Using COBRA During Retirement, and Medicare Eligibility

Can my mom, who is 62 and planning to retire, use COBRA insurance until she qualifies for Medicare at 65?

Retirees may use COBRA Insurance For 18 Months

Your mom would be eligible for COBRA continuation when she retires. Retirement is a qualifying event. When a qualified beneficiary retires from their job, the retired worker is entitled for up to 18 months of health insurance continuation, which is the maximum amount of time an employee can keep COBRA coverage.

What About Dependents?

If the employee retires and is entitled to Medicare on the same date, then their spouse or dependent would be eligible to continue on their group health plan for up to 36 months.

Medicare at Age 65

After your employer insurance expires, you’ll sign up for Medicare within eight months.

In general, you can sign up for Part A and Part B starting three months before your 65th birthday and ending three months after your 65th birthday.

  • Even if you choose COBRA or other non-Medicare coverage, your eight month Special Enrollment Period to sign up for Part B begins when you stop working.
  • If you lose your job-based health insurance before you or your spouse retire, you have eight  months to enroll.

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Understanding the COBRA Trap

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, a transition between jobs, death, divorce, and other life events. While COBRA can be a vital bridge for maintaining health insurance coverage, it also presents a potential trap for the unwary, often referred to as the “COBRA Trap.”

Key Aspects of the COBRA Trap

  • Cost: The most significant aspect of the COBRA trap is the cost. COBRA allows individuals to keep their employer-sponsored health insurance after leaving a job, but it requires them to pay the full premium amount, including the portion previously covered by the employer. This can lead to a substantial increase in monthly expenses, often at a time when income may be reduced due to job loss.
  • Temporary Nature: Another critical aspect of the COBRA trap is its temporary nature. COBRA coverage typically lasts only 18 months, after which individuals must find alternative health insurance coverage. This temporary solution can delay the search for more sustainable and affordable health insurance options, such as through the Health Insurance Marketplace or Medicare, for those who are eligible.
  • Missed Enrollment Opportunities: Relying on COBRA can also cause individuals to miss open enrollment periods for other health insurance plans. This can result in being uninsured after COBRA coverage ends, or having to choose a plan quickly without adequate time to consider the best options for their health care needs and financial situation.

Avoiding the COBRA Trap

To avoid falling into the COBRA trap, individuals should carefully consider their health insurance options and costs before electing COBRA. Exploring other health insurance marketplaces or programs for which they may be eligible, such as Medicare for those over 65 or individual plans through the Affordable Care Act’s Health Insurance Marketplace, can provide more affordable and longer-term solutions. Planning ahead and understanding the implications of COBRA coverage are crucial steps in making informed decisions about health insurance during transitions.

Alternatives to COBRA for Retirees

Still uncertain about continuing group health coverage for COBRA yet have a couple of years before you’re eligible for Medicare? You have access to the following solutions:

  • Join your spouse’s insurance plan: If your spouse continues to work and has access to their employer’s group health insurance, have them add you to their plan until you both decide to retire.
  • Look into Medicaid: Individuals bringing in a low income, having minimal cash financial assets and meeting additional criteria may be eligible for Medicaid.
  • Sign up for marketplace coverage: Affordable Care Act (ACA) plans have no age restrictions, can be used for an extended period of time and cover pre-existing conditions.
  • Consider working part-time: You might be bowing out from your full-time career but that doesn’t mean you can’t be involved in the workforce. Some retirees opt to work part time to access group health insurance benefits or manage the costs of a marketplace plan.

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