By Janet Trautwein
Each year, an obscure federal rule forces thousands of seniors to pay penalties for the rest of their lives simply because they made an honest mistake while signing up for Medicare. That number will rise unless Congress modernizes the program's enrollment process.
Seniors are twice as likely to be working today as in 1985. So more of them have to decide whether to sign up for Medicare when they become eligible at age 65 or keep their job-based health plan. Making the wrong decision can be costly.
Enrollment in Medicare Part A, which covers hospital care, is automatic and free for most people. But seniors must elect to join Parts B and D, which cover doctor's bills and prescription drugs, respectively.
Seniors can postpone signing up for Parts B and D until they stop working, at which point a special enrollment period begins.
But some of these people may be better suited to stay on their employer-sponsored plans temporarily under the terms of a 1985 law known as COBRA. The law allows people to remain enrolled in an employer-sponsored plan for up to 18 months after exiting a job, provided they pay the full premium.
Perhaps they've already met their deductible for the year. Or maybe they have a younger spouse still on their health plan. In each case, COBRA may be a better option.
Because their employer-sponsored coverage continues seamlessly, these seniors may believe they can continue to delay enrolling in Parts B and D. But that's not the case—and so the "COBRA trap" is sprung.
Medicare requires seniors to have "creditable coverage" if they choose not to enroll in the program. In other words, they must have health benefits that Medicare considers to be as good as or better than its own.
Employer-sponsored plans count as "creditable." But COBRA generally does not.
That doesn't make sense. If an employer-sponsored plan is considered creditable, how can an extension of the exact same plan under COBRA not be?
The moment COBRA beneficiaries leave their jobs, they have eight months to sign up for Medicare Part B—and 63 days for Part D—under the terms of their special enrollment period. If they don’t, then they may be locked out of Medicare when their COBRA coverage ends.
That can create quite the headache. Former COBRA beneficiaries have to secure alternate coverage to tide them over while they wait for Medicare's open enrollment period at the end of the year.
Then there are the penalties associated with late enrollment. Those who sign up late for Part B pay a 10 percent penalty for each full 12-month period they could've been enrolled. On average, these penalties add more than $8,000 to a beneficiary's lifetime Part B premiums.
Seniors who fall into the COBRA trap are doing the same thing as their peers with employer-sponsored coverage. They're just being penalized thousands of dollars for it.
Fortunately, there's an easy fix. Last year, Congress passed the bipartisan BENES Act, which streamlines Medicare's enrollment process. But left on the cutting room floor was a provision that would have required the government to notify seniors before their 65th birthday of the enrollment rules and how Medicare interacts with other insurance coverage.
Congress could bring back this provision in a new bill. Even better, it could eliminate the COBRA trap altogether—by defining COBRA as creditable coverage for Medicare.
EDITOR’S NOTE: Janet Trautwein is CEO of the National Association of Health Underwriters (www.nahu.org). This piece originally ran in the Orlando Sentinel.