If you are over 65, and you have a COBRA (The Consolidated Omnibus Budget Reconciliation Act) health plan or are thinking of signing up for one, there are many questions to tackle regarding how Medicare and COBRA will work together. You will need to know if Medicare Part B and D enrollment is required if you have COBRA and how to avoid related late enrollment penalties. Another aspect is knowing which coverage pays first if you have both Medicare and COBRA.

Typically people who are working after age 65 often choose to keep their employer-sponsored healthcare coverage, enroll in Medicare Part A (hospital coverage), and delay signing up for Parts B (medical coverage) and D (prescription drug coverage).

COBRA enables you to keep your employer-sponsored health insurance for up to 18 months after you leave a job. It’s the same coverage you had while working, except you must pay the full premium.

COBRA Coverage and Medicare’s Late Enrollment Penalty

Medicare requires that you sign up during your initial enrollment period, which extends 7 months after you first become eligible for Medicare, unless you have “creditable coverage.” If you don’t have creditable coverage, and you miss Medicare’s deadline to enroll, you will be hit with a late-enrollment penalty, which increases the amount of your premiums and can result in paying the penalty for the rest of your life.

Employer-sponsored health plans count as creditable coverage with the following being of notable importance:

  • Medicare provides special enrollment periods for people who have creditable coverage when they can enroll in Parts B and D without incurring late-enrollment penalties.
  • The special enrollment periods are the eight months after the creditable coverage ends for Part B and 63 days for Part D.
  • COBRA plans, however, may not be considered creditable coverage for Part B. In some cases, they may not be creditable coverage for Part D either. If you delay getting Medicare Part B and possibly Part D while you are on COBRA, you could have to pay a lifetime penalty. This is known as the COBRA Medicare trap.

What are the Expenses of Medicare’s Late-Enrollment Penalties?

  • For Part B: The Part B late-enrollment penalty is 10% of your monthly Part B premium for every 12-month period you could have been enrolled but weren’t. Most people will have to keep on paying the penalty every time they pay their Part B premiums.
  • For Part D: Medicare calculates the Part D penalty according to a complicated formula. The penalty will be less than the Part B penalty. However, you may have to keep paying the Part D penalty for as long as you have Part D.

How to Avoid the COBRA Medicare Trap

As we’ve seen, if you are working and have an employer-sponsored healthcare plan, you can put off enrolling in Medicare Parts B and D without being penalized. However, if you leave your job, you will have only eight months to sign up for Medicare Part B without being penalized, even if you sign up for COBRA. People who have COBRA often don’t realize that:

  • They are not protected from Medicare’s late-enrollment penalties.
  • The COBRA coverage is the same coverage they had from their employer, so it may seem like nothing has changed. This is an understandable mistake, but a costly one.
  • On average, over a lifetime, Part B late-enrollment penalties add up to more than $8,000.
  • If it is more than 8 months since you left your job, you will have to wait until the open enrollment period at the end of the year to enroll in Medicare, and then your coverage won’t start until the following July.

In most cases, your COBRA coverage will end when your Medicare coverage begins.

Who Pays First If You Have Both Medicare and COBRA?

If you are already enrolled in Medicare and become eligible for COBRA, you are allowed to enroll in COBRA at the same time. Medicare determines which type of insurance will pay first. In most cases, Medicare pays first. An exception is if you have Medicare because you have End-Stage Renal Disease. In that case, COBRA will pay first for 30 months, and then Medicare will pay first after that.

If You Already Have Medicare Coverage, Should You Get COBRA Too?

Deciding whether to get COBRA if you have Medicare, poses a difficult decision. If you have Medicare and coverage from your employer, and then you leave your job and become eligible for COBRA, you will be facing different and sometimes overlapping deadlines for the different types of coverage. You may want to consider:

  • The period for electing COBRA
  • The enrollment period for Medicare Part B
  • The Medigap open enrollment period

Your decision about any one of these – COBRA, Medicare Part B, and Medigap – could cause you to lose your ability to receive benefits from one or the other two.