Ray Retires at 68: Medicare, the Group PPO, and COBRA

The group PPO pays first; Medicare pays second.

The coordination rule turns on employer size. Because the employer has 20 or more employees, the group health plan is the primary payer for an active employee age 65 or older, based on current employment status. Medicare is secondary and picks up much of the cost-sharing the PPO leaves behind.

Should he drop Part B? Generally no.

• Medicare secondary still pays real money toward deductibles and coinsurance on a PPO with typical cost-sharing.
• Dropping Part B mid-employment is permitted, and he could re-enroll later using the 8-month Special Enrollment Period that begins the earlier of the month employment ends or the month group coverage based on that employment ends - with no late enrollment penalty, because he had creditable group coverage.
• But there is no cost saving worth the disruption: the Part B premium is doing work as secondary payer, and the re-enrollment paperwork creates a needless risk of a gap.

Also flag: Nicole, 62, is covered as a spouse under the group plan and is not yet Medicare-eligible. Her coverage is not affected by Ray's Medicare status while he is employed.

Judgment point: the 20-employee threshold is the whole answer. At a 15-employee employer, Medicare would be primary and the analysis reverses.

Ray: generally no. Nicole: generally yes.

The COBRA rule is that a qualified beneficiary who is entitled to Medicare before the COBRA qualifying event is not entitled to COBRA continuation coverage. Ray was entitled to Medicare at 65 - three years before retirement - so his retirement is not a COBRA-qualifying event for him. Medicare becomes his coverage.

Nicole:

• She is 62 and not Medicare-eligible.
• She loses coverage as a spouse due to Ray's retirement, which is a qualifying event.
• She can elect COBRA for up to 36 months of coverage, at up to 102% of the group premium (the plan's cost plus a 2% administrative charge).
• She should compare that premium against an individual marketplace plan - at 62, with premium tax credits possibly available based on their new household income, the marketplace may be materially cheaper.

Ordering trap: if Ray had signed up for COBRA first and then become entitled to Medicare, his COBRA would terminate on Medicare entitlement. Doing it in the other order - Medicare first, then retirement - means no COBRA for Ray at all.

Judgment point: COBRA eligibility for a spouse is evaluated independently of the Medicare-entitled employee.

Part B - he is already enrolled, so nothing is required, but know the deadline if he ever drops it. If Ray had delayed Part B while working, he would have an 8-month Special Enrollment Period beginning the earlier of the month his employment ends or the month his group coverage based on that employment ends. Enrolling inside that window means no late enrollment penalty. Because he is enrolled already, Part B simply continues and the premium begins to be deducted from his Social Security benefit (or billed directly).

Part D - the 63-day rule.

• His group drug coverage is creditable, so he has no penalty accruing while covered.
• He must obtain creditable drug coverage (a standalone Part D plan or a Medicare Advantage prescription drug plan) within 63 days of losing the group drug coverage at retirement.
• Miss the 63-day window and he incurs a permanent late enrollment penalty: 1% of the national base beneficiary premium, multiplied by the number of full uncovered months, added to his Part D premium for as long as he has Part D.

Practical sequence for July 1:

1. Confirm the exact group termination date in writing.
2. Enroll in a Part D plan (or MA-PD) effective July 1 so no gap exists.
3. Elect or decline COBRA for Nicole and compare against marketplace pricing.
4. Keep the creditable coverage notice - it is the evidence that no penalty applies.

Judgment point: the 63-day Part D clock is the deadline most retirees miss, and its penalty is permanent.