COBRA & Medicare

Ok, you’ve made the decision to retire and now are faced with some very important decisions. Should I take COBRA or go on Medicare?


I’ve reached my deductible for the year and would like to continue on COBRA at least until the end of the year and then go on Medicare. Seems like a reasonable choice?  What should I do? If you talk to your HR department, they may have the answer or they may not?

Well, the answer is actually very easy. CMS (The governing body for Medicare) does not consider COBRA to be creditable coverage. I know that seems preposterous but it’s true. CMS believes that COBRA is not creditable coverage because you are paying the entire premium yourself. What they are not considering is that under Federal law COBRA is creditable coverage because the law simply states that you cannot treat a former employee different than a current employee when it comes to benefits. Meaning that the group health plan for employees has to be the same for COBRA recipients.

Despite that, you decide to take the COBRA because you are having surgery soon and you have reached your deductible for the year and the surgery will be at 20% until you reach your max out of pocket and that amount is very small.


Here’s what you face when applying for Medicare.

As stated above, CMS does not consider COBRA to be creditable coverage, therefore, the following rules apply.

  1. You can only apply for Medicare between January 1st and March 31st of the following year.
  2. Your Part B coverage begins on July 1st of that year.
  3. You will pay a 10% penalty for each year you didn’t take Medicare and that penalty on that Part B premium is a lifetime. As the Part B premium increases annually, so does your fine.
  4. Additionally, if you are paying a surcharge because your income is higher than the amount the government states, then that penalty includes the surcharge. As an example: you earned $200,000 dollars 2 years ago (the surcharge is based on your income from 2 years go and changes each year based on that income) This is regardless if you are married or single as there are different surcharges based on marital status. So your surcharge for Part B is $267.90 instead of $134.00. The penalty is then based on the higher number for that year and is recalculated annually.


  1. Perhaps the penalties are too much of a deterrent to considering COBRA? Then go on Medicare.


  1. The other factor is your COBRA coverage as good as Medicare? Sometimes picking the right option for Medicare can actually reduce your overall medical costs. As we age, our medical conditions increase.


You are now convinced that going on COBRA is not a good idea. What options do I have under Medicare?

Your author along with the National Association of Health Underwriters and my Congressman has had a bill pending in Congress for about 3 years to make COBRA creditable coverage. We have to wait and see but believe it will become law shortly.

Stay tuned as the next blog will help you decide what Medicare options are best for you.


The Barend Agency Inc. Len Bared, Broker


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