COBRA continuation and MEDICARE
Facts: Martha and Bill live in Massachusetts. Bill, who is 70, will sign up for Medicare when he retires this summer. Meanwhile, he and his wife have both been insured by his employer’s group health plan for the past 25 years. Martha is only 58 and will not be eligible for Medicare for another seven years.
Martha would prefer to retain Bill’s employer’s health plan for as long as possible and plans to elect COBRA coverage, which will allow her to continue with the employer’s health plan for a while after Bill retires. Because Bill will be going on Medicare when he retires, she expects that she will have the maximum 36 months of COBRA coverage. The health plan, however, tells her that she will only be able to get 18 months of coverage.
In this case, the health plan is wrong. Martha is entitled to 36 months of COBRA coverage when Bill retires. The rules for COBRA can sometimes be complicated, but it is important for consumers and health plans to understand them. This is especially true for older consumers who can have trouble staying insured when they lose access to group health coverage, especially if they have health problems.
COBRA Continuation Coverage
The Consolidated Omnibus Budget Reconciliation Act of 1986, better known as COBRA, allows former employees and their dependents (spouse and dependent children) to continue with their employer’s coverage for a certain period of time after it would otherwise end. This federal law applies to private employers with 20 or more employees. Many states have similar continuation laws as well for employers with fewer than 20 employees. How long a former employee or his dependents can have COBRA coverage depends on the “qualifying event,� or reason why coverage was lost:
- If the covered employee lost coverage because he reduced the number of hours he was working, was laid-off, left for another job, or retired then COBRA coverage lasts for 18 months.
- If an employee or a dependent becomes disabled within 2 months of the qualifying event, his COBRA coverage might be extended to 29 months.
- If the former employee died, divorced his spouse, or became entitled to Medicare, then the employee’s dependents are eligible for 36 months of coverage.
Sometimes, a person can have more than one qualifying event that extends the period of time that COBRA lasts. In any event, COBRA coverage is not available for longer than 36 months.
While the insurance Martha will receive under COBRA will be the same as she had before her husband retired, Bill’s employer will no longer be responsible for the cost of her coverage. Martha will have to pay up to 102% of the premium (150% if she elects the disability extension.)
Medicare as a Qualifying Event: When a covered employee becomes entitled to (i.e., signed up for and actually covered by) Medicare and retires, his dependents become eligible for COBRA coverage for 36 months from that date of entitlement. However, if the covered employee signs up for Medicare but continues to work, the rules are somewhat different. (In fact, it’s possible that the health plan was confused by these special rules when they gave Martha bad advice. If a covered employee leaves his job within 18 months after becoming entitled to Medicare, then COBRA coverage for his dependents will be the longer of 18 months from the date he left his job or reduced his hours or 36 months from the date of Medicare entitlement. If he retires more than 18 months after he becomes entitled to Medicare, however, his dependents will only be eligible for 18 months of COBRA coverage.
In our case, Bill is retiring after he first became eligible for Medicare (at age 65), but he is waiting to age 70 to be covered under (or entitled to) Medicare and retire. Therefore, when Bill retires and signs up for Medicare on August 1, 2002, Martha can elect to receive a full 36 months of COBRA coverage.
Other Coverage Options
COBRA offers Martha some protections, if she can afford it. It extends the amount of time she can continue to be covered under an employer-based health plan but only takes her so far. Because Martha has 7 years before becoming eligible for Medicare herself, she will have to be prepared to explore other health insurance coverage options as well. Her COBRA coverage will expire in 3 years. What other options could she have to fill in the 4-year gap?
Individual health insurance coverage: After exhausting COBRA, a federal law called the Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires that Martha be guaranteed access to individual health insurance coverage because she is leaving a group health plan and has been continuously covered for at least 18 months. HIPAA doesn’t say what Martha can be charged for this guaranteed coverage, though some states do limit premiums. In Massachusetts, where Martha lives, insurers cannot charge people more because of their health problems, although premiums can be increased for age. Martha received a quote of $600 per month for individual health insurance coverage for someone her age in Massachusetts. In other states that do not limit what HIPAA-eligible individuals can be charged, policies may cost even more.
All residents of Massachusetts (not just HIPAA-eligible individuals) are guaranteed access to individual health insurance. In most other states, however, most individual health insurance is “medically underwritten,� which means applicants can be turned down or charged more if they are not in good health. In another state, if Martha were very healthy, she could also apply for medically underwritten individual health insurance and might well find a policy for less money than the premium she was quoted in Massachusetts. Underwritten policies are age-rated, however. So Martha could still expect to pay 3 to 4 times more for a policy than a 20-year old would be charged. By age 60, age-rated coverage could very likely cost more than her COBRA coverage, too, depending on what the plans cover.
Extending COBRA: A few states, such as California or Illinois, allow you to receive continuation coverage until you are eligible for Medicare if you are leaving a fully insured group health plan, you are a certain age (for example, at least 55 or 60), and you meet other criteria. A fully insured group health plan is one that purchases coverage from a licensed health insurer instead of one that pays claims out of the companies general assets on a self-funded basis. This COBRA-extension option is not available in most other states or under federal law, however, and will not be available to Martha in Massachusetts. When her COBRA expires, she will need to purchase individual health insurance which will be more expensive than COBRA coverage and which may not, depending on the plan, provide coverage for the same benefits or the same doctors.
Lessons for Policy Makers
For people over age 55 who lose group health coverage, staying insured can be a challenge. Our health problems tend to increase as we age, making access to health insurance all the more important. However, this also can make it harder to obtain individual health insurance – a market where insurers can turn applicants down or charge more based on health status. In most states, individual health insurance is age rated, which means coverage is more expensive (3 to 4 times more, in fact) for people in their 50s and 60s, even if they are healthy. COBRA offers people the chance to continue coverage under a group health plan they might otherwise lose, preventing or delaying the need to buy individual health insurance.
A few states have acted to extend COBRA-like continuation coverage so that it lasts until the age of Medicare eligibility. This kind of extension can be particularly important to older women: according to the Census, in one-third of married couples the husband is more than 3 years older than the wife. For these younger wives, the 36-month COBRA continuation coverage will not provide a sufficient bridge to Medicare eligibility at age 65.
As state and federal lawmakers contemplate options for improving access to coverage for the uninsured, they might consider ways to create a bridge to Medicare for people in Martha’s situation.
This issue brief was prepared by Stephanie Lewis, JD