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A Service of OnQue Technologies, Inc. |
| Medicare's Effect on
COBRA |
February 2,
2005
By Bud Martin,
CEO
OnQue
Technologies, Inc.
Santa Rosa, CA |
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The
interaction of Medicare and COBRA results in some rather complex and frequently
misunderstood rules regarding COBRA administration. This COBRA Tip first
presents a short course on Medicare's basic rules, then explains how those
rules impact COBRA administration.
Medicare: The Short Course for COBRA
Administrators
To fully understand how Medicare affects COBRA
administration, we must first understand 3 key concepts:
- Medicare Parts A and
B;
- Medicare entitlement: what it is
and how it works; and,
- Medicare Secondary Payer
Rule
Medicare Part A and Part
B
Medicare Part A covers hospital benefits and is
generally free to those individuals who qualify and enroll when first eligible.
Individuals who are not fully qualified through Social Security or the Railroad
Retirement Act can purchase Part A from Social Security.
Medicare Part B covers
physicians, lab and x-ray, nursing, plus other eligible health care expenses.
Individuals enrolling in Medicare Part B are required to pay a monthly premium.
Medicare Entitlement
The concept of Medicare
"entitlement" is frequently misunderstood by employers and employees alike. To
be entitled to Medicare, the following conditions must be true:
- the individual is eligible for
Medicare benefits;
- the individual has taken the
steps required to enroll in the program; and
- the enrollment in Medicare Part
A or Part B has become effective.
One may become entitled to Medicare Part A because
of his or her age, disability, or End Stage Renal Disease (ESRD). Entitlement
is automatic if the individual has already applied to receive monthly
retirement benefits from Social Security or the Railroad Retirement Board. If
the individual has not applied for retirement benefits, an application must be
filed to receive Part A benefits.
Entitlement Due to Age
An eligible individual is entitled to
Part A benefits if he or she has attained age 65 and files the appropriate
application, if necessary. Entitlement based on age begins on the first of the
month in which the individual has met his or her requirements for entitlement.
If the individual applies for Social Security income benefits before their 65th
birthday, the entitlement date is the first of the month that he or she attains
age 65. If the birthday falls on the first of the month, the Medicare
entitlement date is the first of the previous month.
Entitlement Due to
Disability
An individual is entitled to Medicare Part A
benefits if he or she is under age 65, and has been entitled to disability
income benefits under Social Security or the Railroad Retirement Act for more
than 24 months. Because eligibility to receive disability income payments
requires a 5-month waiting period, an individual will have to wait a total of
29 months before receiving Medicare benefits.
Entitlement Due to
End-Stage Renal Disease (ESRD)
Individuals who have
ERSD-irreversible and permanent kidney impairment that requires regular
dialysis or a kidney transplant-are entitled to Part A benefits. They must also
file the required application and satisfy any required waiting period.
Entitlement to Medicare Part
B
Entitlement in Medicare Part B is automatic if the
individual enrolls in Medicare Part A, lives in the United States, and does not
decline the automatic enrollment that occurs at the time that they enroll in
Medicare Part A.
Medicare Secondary Payer (MSP)
Rules
These rules generally prohibit a group health plan
from taking Medicare into account, and dictate the order of claim paying
responsibility for medical expenses when both a group health plan and Medicare
insure a person. The MSP rules cover Medicare entitlement based on age,
disability, and ESRD:
- Businesses with fewer than 20
employees are exempt from age-based MSP rules that require a group health plan
to be the primary claim payer. The 20-employee test is based on each working
day in at least 20 weeks during either the current or the preceding calendar
year. This test is run as of the date the individual receives medical services.
- Businesses with fewer than 100
employees on at least 50% of its regular business days during the previous
calendar year are exempt from disability-based MSP rules that require a group
health plan to be the primary claim payer.
- When Medicare entitlement is
based on ESRD, Medicare is usually considered the secondary payer for up to the
first 30 months of coverage. However, if an individual is first entitled to
Medicare based on age or disability and then later becomes eligible for
ESRD-based Medicare, Medicare will remain the primary payer of
benefits.
The purpose of the MSP rules is to shift the
financial burden for medical expenses to business and away from the federal
government..
