COBRA Continuation Before Medicare

Medicare is a federal health insurance program for people aged 65 and older, and for some younger individuals with qualifying disabilities or specific medical conditions like End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS). It helps cover hospital care, medical services, and prescription drugs, providing essential health support to millions of Americans.

When you retire before age 65, COBRA continuation coverage can help you stay insured until Medicare begins. COBRA lets you keep your employer’s health plan for a short time after leaving work, which helps avoid gaps in medical coverage before Medicare eligibility. Once you qualify for Medicare, your COBRA coverage will usually end, but understanding how the two overlap can help you plan a smooth transition.

If you retire before age 65, the Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you keep your employer health plan for a short time before starting Medicare. While it provides short-term coverage, many people fall into the “COBRA Trap,” paying high premiums and missing their chance to enroll in Medicare on time.

Important: If you delay Medicare because you stayed on COBRA, you can face lifetime late penalties and a long wait for your next enrollment window.

The COBRA Trap often happens when someone retires before age 65 and chooses COBRA to stay insured, assuming they can wait to enroll in Medicare later. When COBRA runs out, they realize their Medicare enrollment window has passed, leaving them with no coverage and a lifetime penalty added to their Medicare premiums. This mistake is common and costly, especially for those unaware that COBRA does not count as active employer coverage.

• High Costs: COBRA requires you to pay the entire premium, including the portion your employer once covered, which can double your monthly cost.
• Short-Term Coverage: COBRA usually lasts up to 18 months, leaving you responsible for finding new insurance once it ends.
• Missed Enrollment: Staying on COBRA after you become eligible for Medicare can lead to late penalties and delays in coverage.

Before electing COBRA, review all your health coverage options and timelines. If you’re nearing age 65, sign up for Medicare when first eligible to avoid gaps and extra costs. You can also compare private or Marketplace plans that may offer lower premiums or longer coverage options.

If you delay enrolling in Medicare because you stay on COBRA, you may have to pay permanent penalties once you sign up. These penalties increase your monthly premiums for as long as you have Medicare and are added on top of the standard costs.

• Part A (Hospital Insurance): Most people get Part A for free. If you are not eligible for free Part A and delay signing up, your monthly premium increases by 10% for twice the number of years you delayed.
• Part B (Medical Insurance): The Part B penalty adds 10% to your monthly premium for every full 12-month period you could have enrolled but did not. This increase lasts for the rest of your life.
• Part D (Prescription Drug Coverage): If you go 63 or more days without creditable prescription coverage before enrolling in Part D, you pay an added amount each month. The penalty is 1% of the national base premium for each month you were uncovered, and it also lasts as long as you have Part D.

Because COBRA is not considered active employer coverage by Medicare, relying on it can trigger these penalties if you wait to enroll until after it ends.