Coverage when One Spouse takes Medicare


Scenario: An employee, let’s call her Lucy, turns 65 and becomes eligible for Medicare.  Lucy’s not-yet-Medicare-eligible spouse, Ricky, would like to take COBRA through Lucy’s employer-sponsored plan, and Lucy intends to pay Ricky’s COBRA premium through pre-tax salary reduction.

What’s wrong with this scenario?

First, Ricky isn’t COBRA continuation of coverage eligible.  Lucy is voluntarily leaving her employer’s coverage for Medicare.  Per Medicare Secondary Payer rules, voluntarily terminating plan participation is not COBRA qualifying event for her spouse.

Second, as Ricky is not COBRA eligible, Lucy cannot pay premiums pre-tax.

But wait!  Plot twist: What if Lucy’s employer has less than 20 employees?

Groups are subject to COBRA and Medicare Secondary Payer rules for employers with 20 or more employees.

Employers with fewer than 20 employees are not subject to COBRA and Medicare Secondary Payer rules.  If Lucy’s employer has fewer than 20 employees and she takes Medicare, Ricky could still continue coverage under a state continuation law, if Lucy’s entitlement to Medicare causes a loss of coverage under the terms of the employer’s plan.

Source: ComplianceDirect Q&A

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