What is COBRA coverage and how was it created?

The Consolidated Omnibus Budget Reconciliation Act of 1985 (hereinafter referred to as “COBRA”) is a law passed by the United States Congress on a reconciliation basis and signed by President Ronald Reagan that, among other things, mandates an insurance program giving some employees the ability to continue health insurance coverage after leaving employment. COBRA includes amendments to the Employee Retirement Income Security Act of 1974 (“ERISA”). While the law deals with a great variety of subjects it is perhaps best known for its amendment to the Internal Revenue Code and Public Health Service Act to deny income tax deductions to employers (generally those with 20 or more full time equivalent employees) for contributions to a group health plan unless such plan meets certain continuing coverage requirements. The violation for failing to meet those criteria was subsequently changed to an excise tax.  Although this statute became law on April 7, 1986, its official name is the Consolidated Omnibus Budget Reconciliation Act of 1985 . Because of the discrepancy between the official name of the Act and the year in which it was enacted, some government publications refer to the Act as the Consolidated Omnibus Budget Reconciliation Act of 1986. The Act is often referred to simply as “COBRA”.

What medical services does COBRA cover?

COBRA is a federal law that allows certain employees, their spouses and dependents, to keep their group health plan for between 18 and 36 months after they leave their job or lose coverage for certain other reasons, as long as they pay the full cost of the premium.  Under COBRA, a group health plan is defined as a plan that provides medical benefits for the employer’s own employees, their spouses and their dependents. Medical benefits may include the following:

  • inpatient and outpatient hospital care;
  • physician care;
  • surgery and other major medical benefits;
  • prescription drugs;
  • any other medical benefits, such as dental and vision care.

It is important to note that life insurance is not covered under COBRA.

The federal COBRA law generally covers group health plans maintained by employers with 20 or more employees in the prior year. It applies to health plans in the private sector and those sponsored by state and local governments. The law does not, however, apply to plans sponsored by the federal government and certain church-related organizations.  Some states extend rights similar to COBRA coverage to people who would not otherwise be eligible for COBRA coverage, (i.e, people with companies that have fewer than 20 employees). 

Is COBRA coverage less expensive than original Medicare Part A and Part B?

Employer group health coverage under COBRA is generally expensive because the coverage tends to be comprehensive and you pay the full cost of the premium yourself whereas generally employers part part of the premium for current employees.   However, COBRA coverage is usually much more expensive than similar individual health coverage.  Therefore, you should always compare COBRA to your pther options, such as a Medicare Supplement, Medicare Advantage or Individual Health Plan. Original Medicare Part A is typically provided at no cost; however, original Medicare Part B carries a premium of $104.90 in 2013.  The cost of Medicare insurance should also be taken into consideration as well as comparison of coverage between original Medicare Part A and Part B and Medicare insurance verses COBRA coverage. 

Can I have original Medicare and COBRA coverage at the same time?

Even if you already have Medicare, you are eligible for COBRA if both of the following conditions apply:

  1. You are enrolled in an employer group health plan subject to COBRA and,
  2. You have a “qualifying event” (such as termination of employment) that causes you to lose employer group health insurance. The type of qualifying event also determines the length of COBRA coverage.

What constitutes a qualifying event and how long am I eligible for COBRA coverage?

The following identifies each qualifying event and the length of COBRA as a result of the qualify event:

Qualifying event:  If the employee retires, is terminated, or has a reduction is work hours:

The individual is entitled to COBRA coverage for 18 months.

Qualifying event:  Employee develops a disability and has a reduction in work hours –

The individual is entitled to COBRA coverage for 18 months.

Qualifying event:  Employee develops a disability and is eligible for Social Security Disability Insurance (SSDI) during the initial 18-month COBRA period –

The individual is entitled to COBRA coverage for 18 months +11 months extra (for a total of 29 months).

Qualifying event:  Employee is terminated for gross misconduct –

The individual is not entitled to COBRA coverage.

Qualifying event:  Employee’s spouse and dependent children lose the employer group health plan because:

  • Employee becomes eligible for Medicare
  • Employee and spouse are divorced
  • Dependent child loses dependent child status
  • Employee dies

COBRA coverage is available for 36 months.

If I have original Medicare and COBRA, which is my primary coverage?

If you qualify for original Medicare based on age or disability, whether you can have both COBRA coverage and original Medicare depends on which you have first.

