Common Medicare entitlement (enrollment) COBRA mistake…are you making it too?



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 didn’t “cause” the loss of eligibility, rather the employee deciding to drop the employer’s group coverage did.

In other words, 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.

Although this is something often incorrectly administered, it is a potential MSP issue because it could be viewed as an incentive for the employee to drop the group plan in favor of Medicare (knowing the spouse will have continuation coverage).

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 in lieu of their employer’s plan.

Mistakes happen!


Even HR & Benefit professionals with excellent processes in place to follow the rules for cafeteria plan administration, may stumble upon a mistake.  I probably receive a question at least monthly, on some type of oversight.

For instance, most recently I received an email from an employer who discovered during a payroll audit, they failed to take the correct amount of premiums from an employee’s paycheck per the terms of the salary redirection agreement (e.g. enrollment form) signed by the employee during open enrollment. The employee was enrolled in the correct benefits with the carriers effective 1/1 but somehow the wrong employee pretax deductions occurred and too little premium withheld.

Unfortunately, there really aren’t IRS regulations or guidance addressing what to do when a mistake like this occurs (they only address a few narrow areas). However, my understanding of “cafeteria plan administrative errors” corrections is generally, an employer will want to correct the mistake so the employee and the plan are put back into the position they would have been in had the mistake never occurred.

For example, knowing there hadn’t been enough money withheld, the employer would want to let the employee know an oversight occurred and depending on the amount of the money needed to be made up, either ask for the employee to pay the entire amount or perhaps have double-premiums deducted until the shortfall is corrected.

However, whenever a mistake is discovered, and yes mistakes do happen, the best course of action is to contact an experienced benefits attorney, who can provide legal advice before implementing corrections to ensure all federal & state wage/tax laws are considered. (Let me know if you need one. I can refer you to the best!)