How do COBRA and Medicare Interact?

COBRA Solutions has been answering questions regarding COBRA since 1991 and we are often asked, “What is the most common question regarding COBRA?” It is actually a very easy question to answer; how Medicare and COBRA interact. This COBRAinReview will discuss COBRA and Medicare and how to administer COBRA correctly.

There are six situations where COBRA and Medicare interact and have been interpreted completely different throughout COBRA’s existence. Keep in mind; you cannot use logic when discussing COBRA and Medicare’s interaction. You also will have a difficult time finding confirming information on the internet. Quite frankly, there are many situations where administrative procedures don’t seem logical. Let’s examine those six COBRA and Medicare interactions.

1. Employee’s Medicare Entitlement While Continuing to Work

   Not all employees retire at age 65. Many want to continue working but over the years the cost for group coverage has increased to the point many Medicare Entitled employees wish to drop their group coverage and obtain a Medicare Supplement Insurance plan. (And, due to MSP rules, employers may not terminate employee coverage because of Medicare Entitlement.) Although it was once considered a COBRA Qualifying Event for covered dependents, today’s interpretation is that the employee would be voluntarily cancelling his/her group insurance and therefore dependents should not be offered COBRA because coverage is not “involuntarily” lost.

   In a situation where an employee voluntarily removes him/herself from a plan, it is recommend to see if they have dependents on their plan. Prior to contacting the insurer to remove the employee, have a conversation to let them know their dependents will be terminated along with them and will not be offered COBRA. Some employers will have the employee sign a form stating he/she understands this consequence if they still wish to cancel coverage.

   In the COBRA software, you would enter this individual under File > Other Unique Files > Active Employee Voluntary Removal From Group Plan > New File. Enter the employee’s information and the system will place the Voluntary Removal Letter in the Things-to do list. Although not required by COBRA, it is recommended you send this notification so dependents know their coverage has been cancelled.

2. Medicare as a Multiple Qualifying Event

   Once a COBRA Participant has started on COBRA and then becomes Entitled to Medicare, has a “multiple COBRA Qualifying Event” occurred? We know that Medicare Entitlement is a reason for COBRA termination but what about covered Qualified Beneficiaries? Prior to 2004, it was deemed as a qualifying event and covered dependents were offered up to thirty-six months of continuation coverage. But with Rev. Ruling 2004-22, 2004-10 I.R.B. 553, the Internal Revenue Service determined that a COBRA Participant’s Medicare Entitlement will rarely be considered a multiple qualifying event. They stated that under MSP (Medicare Secondary Payer) rules, group health plans are unable to terminate covered dependent’s coverage; therefore there they should not experience a loss of coverage.

   If a COBRA Participant becomes Entitled to Medicare, you will want to remove them from continuation coverage. Follow the steps below in the software to correctly remove them:

   a) Under the Events menu, select the “Remove Individual from Participant’s Plan > New File.”;

   b) Select the COBRA Participant subscriber file from the dropdown list;

   c) Select the individual that became Entitled to Medicare;

   d) Verify the Participant’s address and enter the last day the individual should be on the plan;

   e) Select the plan(s) that the individual should be removed from; and

   f) Click the Ok button.

   If the system cannot automatically determine, you may then be asked what tier/coverage type the remaining COBRA Participants will have after the removal of the individual. After the removal you will want to verify the billing information. The system will prompt you to send a notification informing the individual of their removal from the plan in the Things-to-do list. Double click on it and send the notification via USPS first class mail. Lastly, if there was a tier/coverage type change, you will want to send new coupons (or a letter detailing the new rates) to the remaining covered individuals.

3. “Special Medicare Rule”

   Just when you thought you knew everything about how COBRA and Medicare interact, ERISA Section 602(2)(A)(vii) [and Treasury Regulation Section 54.4980B-7 Q?A -4(d)(1) ] changes everything. These sections of the law state the if an active employee is terminated (voluntarily or involuntarily) or experiences a reduction in work hours where there is a loss of coverage within 18 months of the employee’s Entitlement to Medicare;

   a) The employee should be offered the right to continue coverage for 18 months; but
   b) Covered dependents should be offered thirty-six months calculated from the date of the employee’s Entitlement to Medicare.

