Is Retirement a Qualifying Event for COBRA?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that offers a temporary extension of group health coverage. This law allows certain individuals to continue their health benefits that would otherwise end due to specific life events. A common question arises regarding whether retirement qualifies as one of these events, enabling continued health coverage.

Defining COBRA Qualifying Events

A “qualifying event” under COBRA is an occurrence that results in an individual losing their group health plan coverage. These events include voluntary or involuntary termination of employment, excluding cases of gross misconduct. Retirement is considered a termination of employment and is a COBRA qualifying event, making retirees eligible to elect COBRA continuation coverage.

A “qualified beneficiary” is an individual who was covered by a group health plan on the day before a qualifying event occurred and is entitled to elect COBRA. This typically includes the covered employee, their spouse, and their dependent children. In some instances, a child born to or placed for adoption with a covered employee during a period of COBRA coverage also becomes a qualified beneficiary.

COBRA Election Procedures

Once a qualifying event like retirement occurs, there are specific steps for electing COBRA coverage. Employers subject to COBRA generally have up to 30 days to notify their plan administrator of a qualifying event. Following this notification, the plan administrator typically has 14 days to send a COBRA Election Notice to all eligible qualified beneficiaries.

Qualified beneficiaries then have an election period of at least 60 days to decide whether to elect COBRA coverage. This 60-day period begins from the later of the date of the qualifying event or the date the COBRA election notice is provided. To formally elect coverage, individuals must follow the instructions provided in the election notice. COBRA coverage, once elected and paid for, is retroactive to the date health coverage would have otherwise been lost.

For covered employees, including retirees, COBRA continuation coverage generally lasts for 18 months following the termination of employment or reduction of hours. However, in certain situations, such as the covered employee becoming entitled to Medicare, or events like divorce or death of the covered employee, a spouse or dependent child may be eligible for up to 36 months of COBRA coverage. The first premium payment for COBRA coverage cannot be required earlier than 45 days after the qualified beneficiary makes the initial election. Subsequent premium payments are typically due on a monthly basis, often with a grace period of around 30 days.

Post-Retirement Health Coverage Options

Beyond COBRA, individuals have other health coverage options after retirement, particularly if they are not yet eligible for Medicare. For those aged 65 and older, Medicare is the primary federal health insurance program. Eligibility for Medicare begins at age 65, provided an individual is a U.S. citizen or legal permanent resident and has paid Medicare taxes through employment for a specified period, usually 10 years.

Medicare consists of several parts: Part A (Hospital Insurance), Part B (Medical Insurance), Part C (Medicare Advantage, an alternative to Original Medicare), and Part D (Prescription Drug Coverage). The Initial Enrollment Period for Medicare is a seven-month window, beginning three months before the month an individual turns 65, including their birth month, and extending for three months after. Enrolling during this period helps avoid potential late enrollment penalties for Part B and Part D.

For individuals who retire before age 65 and are not yet Medicare-eligible, the Health Insurance Marketplace, established under the Affordable Care Act (ACA), is a significant option. Losing job-based coverage due to retirement qualifies individuals for a Special Enrollment Period on the Marketplace, allowing them to enroll outside the annual Open Enrollment Period. Through the Marketplace, individuals may qualify for premium tax credits and cost-sharing reductions based on their income and household size, making coverage more affordable. Additionally, some individuals with lower incomes may be eligible for Medicaid, which provides health coverage based on income and other specific criteria.