Don't Make These Medicare Mistakes if You Lose Your Job After 65

The rules for coordinating Medicare with COBRA can be confusing because COBRA looks exactly like your employer's health insurance — you can go to the same doctors, the coverage is the same, and any money you've spent toward the deductible for the year still counts. But as soon as you leave your job, Medicare becomes your primary coverage and COBRA is secondary. If you haven't signed up for Medicare, you could face expensive coverage gaps.

Bonnie Burns, a consultant with California Health Advocates, helped a 68-year-old woman who had health insurance through a large employer until she left her job at age 67. She signed up for COBRA rather than enrolling in Medicare.

After she experienced some expensive medical problems, she received a $150,000 bill from her COBRA insurance company. The insurer argued that it shouldn't have paid the bulk of her claims because Medicare should have been her primary coverage — even if she hadn't signed up for it. The company ended up dropping the bill after the woman hired a lawyer to write to her employer and the insurer explaining that she was not adequately notified of the Medicare rules when she left her job.

Burns recommends contacting your State Health Insurance Assistance Program (SHIP) as soon as you lose your job. SHIP counselors can answer Medicare questions, walk you through the enrollment process and help with any problems.

"People who are eligible for Medicare should sign up for Medicare as early as possible during their special enrollment period, when they know they are leaving their job or losing their insurance from current work to avoid gaps in coverage and potential penalties,” says Casey Schwarz, senior counsel for education and federal policy with the Medicare Rights Center.

Some people may not be aware of the importance of timing when it comes to Medicare enrollment. Last year, Joanne Giardini-Russell, owner of Giardini Medicare in Howell, Michigan, which helps people with Medicare issues and supplemental coverage, helped a 70-year-old man who lost his job in late May and had coverage until the end of the month.

He planned to continue his employer's coverage through COBRA after that because his wife was undergoing chemotherapy. She had an appointment June 3 for chemo, which generally costs about $13,000.

He knew he and his wife had up to eight months to sign up for Medicare and had been focusing on the eight-month time frame to avoid the late-enrollment penalty. But he didn't realize that they needed to sign up for Medicare right away to get the primary coverage. Giardini-Russell let him know about the rules just in time for him and his wife to sign up for Medicare and get her chemo covered.

Check with your employer

Most employers don't warn people about this issue. “Human resources always seems to hand everybody a packet and say, ‘Here's your COBRA,’ and they never bring up the Medicare piece, even though they know how old they are,” Giardini-Russell says.

You may not realize the problem for a while. The COBRA insurer may pay small claims and not investigate until you have a large claim.

"The COBRA policy may pay out as primary insurance for a while, because you didn't realize you should have had Medicare, and then something big happens — you need surgery or have an expensive procedure — and that causes the insurer to look at your claims and enrollment a bit more closely,” Schwarz says. “At that point, they say they are only paying 20 percent of the Medicare-approved amount, and they may say they shouldn't have been paying any of these claims in the past."

Schwarz worked with a woman who had retiree coverage and didn't realize she had to sign up for Medicare. The insurer billed her for six years of claims, including a cancer diagnosis. “It was really devastating,” says Schwarz. “It was hundreds of thousands of dollars.” Medicare ended up paying most of the claims because she had records showing that the government had given her inaccurate information about whether she had to sign up for Medicare.

If you're 65 and you're ready to enroll in Medicare, you can complete the application online at the Social Security Administration website, even if you don't want to sign up for Social Security benefits yet. But if you delayed Medicare enrollment because you were working past 65, you need to provide extra paperwork showing that you had employer coverage within the past eight months through your or your spouse's employer, says Diane Omdahl, a registered nurse and cofounder of Sixty-Five Incorporated, which helps people with Medicare decisions. For more information, see Social Security's Medicare benefits page.

Editor's note: This story, originally published July 28, 2020, has been updated to reflect new information.

Kimberly Lankford is a contributing writer who covers personal finance and Medicare. She previously wrote for Kiplinger's Personal Finance magazine, and her articles have also appeared in U.S. News & World Report, The Washington Post and The Boston Globe. She received the personal finance Best in Business award from the Society of American Business Editors and Writers.