Medicare Set Aside Bulletin

Congress passed COBRA in 1985, amending the Employee Retirement Income Security Act of 1974 (“ERISA”). The main purpose of COBRA was to provide extended health care in instances where it would otherwise be lost due to an event terminating eligibility of an employee or an employee’s family for GHP coverage.

COBRA requires that certain employer-sponsored GHP’s offer employees and their dependents the option to purchase continued health coverage for a specified extension period in the case of certain qualifying events.[1] These qualifying events include: termination of employment; reduced hours of employment; death of the employee spouse or parent; divorce or legal separation from an employee spouse; enrollment in Medicare; or the end of a child’s dependency under a parent’s GHP.[2]

The COBRA extension period most often applicable is the 18 month period provided for qualifying events due to termination of employment or loss of employment hours.[3] When the qualifying event is due to the death of the employee, divorce or legal separation, or the end of a child’s dependency, the COBRA extension period available to the employee’s spouse or child is 36 months.[4] Further, the usual 18 month COBRA period for loss of employment or loss of employment hours can be extended in certain circumstances.

If another qualifying event occurs within 18 months of termination of employment or a loss of employment hours, the COBRA extension period is doubled to 36 months. This period begins on the date of the initial termination or loss of hours.[5]

An 18 month COBRA extension following loss of employment or employment hours can also be extended to 29 months, provided the qualified employee is determined to have become disabled under the Social Security Act within 60 days from the inception of a COBRA extension period, and the employer receives notice of the disability determination before the expiration of the initial 18 month extension period.[6] During the 30th month after disability, the employee will become eligible for Medicare if the disability determination resulted in his or her eligibility for Social Security Disability Insurance (SSDI).

Following a COBRA election, once the employee or other qualified beneficiary becomes eligible for Medicare, or obtains coverage under another GHP with no applicable pre-existing condition exclusion, that person’s COBRA extension period will end.[7] However, if an employee or other qualified beneficiary is eligible for Medicare or is covered under another GHP before a qualifying event occurs, that person will be entitled to the full applicable COBRA extension period, in spite of other coverage.[8] Further, if the qualifying event is due to a loss of employment or loss of hours and the qualifying event occurs within 18 months after an employee becomes entitled to Medicare, the employee’s spouse and dependent children will have an extended COBRA period of 36 months.[9]

In IRS Announcement 98-22, the IRS verified that a group health plan is not permitted to cease making COBRA coverage available merely because of other coverage (including Medicare) that began before the date of the election for COBRA.[10] However, other coverage, including Medicare, that began after the COBRA election will permit COBRA to terminate coverage immediately.[11]

Three months later, in Geissal v. Moore Medical Corp.,[12] the U.S. Supreme Court unanimously found that employers cannot deny COBRA coverage to qualified beneficiaries who had other GHP coverage before the date of their COBRA election.[13] COBRA coverage can only be terminated if: (1) the qualified beneficiary gets coverage under another GHP after the date of COBRA election; and (2) the other GHP coverage does not limit or exclude the qualified beneficiary from coverage for preexisting conditions.[14]

Like IRS Announcement 98-22, the holding in Geissal is equally applicable in the cases where qualified beneficiaries become entitled to Medicare. If they became entitled to Medicare before they elected COBRA coverage, their COBRA coverage cannot be terminated due to Medicare eligibility. The COBRA plan may only terminate based on entitlement to Medicare if the qualified beneficiary becomes entitled to Medicare following his or her COBRA election.[15]

Under HIPAA, a GHP is defined as a plan to provide health care to employees, former employees, or their families by the employer.[16] The law includes Health Maintenance Organizations.[17] One of the primary effects of HIPAA is to place significant restrictions on the ability of a GHP to limit or deny coverage based upon a preexisting medical condition. Under HIPAA, a “preexisting condition exclusion” means the exclusion of certain medical benefits from coverage because the condition the medical benefits were intended to cover was diagnosed at least 6 months before an individual enrolled for coverage, whether or not the individual was treated prior to the date of enrollment.[18]

