How does 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.

Divorce vs. Legal Separation

When a participant and spouse divorce or legally separate and causes a loss of group health coverage, it is a qualifying event under COBRA rules. Most plans terminate spousal coverage due to divorce, however fewer plans terminate coverage due to legal separation and some states do not recognize legal separation at all. Plan administrators need to carefully monitor marital status changes to properly administer COBRA and identify potential qualifying events.

Take for example, the case of Leverett v. Leverett, 2013 WL 1165375 (Ala. Civ. App., March 22, 2013) when an ex -spouse wanted to her change motion from divorce to legal separation so she could stay on the spousal coverage under a military health plan. According to the court the need for health coverage was not a sufficient reason to make that adjustment.

On Feb. 7, 2012 Robert Leverett and Debra Leverett filed for divorce. They were covered under Roberts military health coverage though CHAMPUS/TRICORE. On Feb. 28, 2012, Debra asked the court to amend the judgment. She stated that her health benefits were terminated after Robert notified the health insurance provider of their divorce. She stated that her health coverage was to be uninterrupted as stated in the divorce agreement. She asked the court to change their status from divorce to legal separation so she could continue health care coverage. Legal separation in the state of Alabama does not terminate the marital status and would possibly allow her to continue her coverage as Robert’s spouse.

Robert stated that Debra failed to take the necessary steps to continue her benefits after he made the arrangements for her to contact the appropriate military agency to continue her benefits under CHAMPS/TRICORE Continued Health Care Benefits Program. Additionally, Robert testified that Debra failed to provide any information that she was denied coverage.

Siding with Debra, the trial court ordered the divorce to be re-labeled as an order of legal separation rather than as a divorce. Robert appealed stating that both parties filed for divorce and neither party had requested a legal separation and it was only after the final divorce decree was entered that Debra filed her motion.

Stating that in the absence of a complaint from at least one of the parties requesting legal separation, the appeals court then reversed the lower courts judgment. The appeals court held that there was no legal basis for the trial court to thwart the intent of the parties to be divorced simply to facilitate the wife’s yearning to retain military health-care benefits.�

In the author’s opinion: Although this case did not involve COBRA rules, it is a reminder of the administrative issues that can arise in divorce cases. It is important for plan administrators to understand whether the plan would cause coverage to be lost for a legally separated spouse and if the applicable state law allows for legal separation.