1.  If you already have COBRA when you enroll in Medicare, your COBRA coverage usually ends on the date you enroll in original Medicare. If you have COBRA and become Medicare-eligible, you should enroll in Part B immediately because you are not entitled to a Special Enrollment Period (also known as “SEP”) when COBRA ends. Your spouse and dependents may keep COBRA for up to 36 months, regardless of whether you enroll in original Medicare during that time.  You may also be able to keep COBRA coverage once you get original Medicare for services that original Medicare does not cover. For example, if you have COBRA dental insurance, the insurance company that provides your COBRA coverage may allow you to drop your medical coverage but keep paying a premium for the dental coverage for as long as you are entitled to COBRA.

2.  If you already have original Medicare when you become eligible for COBRA, you must be allowed to enroll in COBRA. Unless you qualify for original Medicare because you have End Stage Renal Disease (also known as “ESRD”), original Medicare acts as the primary payer and COBRA as the secondary payer, so you should stay enrolled in original Medicare Part B. You may wish to take COBRA if you have very high medical expenses and your COBRA plan offers you generous extra benefits, like prescription drug coverage.

How does COBRA coverage work if if I am eligible for original Medicare because of a diagnosis of End Stage Renal Disease? 

If you are eligible for original Medicare because you have End Stage Renal Disease, there is a period of time when your employer group health plan will pay first and original Medicare will pay second. This is called the 30-month coordination period. If you have COBRA during this time, COBRA will be your primary insurance during your 30-month coordination period. If your COBRA coverage ends before the 30 months have passed, original Medicare becomes primary. If you still have COBRA when the 30-month coordination period ends, Medicare will pay first and your COBRA coverage may end.  You should check with your State Department of Insurance for details on your state laws regarding COBRA coverage.

 If you develop a disability within the first 60 days of getting COBRA coverage, then you and your family may be able to extend your COBRA by 11 months, but not to exceed 29 months.  You must notify your COBRA insurer that you have developed a disability within 60 days of the date of your disability determination and before the expiration of the 18-month COBRA coverage, or you could lose all rights to the extension.

Can COBRA coverage be terminated?

Yes, COBRA coverage may be terminated if any of the following occurs:

  • You become eligible for Medicare.
  • You reach the maximum coverage limit under the plan.
  • You become eligible for another employer-sponsored health plan that does not have a pre-existing condition waiting period (if the new plan does have a waiting period, you may continue COBRA coverage during this period).
  • The employer from whom you are getting coverage stops coverage for all employees.
  • You do not pay your COBRA premiums on time.

Should I enroll in original Medicare before COBRA coverage terminates?

Yes, if you are entitled to original Medicare but currently have COBRA coverage, not applying for original Medicare before the COBRA coverage ends can have negative consequences. Although qualified beneficiaries are not required to enroll in Medicare Part A or B, it may be in their best interest to do so before COBRA coverage terminates for the following reasons:

  • If an individual does not elect Medicare Part A and B while covered or during the 8-month special enrollment period following the loss of group health coverage, the monthly premium cost will increase an additional 10% for every 12-month period past the initial enrollment period.
  • If an individual does not enroll in Medicare Part A or B coverage before the end of the 8-month special open enrollment period, he or she will not be able to enroll until the next regular Medicare annual open enrollment period (January 1, through March 31 each year) and their coverage entitlement date will not begin until July 1 of that same year. Consequently, an individual who loses COBRA coverage may have to wait up to 15 months before Medicare Part A or B becomes effective. For example, if an individual is eligible but has not enrolled in Medicare Part A or B and loses COBRA coverage on April 1, Medicare coverage would not be effective until July 1 of the following year.

In addition to helping covered individuals understand their coverage rights, it is also in the employer’s best interest to encourage enrollment in original Medicare Part A and Part B because Medicare will usually be the primary claim payer during continuation of COBRA coverage.

Once enrolled in original Medicare Part A and Part B, do not forget about your Medicare insurance options.  Original Medicare was not intended to be complete coverage and leaves you, the Medicare beneficiary, responsible for a lot of cost-sharing, or out of pocket costs.  Contact Medicare Pathways and speak with a Benefit Advisor to discuss your Medicare insurance options.  We specialize in Medicare Advantage, Medicare Supplements and Prescription Drug Plans.  A Medicare Pathways Benefit Advisor will help you review your Medicare options and help you find the most affordable, most appropriate plan for your Medicare insurance needs.  You can call 1-866-466-9118 and speak with a Benefits Advisor, or you can Request a Quote and a Medicare Pathways Benefit Advisor will contact you.  Let Medicare Pathways help you make the most out of your Medicare.

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