COBRA & Medicare Entitlement (enrollment) – Are You Making This Mistake?

When an employee enrolls in Medicare and subsequently voluntarily drops the group health plan, their spouse does not become a qualified beneficiary eligible for COBRA coverage.

Medicare entitlement (i.e. eligible & enrolled) is only a COBRA qualifying event (QE) if it causes an employee to lose group health coverage (i.e. under 20 lives, or retiree plan). Otherwise, due to Medicare Secondary Payer (MSP) rules, Medicare entitlement is not a COBRA QE for the employee.

Likewise, if the employee voluntarily drops group coverage because they enroll on Medicare and as a result, the dependents (e.g. spouse) then lose employer coverage, this also is not a COBRA QE for the dependents. Medicare entitlement did not “cause” the loss of eligibility, rather the employee deciding to drop the employer’s group coverage did.

When an employee drops their employer’s plan because they enrolled in Medicare, the spouse should not be offered COBRA coverage, but it happens all the time.

Why does it matter?

Although this is something often incorrectly administered, it potentially violates the MSP rules. It could be viewed as the employer providing an incentive for the employee to drop the group plan in favor of Medicare (knowing the spouse will have continuation coverage).

The penalty for violating the rules:

If an employer offers a Medicare beneficiary an incentive, financial or otherwise, not to enroll in the plan, the group health plan is subject to a civil money penalty of up to $5,000 for each violation. In addition, an excise tax could be applied that would equal 25% of the plan’s expenses incurred during the calendar year.

Employees who are turning 65 may also need additional education, to allow them to make an informed decision when deciding whether to enroll on Medicare instead of their employer’s plan.

If you have questions about the above, or need help with another employee benefits administration question, please contact us! We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

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