Q&A: How Medicare, COBRA interact

Dear Liz: You recently wrote about how Medicare coverage interacts with employer coverage. My husband will retire next year at age 65. His company has over 20 employees, so it’s considered a large company plan that won’t require him to sign up for Medicare. Is it better for him to elect family COBRA coverage for 36 months and defer Medicare coverage, since his company healthcare plan will be superior to Medicare? Can he elect Medicare coverage once COBRA terminates? Coverage matters more than costs.

Answer: He shouldn’t put off signing up for Medicare, because COBRA won’t insulate him from penalties.

The previous column mentioned that Medicare Part A, which covers hospital visits, is usually premium-free, but people generally pay premiums for Medicare Part B, which covers doctor’s visits, and Medicare Part D, which covers prescription drugs.

Failing to sign up when you’re first eligible for Part B and Part D typically means incurring permanent penalties that can be substantial. You can avoid the penalties if you’re covered by a large employer health insurance plan — but that plan must be as a result of current employment, either yours or your spouse’s. Once your husband retires, his employment is no longer current, so he should sign up for Medicare to avoid penalties.

If you or any other dependents need coverage, he may end up paying for additional insurance through COBRA on top of what he pays for Medicare. He can have both COBRA and Medicare for himself if his Medicare benefits become effective on or before the day he elects COBRA coverage. If he starts Medicare after he signs up for COBRA, his COBRA benefits would cease but coverage for you and any dependent children could be extended for up to 36 months. Another option to consider would be to cover you and any dependents using a plan from an Affordable Care Act marketplace. You may want to discuss your options with an insurance agent before deciding.

In fact, getting expert opinions is a must, because Medicare rules and health insurance in general can be so complex. Anyone nearing 65 also would be smart to discuss their individual situations with their company’s human resources department and then confirm the information with Medicare before deciding when and how to sign up.

Q&A: Going without health insurance isn’t wise

Dear Liz: You recently wrote about early retirees going abroad for their pre-Medicare years in order to get more affordable healthcare coverage. Why did you not bother to even mention the COBRA option that is often available to workers upon retirement? And by the way, some of us prefer to self-insure in our pre-Medicare years and even opt to not buy Part B coverage once we were eligible. Self-insuring is not for the sick, only the healthy, but there is a place for this never-mentioned option and it certainly reinforces healthy lifestyle choices.

Answer: COBRA was mentioned as an option in the original column, which addressed the retirement concerns of a woman 10 years younger than her husband. COBRA allows employees to continue their healthcare coverage for up to 18 months, so someone who is 63½ could use COBRA to bridge the gap until Medicare.

The coverage isn’t cheap because the retiree will have to pay the full premium without the employer subsidy, plus a 2% administrative fee. Anyone retiring earlier than 63½, including the younger spouse in the original column, still could face years without coverage once COBRA is exhausted.

And going without health insurance isn’t wise. Regardless of how healthy you currently happen to be, you’re one serious accident or illness away from disaster. Self-insuring can make sense for the smaller ongoing expenses of primary care. At a minimum, though, people should have a high-deductible plan that protects them from catastrophically high medical bills.

The decision to forgo Part B of Medicare may be an expensive one, as well. (For those who don’t know, Part A of Medicare is free for beneficiaries and covers hospital visits. Part B covers doctor visits, preventative care and medical equipment, among other expenses, and requires paying a monthly premium. Most people pay $134 a month for Part B coverage, although singles with incomes over $85,000 and married people with incomes over $170,000 pay higher amounts.) A permanent 10% penalty is tacked on to monthly premiums for every 12 months you were eligible for Part B but didn’t sign up.