The ramifications of keeping COBRA coverage once you have qualified for Medicare can be dire because you will not be allowed a “Special Election Period” for Part B Medicare once your Cobra coverage ends.
COBRA is a federal law allowing certain employees to continue their employer sponsored health insurance for 18-36 months upon separation of service from employer. Typically the employee will be responsible for paying the full insurance premium in order to maintain the coverage.
A “Special Election Period” under Medicare allows a person who has already surpassed the traditional seven month open enrollment period for Medicare (at age 65) to have an open enrollment period at the time they are leaving employer coverage. For example; Joe Smith defers Part B Medicare at age 65 because he continues to work and have coverage through his employer. At age 68 Joe decides he wants to retire. He is now entitled to a “Special Election Period” allowing him a window of 63 days to pick up Part B with no penalty and a Part D prescription drug plan. In addition he will be able to get a Medi-gap (Medicare supplement plan) plan with no preexisting medical conditions. Alternatively, Joe could get a Medicare Advantage plan which includes the drug plan in the coverage.
A “Special Election Period” under Medicare allows a person who has already surpassed the traditional seven month open enrollment period for Medicare (at age 65) to have an open enrollment period at the time they are leaving employer coverage.
In the above scenario, let’s say Joe decides to keep his Cobra coverage for six months and then go on Medicare, he will be subject to a 10% penalty for the six months he didn’t sign up for Part B and he will only be allowed to sign up in the general open enrollment period which is January 1st through March 31st of each year. Not only that, the Part B does not go in to effect until July 1st of that year. The two glaring issues here are the penalty which will be substantial and will never go away. Secondly, if not timed correctly, he could very well have a gap in his coverage.
Why would someone elect to keep COBRA? Isn’t it expensive? In general, the cost of COBRA coverage would be higher than Medicare, sometimes significantly higher. That being said, there are a variety of reasons people may elect COBRA. I find people look at COBRA as an option when their back is to the wall with time and they don’t want to rush their Medicare decision. Perhaps they wanted to travel right away, they have a sick family member, or they are sick themselves. Whatever the reason, I imagine it happens more than most people think. If you are in a pinch, taking COBRA for up to two months may be ok, any more than that, I wouldn’t.