There are many decisions you need to make when approaching retirement. Making the right choice about your health insurance is one of the most important ones. Because retirement is considered a qualifying event, if you work for an employer with 20 or more employees, you will be offered COBRA when your employment ends. If you are approaching age 65, you are also eligible for Medicare. How do you know which one is right for you? Should you have both? Understanding what they are and how they work together is an important first step.
What is Medicare?
Medicare is the federal health insurance program that most people become eligible for at age 65. Your Medicare enrollment decisions and deadlines depend on your own personal circumstances. You will need to enroll in Part B and Part D during what is known as the Initial Enrollment Period. The Initial Enrollment Period starts three months before turning 65 and ends three months after your 65th birthday. Missing this enrollment period can result in paying lifelong premium penalties.
What is COBRA?
COBRA is a federal law that requires employers to offer health care continuation to covered employees, their spouses, and dependents for 18 months after a qualifying event such as retirement. COBRA continues the same group coverage you and your dependents had prior to retirement including medical, dental and vision. You have 60 days to decide whether to enroll. This 60-day term begins on the date of the qualifying event or, if later, the date of the election notification sent to you by the insurance company. COBRA can be expensive. Enrollees may be required to pay the full premium and a 2 percent administrative fee.
Timing Matters
The timing of when you sign up for Medicare and/or COBRA will determine how the two work together and there are important distinctions.
- If you enroll in Medicare first, taking COBRA coverage is optional. You can have both. It is important to understand that Medicare pays first (primary), and COBRA pays second. You need to keep Medicare. COBRA will only pay after Medicare pays it’s share which is 80%.
- Why would you want both? That depends on what benefits you want and what you can afford. You need to weigh the coverage against the cost of paying both premiums. COBRA may offer extra benefits like prescription drug or dental coverage. COBRA is usually not considered creditable coverage for Medicare Part D prescription coverage, but if your plan is, you can delay enrolling in Part D until your COBRA ends, without having to pay a Part D late enrollment penalty, Creditable coverage must be as good or better than what Medicare offers.
- If you turn down COBRA, make sure you understand how it impacts your spouse or dependents currently covered on your employer sponsored health insurance.
- If you have COBRA before you are eligible for Medicare, your COBRA coverage will usually end when you become Medicare eligible. You may be able to keep COBRA coverage for services that Medicare does not cover, such as dental insurance.
- Because COBRA ends with Medicare eligibility, you must enroll in Medicare when you are first eligible. It is important to be aware of your Initial Enrollment Period for Medicare at your 65th
Avoid This Common Mistake
Many people think if they have COBRA they do not have to sign up for Medicare Part B when they become eligible. This is incorrect and can result in costly medical expenses and penalties.
The end of COBRA coverage does not trigger a Special Enrollment Period which is normally created at the end of employment. If you miss your Initial Enrollment Period at your 65th birthday, you will have to wait until the next General Enrollment Period between January 31 and March 31. Your coverage does not begin until July. This can result in a critical lapse in coverage where you will be liable for all your medical expenses.
In addition, you will have to pay late penalties. These penalties are not insignificant. For Medicare Part B, the monthly premium goes up 10 percent for every 12-month period enrollment was delayed. Enrollees must pay this penalty for the rest of their lives.
What is the Best Decision for You?
The relationship between COBRA and Medicare can often cause confusion. Not everyone’s circumstances are the same and your decision could have lasting implications. If you have questions contact us. Our knowledgeable and experienced team is here to help.