Medicare and COBRA: Understanding Coverage Types

In this article...
  • Find out how Medicare and COBRA interact with each other. Learn how each type of coverage works, and discover if COBRA can be creditable coverage for Medicare.

As you're planning for healthcare after age 65, Medicare and COBRA are two options that may be available to you. While COBRA is similar to your employer-provided insurance, it interacts differently with Medicare. When you understand the relationship and key deadlines for both, it's easier to avoid penalties and ensure continuous coverage.

What Is COBRA?

COBRA, or the Consolidated Omnibus Budget Reconciliation Act, is a federal law that enables you and eligible family members to keep your employer's group health insurance after you lose or leave a job. This law is only applicable under certain circumstances, including involuntary job loss or a reduction in your hours, and it's available to you for a limited period of time — usually, 18 or 36 months. 

COBRA applies to local governments, state governments and private-sector companies with 20 or more employees. Your state may also require smaller companies to allow continuing coverage, but the specifics can vary.

Can You Have Medicare and COBRA at the Same Time?

You can have Medicare and COBRA at the same time. However, under the COBRA law, your health insurance provider can terminate your continuing coverage as soon as you become entitled to Medicare benefits. Some plans allow you to continue receiving COBRA benefits even after you sign up for Medicare; your provider can offer details.

Does Medicare or COBRA Pay First?

If you have both Medicare and COBRA, it's important to know which program pays first. The primary payer pays out benefits first; then, you'll need to send any remaining costs to the secondary payer.

Medicare pays first if:

  • You're covered by Medicare because you're aged 65 or older
  • You're covered by Medicare due to a disability

If you have Medicare because of end-stage renal disease, COBRA will pay first during your coordination period. Once that period ends, Medicare becomes the primary payer.

Does COBRA Count as Creditable Coverage for Medicare?

As of 2022, the federal government does not count COBRA as creditable coverage. 

"Creditable coverage" refers to an insurance policy that offers benefits that are equal to or better than the benefits Medicare provides. If you have creditable coverage, typically through an employer, you can defer Medicare without paying a penalty later on.

Why is COBRA not considered creditable coverage for Medicare? The government doesn't state its rationale. One reason may be that COBRA is temporary; most people qualify for just 18 months.

If your COBRA coverage includes prescription drug benefits, those benefits may be creditable — but only for Part D prescription drug coverage. Your benefits administrator and your State Health Insurance Assistance Program (SHIP) can provide more information.

Why Does Creditable Coverage Matter for Medicare and COBRA?

Creditable coverage affects how much you pay for Medicare Part B. If you don't enroll in Part B when you're eligible and decide to enroll later, the government will charge you a penalty. This penalty is typically 10% of the standard premium ($170 per month in 2022) for every 12 months that you were eligible for Part B. You'll pay this penalty every month for as long as you have Medicare.

If you have creditable coverage, you can delay Part B without paying a penalty.

Since COBRA isn't considered creditable coverage, it's crucial to pay attention to the Medicare deadlines. Make sure to enroll in Part B on time, even if you have COBRA through a previous employer.

When To Enroll in Medicare if You Have COBRA

Your enrollment deadlines depend on the situation. If you get COBRA before you become eligible for Medicare, you should enroll in Medicare Parts A and B as soon as you qualify. In most cases, the initial enrollment period starts 3 months before you turn 65 and ends 3 months after the month of your 65th birthday. 

If you're working and covered by your employer's health insurance when you become eligible for Medicare, you can opt to delay Part B coverage. Once you stop working, you have 8 months to enroll in Part B, regardless of whether you decide to take COBRA coverage.

If you have COBRA while you're eligible for Medicare and you miss the initial enrollment period or the 8–month special enrollment period, you'll need to wait for the next general enrollment period. It runs from January 1 to March 31 every year. In this situation, you'd be subject to the Part B penalty.

COBRA, Medicare and Covered Family Members

If your COBRA policy covers your spouse and dependents, you may be wondering what will happen to their coverage when you become eligible for Medicare. In most cases, your spouse and dependents can continue to get coverage for up to 18 months, even if your COBRA is terminated.

There are a few exceptions. One happens if you meet these two conditions:

  • You qualified for COBRA because your employment ended or your hours were reduced
  • You became eligible for Medicare less than 18 months before you qualified for COBRA

In this situation, your spouse and dependents would be able to get COBRA coverage for 36 months from your Medicare eligibility date.

Should You Sign Up for COBRA and Medicare?

The decision to sign up for COBRA is highly dependent on your situation. The pros and cons vary based on your age, when you qualify for Medicare and the terms of the COBRA plan. 

Cost is a big factor for many people. COBRA plans tend to be more expensive than Medicare, and some of the benefits may be the same. If you're eligible, Medicare may be the more affordable way to cover your healthcare costs.

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