   The COBRA Administration Manager reviews the age of the employee at the time of the Qualifying Event and notifies the user when the employee is terminated or loses coverage to a reduction in work hours. The system will then create a COBRA Participant file for the employee providing 18 months of coverage and another file for the dependents. The dependent’s COBRA end date will be calculated by adding thirty-six months to the employee’ Medicare Entitlement date. You will notice that the system will change the number of months for COBRA to match the end date that was calculated. This number could be calculated to be between 19 and 36. Do not change it or it will change the correct COBRA end date.

4. COBRA Participant Becomes Entitled to Medicare

   As we explained earlier, Medicare Entitlement is rarely considered a multiple qualifying event. When either an employee (or dependent of) is effective on COBRA and later becomes Entitled to Medicare, that individual “can” be terminated from continuation coverage. We are using the word “can” be terminated because by law they should be terminated from continuation coverage but we have found many Administrators allow these individuals to continue ancillary plans (i.e. dental, vision, etc.) if the carrier agrees to continue coverage.

   Your COBRA software will notify you when individuals reach age 65 and become Entitled to Medicare. Please follow the instructions found under item #2 to remove them from continuation coverage.

5. Medicare Entitled Active Employee Experiences Qualifying Event

   Should an active employee age 65+ (who is enrolled under Medicare) be offered COBRA when they are terminated or lose coverage due to reduced work hours? In the previous paragraph we described how individuals should be remove when they are enrolled on COBRA and become eligible for Medicare so it only makes sense that you would not offer a Medicare covered employee COBRA when they experience a qualifying event. WRONG. The law states that the employer-sponsored plan may cover items that Medicare does not. For this reason, employers must offer these individuals COBRA continuation.

6.  COBRA Participant Receives “Disability Extension”

    Although not directly related to Medicare, the reason for allowing a disabled COBRA Participant an additional eleven months of continuation coverage is to provide time to obtain Medicare. If a Qualified Beneficiary is deemed disabled prior to their sixtieth day on COBRA, notified the Administrator within sixty days of Social Security Administration’s (SSA) Disability Determination and provides that determination prior to the end of their 18 months on COBRA, they should be offered an eleven month Disability Extension. All members of the family unit should be granted the extension as well. If the disabled individual is no longer considered by SSA or becomes Entitled to Medicare, they may be removed from the plan.

Hopefully this description of COBRA and Medicare interaction will aide you in your administration. Please refer to it when you come across one of the above scenarios. If you are still unsure, feel free to call COBRA solutions for assistance.

COBRA Solutions Retirement – On December 31, 2017, Ron Johnson decided to retire from COBRA Solutions. Ron has been great asset for over ten years and will be missed greatly by employees and customers as well. Please join me in wishing him good health, fine wine and a passion for life. Until his position is refilled, you may contact Scott Beaver on extension 12.

Is Your Cafeteria Plan Ready for 2018?

Most employers have been receiving large rate increases over the last several years from their insurance providers because medical trend is over 15%. In many cases, the employer is forced to pass on the increase to employees. One good way to minimize rate increases is to start a Cafeteria Plan. A Cafeteria Plan allows employees to pay for their portion of premiums on a pre-tax basis. This lowers their taxable base, therefore decreasing federal, FICA and most state's taxes. Most employees (depending on their tax bracket) will see that a Cafeteria Plan saves them 20% to 35% of their cost of premiums. Not only does the employee save money but the employer sees a reduction in their FICA and other payroll taxes.

In addition to paying for premiums on a pre-tax basis, employees may set up Flexible Spending Accounts (FSAs) to pay for items not covered by an insurance plan (i.e. deductibles, copays, coinsurance, over the counter medication, etc.) and even Dependent Care expenses. It is a win-win situation; both the employer and employee save money in taxes.

COBRA Solutions offers Cafeteria Plan Manager software program that assists employers with the administration of a Cafeteria Plan. Please visit our website at www.cobrasolutions.com for further information and a free 60-day no obligation demonstration version of Cafeteria Plan Manager. It is an outstanding software program that will pay for itself in the first few months, and the savings will continue for years. To see what your firm may save by implementing a Cafeteria Plan, visit our site at http://www.cafeteriaplanmanager.com  and click the "Calculate Your Savings" link.