Medicare Bill Would Help Retirees With COBRA Avoid Penalties

Named for the law that created it — the Consolidated Omnibus Budget Reconciliation Act — COBRA coverage is one way for early retirees to get health insurance after they leave the workforce.

However, for those who are eligible for Medicare, choosing COBRA coverage over Medicare can be an expensive mistake: It could result in a gap in insurance coverage and lifelong Medicare premium penalties.

A bipartisan group of legislators is seeking to change that, though. They recently introduced the Medicare Enrollment Protection Act, which would eliminate penalties for those with COBRA coverage who are late to enroll in Medicare, and enable them to avoid coverage gaps.

Keep reading to learn more about the bill and why legislators say it’s needed.

What is COBRA continuation coverage?

COBRA continuation coverage is meant to ensure people can continue to receive health insurance coverage temporarily after leaving a job. Under the COBRA federal law, former employees are entitled to keep their former workplace’s group health insurance plan for at least 18 months, assuming their employment is terminated for any reason other than gross misconduct.

With COBRA coverage, former employees pay 100% of the premium amount and an administrative fee that can be up to 2% of the premium. Under federal law, generally only private-sector employers with at least 20 workers are required to offer COBRA coverage, although many states have laws with similar requirements for smaller employers.

How COBRA affects Medicare coverage under current law

A problem arises when someone opts for COBRA coverage instead of starting Medicare at age 65.

If they miss their initial Medicare enrollment period – which runs from the three months before the month of their 65th birthday through the three months after it – they could get hit with a penalty. That means they would pay higher Part B premiums for life.

What’s more, they may be required to wait up to a year before enrolling in Medicare after their COBRA plan ends. That could mean an expensive gap in their health insurance coverage.

What the Medicare Enrollment Protection Act would change

The Medicare Enrollment Protection Act would eliminate Part B late enrollment penalties for those with COBRA coverage so long as they enroll in Medicare before their COBRA coverage ends. It would also allow those with COBRA health insurance to enroll in Medicare during any month that their COBRA plan was active, thus eliminating any waiting periods or gaps in coverage.

In this way, the law would treat those with COBRA coverage the same as those who are employed at age 65. Individuals who have health insurance as a workplace benefit are allowed to enroll in Medicare at a later age without having to pay any penalties.

“Seniors should be able to make their own choices and enroll in Medicare at an age that makes sense for themselves, not one set by the federal government,” said bill sponsor Rep. Lloyd Smucker (R-Penn.) in a press release.

What happens next?

The Medicare Enrollment Protection Act was introduced on Sept. 9 and subsequently was sent to three House committees for review:

• Energy and Commerce
• Ways and Means
• Education and Labor

So far, no further action has been taken on the bill, and it could face an uphill battle. Similar legislation was introduced in the House as recently as 2019 and as far back as 2010 without success.

You can read the full text of the Medicare Enrollment Protection Act online, and if you are so inclined, reach out to your U.S. representative to share your thoughts on the bill.