Medicare's Effect on COBRA
Medicare entitlement may be a qualifying
event.
According to the COBRA statute, when an employee
loses health coverage because of a Medicare entitlement, it is considered a
qualifying event for the employee's covered spouse and dependent children.
However, because of Medicare's Secondary Payer Rules, which generally prohibit
an employer's group health plan from taking Medicare entitlement into account
or terminating coverage because of Medicare, this situation will rarely result
in an initial COBRA qualifying event.
Medicare entitlement may be a second qualifying
event. Because of the MSP rules, an employee or former employee's Medicare
entitlement will rarely be a second qualifying event extending COBRA coverage
for a spouse or child. According to a recent IRS ruling, a second qualifying
event under COBRA must meet the same basic requirements as an initial
qualifying event; the event would have to cause a loss of coverage under the
health plan, had it occurred while the employee was still covered under the
plan before COBRA coverage went into effect.
Medicare entitlement may
cause termination of COBRA coverage. When a qualified beneficiary's
Medicare entitlement occurs after he elects COBRA, the plan may terminate his
COBRA coverage on the date of the Medicare entitlement.
What happens when Medicare
entitlement is followed by a qualifying event? When an employee is entitled
to Medicare, then loses coverage due to termination or reduction of hours, the
employee's covered spouse or dependent child may extend coverage under COBRA up
to a maximum of 36 months from the date of the employee's Medicare entitlement.
The employee, however, is restricted to a maximum of 18
months.
Not enrolling in Medicare before COBRA
terminates can have negative consequences. Although qualified beneficiaries
are not required to enroll in Medicare Part A or B, it may be in their best
interest to do so before COBRA coverage terminates for the following reasons:
- If an individual does not elect
Medicare Part A and B while covered or during the 8-month special enrollment
period following the loss of group health coverage, the monthly premium cost
will increase an additional 10% for every 12-month period past the initial
enrollment period.
- If an individual does not enroll
in Medicare Part A or B coverage before the end of the 8-month special open
enrollment period, he or she will not be able to enroll until the next regular
Medicare annual open enrollment period (January 1, through March 31 each year)
and their coverage entitlement date will not begin until July 1 of that same
year. Consequently, an individual who loses COBRA coverage may have to wait up
to 15 months before Medicare Part A or B becomes effective. For example, if an
individual is eligible but has not enrolled in Medicare Part A or B and loses
COBRA coverage on April 1, Medicare coverage would not be effective until July
1 of the following year.
In addition to helping covered individuals
understand their coverage rights, it is also in the employer's best interest to
encourage enrollment in Medicare Part A and Part B because Medicare will
usually be the primary claim payer during COBRA continuation coverage.
When an individual is covered by COBRA and
Medicare, which plan is the primary claim payer? When Medicare entitlement
is based on age or disability, Medicare is considered the primary claim payer
for individuals covered under COBRA. However, COBRA does not change the MSP
rules for persons entitled to Medicare entitlement due to
ESRD.
Medicare entitlement rules are the reason for
COBRA's 11-month disability extension. Medicare imposes a 29-month period
before benefits are available to an individual deemed disabled by the Social
Security Administration (the 5-month waiting period before benefits begin, plus
the 24-month disability income benefit period). This Medicare rule is the
reason COBRA coverage may be extended up to a total maximum of 29-months when a
qualified beneficiary family member is disabled. Because of this rule, an
individual disabled at the start of COBRA will have seamless coverage between
COBRA and Medicare.
Conclusion
Employers often forget that they
have another employee medical plan that they are contributing to each pay
period called Medicare, and that plan needs to be coordinated with any other
medical plans offered by the employer. Business with 20 or more employees must
be especially careful because of Medicare's interaction with
COBRA.
Material contained in COBRA Tips should
not be construed as legal advice. If legal advice or
other professional assistance is required, the services of a professional
competent in COBRA and in related federal and state laws should be sought.
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| Related COBRA Tips |
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IRS Rules COBRA Not Extended After
Medicare Entitlement |
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This information is provided by
OnQue Technologies, Inc. for educational purposes only and does not constitute
legal advice. If legal advice or other professional assistance is required, the
services of a competent professional should be sought.
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