If you are over 65 and leaving your group health insurance, you’ll need to plan carefully when considering COBRA as your semi-permanent insurance. If you do not enroll in Medicare Part B upon separation from employment, you can face late enrollment penalties including fines and delays.
Unfortunately, the transition from group health insurance to Medicare – and the role that COBRA may play – is poorly understood by many who advise on the subject. You may receive bad information by speaking with the consultants at Medicare.gov., your HR person at work, and those who work in the insurance industry. It’s wise to talk with several people before making a decision.
The mistake most often made is when you’re over age 65, do not enroll in Medicare Part B and choose to make COBRA your primary insurance. While the COBRA plan may satisfy your medical needs, delaying enrollment into Medicare Part B can create delays and fines down the road.
Enrollment into Medicare Part A is automatic and usually without cost at age 65, but Medicare Part B enrollment is not always automatic and monthly premiums must be paid. The important catch here is the expiration of your COBRA insurance does not allow for the automatic enrollment into Medicare Part B, but your original loss of group health insurance does.
In other words, you can enroll in Medicare Part B when losing your group insurance, but if you wait to do so until after your COBRA policy has expired you will face delays and permanent fines. You will have to wait until the General Enrollment Period (GEP) that occurs from January 1 to March 31 – and your Part B won’t take effect until July 1. When it does take effect, you will have an additional, permanent charge (late enrollment penalty) attached to your monthly premiums.
You will also need to be enrolled in Part B if you wish to purchase a Medicare supplement insurance plan, like Plans F, G, N, etc. You can always supplement your Medicare Parts A & B with your COBRA coverage, however.
It’s important to compare the cost of your COBRA plan with that of supplement and Part D rx coverages to see which option offers more value. Usually, the supplement and Part D combination are more affordable with less out of pocket than COBRA insurance, but every situation is different. (You may also want to investigate a Medicare Advantage plan as another alternative.)
If you do decide to supplement Medicare Parts A & B with COBRA, most insurance companies will allow you to enroll in a “Guaranteed Issue” Medicare supplement (Plan F, C, etc.) after your COBRA expired. You will have missed your chance to purchase non-guaranteed issue supplemental policies like Plan G and Plan N, however. Medical underwriting will be required to enroll in non-guaranteed issue plans, so there is a trade-off.
It’s important to note that in some cases enrolling in Medicare Part B once COBRA has already been selected may give your employer the right to cancel your COBRA policy whereas the opposite is not true. It depends on the order of enrollment. Enrolling in Medicare first (before selecting COBRA) gives you more options.
If you choose to supplement your Medicare A & B with COBRA, then you must make sure that the drug coverage associated with your COBRA policy is deemed “creditable.” In other words, it must be as good or better than what is offered by stand-alone Medicare Part D prescription drug policies.
If your COBRA drug coverage is creditable (your HR or insurance rep will know) then nothing more needs to be done until your COBRA policy expires. At that time, you can enroll in a Part D drug policy no questions asked. There will be no late enrollment penalties or fines to worry about.
If your drug coverage is not creditable, then you will likely want to enroll in a Part D policy – even if you choose COBRA over a Medicare supplement or Advantage plan. By waiting until after your non-creditable COBRA policy expires, you will face a permanent Part D premium penalty and likely have an enrollment delay as well. It’s a double whammy – just like the Part B enrollment penalties.
When it comes to Medicare enrollment, there’s a lot to know. And there are traps that can cause difficulties – even when you try and do everything right. Permanent fines, delays and penalties can cause financial hardship and overall aggravation when mistakes are made.
At Hyers and Associates, we help our clients avoid such pitfalls while operating within the Medicare guidelines and timelines. Contact us today to talk more about your insurance options.