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The Center for Medicare Advocacy has been hearing more often from persons nearing retirement who work in small businesses, many of which have fewer than 20 employees.  Questions include whether COBRA benefits[1] will be available to them after they close their businesses and whether they have to keep some form of health care coverage to be eligible for Medicare.

Consider the Following Scenarios:

  1. Husband and wife run a small, two-person business.  Husband and wife are considering retiring and closing their business; both are 63 years old and neither is disabled. Husband and wife currently have health insurance through a comprehensive policy for which they pay the premium.  Husband and wife will not be able afford the substantial cost of their current health insurance once they close their business. They want to use COBRA coverage until they become eligible for Medicare.
  2. Husband and wife are employees of a business that employs 35 employees. The business has been sold to a company that has extended its group health plan coverage to the employees of the newly acquired business.  Husband and wife plan to retire soon and would like to obtain COBRA benefits.
  3. Husband and wife are retiring and closing their business.  Their 35 employees have found jobs elsewhere.  Husband and wife wish to obtain COBRA coverage for themselves until they turn 65 next year and go on Medicare.

Please review the Center's other articles: COBRA I and COBRA II.

Helpful Information:

  • COBRA coverage is available through private employers who offer an employee group health plan (EGHP) and who normally employed 20 or more workers on a typical business day during the previous calendar year.[2] Such employers must make COBRA coverage available to employees and their dependents who lose their health insurance because of certain specified events.[3] Full and part-time workers are counted in determining whether a business is subject to COBRA.[4] State and local governments employing 20 or more employees also must offer continuation coverage.[5]
  • COBRA allows a former employee (or dependent of a former employee) to purchase the health insurance that is available through his or her former employer's group health plan for a specified period of time.[6]
  • If there is no health insurance because the business closed (and was not bought by some other entity that has assumed the obligation to provide health insurance coverage), there is no COBRA.[7] Medicare does not require prior health insurance coverage as a condition for Medicare eligibility.[8]
  • Most people become eligible for Medicare at age 65; younger persons who are disabled may be eligible for Medicare after a 2-year waiting period if they first qualify for Social Security Disability Insurance.[9]
  • A Medicare beneficiary's initial enrollment period is the 7 month period comprising the 3 months before his or her 65th birthday, the month of his or her 65th birthday, and the three months after his or her 65th birthday. Generally, it is useful to apply for Medicare as early as feasible with the goal of having coverage start in the first month of eligibility (the beginning of one's birthday month).[10] Generally, "creditable" coverage refers to prescription drug coverage that meets certain criteria.[11]
  •     Since 2014, The Affordable Care Act (the ACA) has offered exchanges that will help individuals and small businesses to purchase health insurance.[12]

Conclusion

In the first scenario, the business of husband and wife is too small (fewer than 20 employees) to qualify for COBRA.  In addition, where there is no employee group health plan coverage, there is no coverage to purchase.  Husband and wife will have to figure out a way to purchase some form of private health insurance, including exploring whether their state has created insurance pools or other devices through which they might purchase coverage at an affordable cost. In the second scenario, husband and wife would be eligible for COBRA coverage because there are 20 more employees in the business and the new owners have extended group health plan coverage to those employees.  In the third scenario, husband and wife would not be eligible for COBRA because the business through which they intend to get COBRA has closed, has no employees, and no longer has an employee group health plan.[13]

 


[1] See Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), Pub. L. No. 99-272 (April 7, 1986), 100 Stat. 222, codified at 26 U.S.C. §4980(b); 29 U.S.C. §§1161 et seq.; and 42 U.S.C§§300bb-1 et seq.
[2] 29 U.S.C. §1161(b).
[3] Ibid.  COBRA qualifying events are laid out in COBRA 1: http://www.medicareadvocacy.org/people-with-medicare-beware-cobra-is-not-coverage-as-a-current-employee/ (site visited September 14, 2015). See also: http://www.dol.gov/EBSA/faqs/faq-consumer-cobra.html (site visited September 14, 2015).
[4] See http://www.dol.gov/EBSA/faqs/faq-consumer-cobra.html (site visited September 14, 2015). Q3.
[5] 42 U.S.C. §300bb-1(a), (b)(1).  Federal employees have their own health care continuation coverage.  5 U.S. C. §8905a. See also: http://cciio.cms.gov/programs/protections/cobra/cobra_qna.html (site visited September 14, 2015).
[6] See the COBRA Q&As at the following link: http://www.dol.gov/EBSA/faqs/faq-consumer-cobra.html (site visited September 14, 2015).
[7] See Q23: http://www.dol.gov/EBSA/faqs/faq-consumer-cobra.html (site visited September 14, 2015). 
[8] See: https://www.cms.gov/Medicare/Medicare-General-Information/MedicareGenInfo/index.html (site visited September 14, 2015).
[9] See: http://www.socialsecurity.gov/pubs/10043.html#a0=2r (site visited September 14, 2015).
[10] See: https://www.medicare.gov/sign-up-change-plans/get-parts-a-and-b/when-sign-up-parts-a-and-b/when-sign-up-parts-a-and-b.html (site visited September 14, 2015).
[11] http://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/index.html?redirect=/creditablecoverage/ (site visited September 14, 2015).
[12] https://www.healthcare.gov/quick-guide/ (site visited September 14, 2015).
[13] Additional information about COBRA is available in the Medicare & You Handbook 2015: https://www.medicare.gov/Pubs/pdf/10050.pdf (site visited September 14, 2015). See also, Chapter 9, of the 2015 Medicare Handbook, written by the staff of the Center for Medicare Advocacy, Inc.  The book is available through http://www.wklawbusiness.com/ (site visited September 11, 2015).

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