What You Really Need to Know About COBRA
Many Americans are under the belief that taking COBRA when they retire (and are 65) is a good thing and replaces their need to go onto Medicare. They are simply trying to save money but nothing is further from the truth.
While COBRA is considered creditable coverage for those under 65, COBRA is not considered to be creditable for those 65 and older. There is no explanation that makes sense except this is government thinking and need to be changed. In fact, those who are 65 or older and take COBRA are facing lifetime fines of 10% per year (based on the current Part B monthly premium). I have never seen this waived by the government but suppose it could be.
Remember, COBRA works for those under 65, but when you reach 65, COBRA is no longer considered creditable even if you have time left on it. The COBRA administrators typically do not mention this to you, but you need to heed these words because a lifetime fine will be expensive and can be avoided.
So, you are turning 65 and retiring, how do you figure out what to do? The question is somewhat complicated but can be broken down into several sections.
Section 1: You work for a company that has more than 20 employees and your health insurance is considered creditable by Medicare. (You need to talk to HR and ask that question.) Once you know it’s creditable you can take Medicare Part A and defer Part B until you retire. Since the company has more than 20 employees, your group coverage pays first, and Medicare pays second. That is why you don’t need Part B.
I would advise you to annually get a creditable coverage letter from your HR department. It should say that you have creditable insurance and creditable drug coverage from when you turned 65. Save them because when you apply for Medicare Part B, the government will assume you didn’t have creditable coverage and attempt to fine you. The letters will eliminate those fines.
Section 2: You work for a company with less than 20 employees but have creditable coverage. Sorry but the only choice you have is to take Medicare Parts A & B. You can keep your group coverage, but it pays after Medicare pays. Thus, the need for Parts A & B. That is where most Americans make the mistake and only take Part A. (Part A is hospitalization and Part B is everything outpatient). It’s when they finally apply for Part B when they get
hit with the lifetime penalty of 10% of the Part B premium. When I started selling Medicare in 2003, the monthly premium for Part B was $55, today it is $185.00 and keeps going up annually.
There is also a surcharge added to the Part B premium based on your annual income two years ago. So conceivably, your Part B premium could be considerably more than the $185.00. As you can see the cost of Medicare is high and making a mistake about when to take Part B can affect your retirement income significantly.
My advice is to seek advice and help from a licensed Medicare broker (they cannot change you as they get paid by the insurance company if they sell you a plan.) The broker should have knowledge of all Medicare plans and be an independent broker, not an agent of a particular company. Those in-house agents can only sell you the plans their company offers, and a broker has access to all plans in your area.
Also, don’t listen to friends. They all mean well but are not knowledgeable in Medicare insurance plans and can only tell you their experience and the plan they have. They obviously like their plan, or they would change it so their advice is good for them but may not be for you. Here’s some insight to consider. Wife is very healthy with no medical issues while her husband has some serious but not deadly medical issues. These issues cost him quite a bit of money monthly to control. If I were faced with this issue, here’s what I’d do. I’d put the wife a no monthly premium MAPD plan. There are 84 different plans in Clark County.
The husband, because of his medical condition, should go on a Medicare Supplement with a standalone drug plan. Yes, it has a monthly premium which does go up annually, but the cost of its treatments will offset the cost of the plan. Sometimes the no monthly premium MAPD plans will work for the husband but most times it will not. I speak from experience as I just described my own personal situation. The wife is healthy with no medical issues while I have Rheumatoid Arthritis which requires monthly injections that cost $4,000. The MAPD plan works for my wife while the supplement is the only alternative for me. If I chose an MAPD plan the cost of the injections would be 20% or $800 per month. My supplement monthly premium is $267, and the drug plan has zero monthly premiums. So, for $267 per month I get a $4,000 injection which is a great return on my money.
That is why you need a broker to assist you in finding the best plan for you. You simply don’t have the resources to figure that out. I have some long-
time insurance brokers as clients because they understand the complexities of Medicare and don’t want to make the wrong decision that could cost them money and perhaps some lifetime fines.
Medicare is complicated and there is no reason why it should be. One of the reasons in my opinion is that Congress is not on Medicare or social security. If they were, everything would be much simpler to understand. All Congress does is raise the Part B monthly premiums annually to supposedly offset the cost of Medicare. Nothing is further from the truth. I would hope that the new administration will look at Medicare and perhaps simplify everything and eliminate the fines currently in place.
Section 3: You are employed at age 65 in a company with more than 20 employees and don’t plan on retiring anytime soon. All you should do is take Medicare Part A (Hospitalization) with no monthly premium. Assume you are hospitalized, your current insurance pays first and your Medicare Part A pays second. Since Part A has no premium, it is advisable to get it in case you are hospitalized. Both your insurance and Part A will reduce what you must pay so it makes sense.
The three breakdowns above are meant to guide you to the best decision for you but again I must state that using an independent insurance broker is your best option to avoid any mistakes and eliminate you having to pay penalties because you got it wrong. If you try to do it yourself, you potentially could be faced with lifetime fines. Since these brokers cannot charge you, it just makes sense to talk it over with them and let them make some suggestions on how to proceed.
I hope this information is useful and if anyone has questions, please contact me via phone or email and I will respond quickly.
Also, take a look at Medicare 2025 Information.
The Barend Agency Inc.
Len Barend, Broker
Cell:702-250-2200
Email: len@insurance4unevada.com