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  • Writer's pictureTom Cianflone

When to Say No to COBRA (even if it's FREE)

cobra and medicare

What's wrong with this picture? You're turning 65 next month. You want to retire and your employer is offering you an attractive retirement package, which includes one year health insurance that the company is going to pay for. The health insurance is the exact same coverage you've enjoyed at work for many years. The only difference is that you won't be working and the health insurance will be provided through COBRA. The first thought that enters your head: Free health insurance for a year! And I won't have to sign up for Medicare Part B, meaning I won't have to start paying my Part B premium until my year of COBRA coverage ends. Such a deal!

If that's what you're thinking, think again. Rules are this: you must have "creditable" medical coverage once you turn 65 to avoid the Medicare Part B late enrollment penalty. Is COBRA considered creditable coverage for Medicare? No! So, in the example above, when you went to enroll in Part B after your COBRA coverage ended, you would find that you would be assessed a Part B late enrollment penalty for the year you went without creditable coverage. That would amount to a 10% penalty for each 12 months you went without creditable coverage or, in our example, 10%. At the 2022 Part B premium base rate of $170.10/month, you would instead be paying $170.10 + $17.01, or $187.11/month. You would be paying the Part B penaly for the rest of your life on Medicare.

The rules surrounding Medicare and how it plays with COBRA are complicated. Always seek the help of a qualified agent to help you figure out your unique situation and to avoid unnecessary penalties. As always, I'm just a phone call away. Contact me here.

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