When you retire or lose a job and you’re over age 65, you have 2 options: COBRA or Medicare. COBRA is notoriously expensive, however some people think they will have better coverage on COBRA, especially if they have a health challenge. Medicare generally costs less per month and quite often covers people better than COBRA. In fact, delaying Medicare in favor of Medicare can cost you. Here are the facts:
1) WHAT IS COBRA?
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is a law created by the U.S. Congress. It requires employers to offer a health insurance program that allows employees and spouses to keep their coverage even after the employee leaves their job. COBRA is also available for a husband or wife who loses coverage because of divorce or death if they were covered under their spouse’s employer plan.
2) WHAT DOES COBRA COST? (AND WHY IS IT SO EXPENSIVE?)
While you were employed, you employer may have paid some or all of the premium for you and your covered dependents. Once you go on COBRA, you pay the entire premium plus a 2% administration fee.
Additionally, your first payment can be an extra punch to the pocket book. There is often a lag between when your group coverage was scheduled to end and when your first payment is due. This often results in an initial payment equal to two months of premium. Ouch.
3) IS COBRA MY ONLY OPTION TO MAINTAIN CONTINUOUS HEALTH PLAN COVERAGE?
No, if you’re over age 65, you can enroll in Medicare and a Medicare Supplement or Medicare Advantage Plan.
For most people over age 65, it’s a no-brainer to get on Medicare instead of going on COBRA at the time one loses employer health insurance. Medicare has great coverage and relatively low monthly premiums.
I did have one client, Linda, who had been on her husband’s insurance until he retired in March. I met Linda in October. She opted to stay on COBRA rather than get on Medicare because she was in the middle of cancer treatment and had already paid her deductible and out-of-pocket maximum on her health plan. Despite the monthly cost of COBRA, Linda felt it would be too disruptive to switch to Medicare in the middle of her treatment.
4) ARE THERE DRAWBACKS TO COBRA COVERAGE AFTER AGE 65?
Yes! Medicare doesn’t treat COBRA the same way it treats employer coverage. Once a person loses employer coverage, he or she has eight months to sign up for Medicare. COBRA, however, can last up to 18 months or longer in certain cases. Losing COBRA is not a qualifying event to sign up for Medicare. If a person does not sign up for Medicare within eight months of losing employer coverage, they will have to wait till the Medicare General Enrollment Period to sign up for Medicare. This could cause a lapse of coverage and penalties while a person is waiting until the first three months of the year to get signed up for Medicare.
Linda, mentioned above, was lucky. She contacted me with one month left in her 8 month enrollment window. She was also lucky, that her COBRA plan covered her medications and care for the seven months he had the COBRA coverage.
COBRA plans are not required to cover all your medical costs if you qualify for Medicare. If you’re over 65 and qualify for Medicare, COBRA plans have the option to pay after Medicare. Meaning if you don’t have Medicare, you could be responsible for the amount that Medicare would pay. This means you could be paying most of the costs of treatment out of your own pocket.
Best Bet: Get on Medicare ASAP after losing employer coverage.
After age 65, the best option is to go on Medicare as soon as you lose employer coverage. Opting for COBRA after age 65 could cost you in medical expenses and penalties.
COBRA can prevent a lapse in coverage but should be your last resort for health coverage over age 65.