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Myth: When an employee (who works for an employer with more than 20 employees) elects Medicare and drops their employer-provided health coverage (which also covered the spouse) the spouse is eligible for COBRA due to the loss of employer coverage.
Fact: When working for an employer who employs more than 20 employees*, due to Medicare Secondary Payer (MSP) rules, an employee cancelling their employer group health coverage when they enroll on Medicare is not a COBRA qualifying event (QE) for the dependents.
A fundamental rule for COBRA is a QE must “cause” a loss of coverage under the plan in order for COBRA to apply. An employee may voluntarily choose to drop their group coverage after enrolling in Medicare, but the employee could also remain enrolled in the group plan in addition to Medicare (e.g., in order for the spouse to remain covered).
Due to the MSP rules, enrollment in Medicare cannot “cause” a loss of coverage for an employer with more than 20 employees. Therefore, the loss of coverage for the spouse is due to the employee voluntarily ending the employer’s coverage (which is not a COBRA event); the Medicare entitlement did not actually “cause” the loss of coverage.
Although a common administration mistake, there is a risk in misapplying the rules. Offering the spouse COBRA coverage, may be viewed as an incentive for the employee to drop the group plan in favor of Medicare. Any financial or other benefits as incentives not to enroll in, or to terminate enrollment in an employer’s group health plan is a violation of MSP, triggering financial penalties of up to $9,639 per violation (adjusted annually for inflation).
*Employers with fewer than 20 employees are not subject to the MSP rules and an employee may lose group health coverage when they are entitled to Medicare. In this case, Medicare entitlement is a COBRA QE for the spouse/ dependents.
Disclaimer: This content was written by Michelle Turner, MBA, CEBS, Compliance Consultant, Alera Group Central Region. This blog post intends to provide general information regarding the status of, and/or potential concerns related to, current employer HR & beneﬁ ts issues. This blog should not be construed as, nor is it intended to provide, legal advice. The opinions expressed herein are based upon the author’s experience as a Compliance Consultant and may not reﬂect the opinions of your counsel.
The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as ﬁnancial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc.
This article was last reviewed and up to date as of 12/29/20.