would allow for less than
18 months from the termination date. As a
result, the employee, spouse and dependents
all would be offered 18 months from the
termination date.
Medicare as a Second Qualifying Event
IRS guidance clarified when Medicare
entitlement meets the definition of a second
qualifying event and extends the time frame
for certain people on COBRA. When an indi
vidual elects and pays for COBRA, specific
events extend the COBRA period: death of
an employee, divorce or legal separation, a
dependent child ceasing to be a dependent,
disability determination and an employee’s
Medicare entitlement.
February 2006 | Mandated Health Benefits — The COBRA Guide
See Medicare, p. 11
Medicare (continued from page 10)
Revenue Ruling 2004-22 states that for an event to
be a second qualifying event, it is necessary to “ignore
the COBRA continuation coverage provided in connec
tion with the qualifying event that is the termination (or
reduction of hours) of the covered employee’s employ
ment. The inquiry is whether, in the absence of the first
qualifying event, the 36-month event would result in a
loss of coverage for the qualified beneficiary under the
plan within the maximum coverage period.” (See ¶1810
for a copy of the ruling.)
What does that mean? When an employee notifies the
employer of his/her Medicare entitlement, the employer
needs to determine whether the spouse and dependents
are eligible for additional time on COBRA. This is ac
complished by asking this question: If the employee
were still an active employee on the plan and received
Medicare entitlement, would the plan terms allow them
to remain on the plan? If that answer is yes, there is no
extension for COBRA coverage. For most plans, the
answer will be yes because Medicare Secondary Payer
(MSP) rules prohibit most plans from “taking into ac
count” Medicare eligibility or entitlement.
Who Pays First?
How about who’s the primary and secondary payer
when you have someone who becomes entitled to Medi
care and has active health plan or COBRA coverage?
The Centers for Medicare and Medicaid Services
(CMS), which oversees Medicare, stipulates that the
MSP rules center on an individual’s “current employ
ment status.” This signifies that if an actively working
employee is covered on the group health plan and is
entitled to Medicare, the group health plan is the primary
payer. However, if an employee who is covered on the
group health plan and entitled to Medicare terminates
employment, severing the “current employment status,”
Medicare becomes primary payer if COBRA is elected.
Medicare Entitlement as a Terminating Event
Medicare entitlement also may cause a qualified
beneficiary’s COBRA coverage to terminate. According
to IRS’ final COBRA regulations, if a qualified benefi
ciary first becomes entitled to Medicare after electing
COBRA, the plan may terminate coverage effective on
the date of Medicare entitlement.
Those same final regulations also clarified what is
meant by the phrase “Medicare entitlement”:
A qualified beneficiary becomes entitled to Medicare ben
efits upon the effective date of enrollment in either part A
or B, whichever occurs earlier. Thus, merely being eligible
to enroll in Medicare does not constitute being entitled to
Medicare benefits.
Conclusion
So how would you answer the retiring employee’s
question? Simply, if the employee wants to keep group
health plan coverage, he or she should retire first and
elect COBRA, which will extend 18 months from the
termination date for the employee and 36 months from
the Medicare entitlement date for the spouse and depen
dents. Otherwise, if Medicare entitlement occurs after
COBRA is elected, it will act as a COBRA terminating
event.
COBRA Compliance (continued from page 9)
5. What if you change or add a group health plan to
your plan’s coverage lineup? Do you anticipate coverage
for existing qualified beneficiaries? What about potential
qualified beneficiaries (those who are in the middle of an
election period)?
These are just a few of the basic practical require
ments of COBRA administration that are often over
looked. If any of these issues look familiar to you or if
you don’t know how to respond to any of these issues,
it is time to conduct a basic COBRA compliance review
and fix your administration.
Cumulative Index, Volume 19
This cumulative index covers the Guide newsletter,
Volume 19, Nos. 1 and 2. Entries are listed alphabeti
cally, and provide either the headline of the news article
or the name of the court case, followed by the volume,
issue number and page number of the newsletter in
which the entry appeared. For court cases, this index can
be used in conjunction with the Table of Cases and Index
of Cases found in Tab 1900 of the Guide.
Amin v. Flagstone Hospitality Management, L.L.C., 19:1/4
Are you USERRA-ready? What the final rules mean for your
COBRA program, 19:2/6
COBRA Compliance – back to basics, 19:2/8
Delcastillo v. Odyssey Resource Management, Inc., 19:2/2
How Medicare coverage and COBRA interact, 19:2/10
Medicare Part D Prescription Drug Benefit: Tips on weighing
the options and deciding how to proceed with this new
subsidy for retired employees, 19:1/5
Treanor v. Metropolitan Transp. Authority, 19:2/12
Washicheck v. The Ultimate Ltd., 19:1/2
February 2006 | Mandated Health Benefits — The COBRA Guide
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