HIPAA provides that a GHP may not impose a preexisting condition exclusion unless: (1) the exclusion relates to a condition (whether physical or mental) for which medical advice or treatment was either recommended or received 6 months or more prior to the enrollment date; (2) the exclusion does not last for more than 12 months (18 months in the case of a “late enrollee”) after the date the individual enrolled in the plan or the first day of the waiting period for such enrollment, if earlier; and (3) the length of any preexisting condition exclusion is offset by the aggregate of the periods of any “creditable coverage” that applies to the participant or beneficiary on the date of enrollment.[19]

“Creditable coverage” means health insurance coverage from any of the following: (1) a GHP; (2) a private health plan; (3) Medicare; (4) Medicaid; (5) a medical and dental program for members of the Armed Forces; (6) a medical care program of the Indian Health Service or of a tribal organization; (7) a state health benefits risk pool; (8) a health plan offered under legislation entitled “Health Insurance for Civil Servants”; (9) a public health plan; or (10) a health benefit plan under §5(e) of the Peace Corps Act.[20] Worker’s compensation (WC) and no-fault insurance do not constitute “creditable coverage” under HIPAA.

Therefore if the individual had creditable coverage on the date of enrollment, the period during which he or she was covered under the earlier plan will offset the length of any preexisting condition exclusion. However, if there was a gap when the individual was not insured by any creditable coverage for a continuous period of 63 days or more, the individual is susceptible to either a full 12 month or 18 month exclusionary period when enrolling in a new plan.

A gap in creditable coverage can be determined by counting the days between the last day of creditable coverage and the enrollment date under any other means of creditable coverage.[21] Any “affiliation period,” “probationary period,” or other period during which an individual must wait to receive coverage under a GHP will not be counted in determining the 63 day continuous period.[22]

Once any initial exclusionary period has expired, no new preexisting condition exclusions may ever be imposed on an individual who maintains coverage without a 63 day gap in creditable coverage.[23] This is why it is essential for disabled individuals to maintain their health insurance coverage, even if they lose their employment or become eligible for WC coverage or coverage under a no-fault policy.

An individual who is eligible to enroll in a GHP, but who does not enroll within the first eligibility period, is generally considered a “late enrollee” and is subject to an 18 month exclusionary period.[24] Often, an individual, spouse or dependent has creditable coverage under another GHP during the initial eligibility period for the new GHP and chooses not to enroll in the new GHP for that reason. If such an individual, spouse or dependent later loses coverage under the old GHP, HIPAA provides for a special enrollment period for the new GHP. If an eligible individual, spouse or dependent becomes enrolled in the new GHP during such a special enrollment period, he or she is not considered a “late enrollee”.[25]

A GHP must permit an eligible employee, spouse or dependent to enroll during a special enrollment period if the following conditions are met: 1) the employee, spouse or dependent had another GHP or health insurance coverage at the time the individual was initially eligible for coverage under the new GHP; 2) the employee, spouse or dependent stated in writing that enrollment in the other plan was the reason for declining offered coverage (if this is required by the GHP); 3) the employee’s, spouse’s or dependent’s previous coverage was lost because of the exhaustion of a COBRA election period, divorce, loss of employment, termination of the plan or another triggering event; and 4) the employee, spouse or dependent requests coverage under the new GHP within 30 days of the loss of the previous coverage.[26]

In HCFA Bulletin 99-01 (June, 1999), the Health Care Financing Administration (now the Centers for Medicare and Medicaid Services, or "CMS") stated that group health plans are subject to the provisions of HIPAA and are not “excepted benefits” just because primary coverage may be under Medicare or some other group health plan.[27] Therefore, even where an individual has both GHP and Medicare coverage, the GHP must comply with HIPAA.

The federal MSP statute provides that Medicare is always the secondary payer (except in specific circumstances) when a payment has been made or can reasonably be expected to be made for an item covered under a group health plan, a worker's compensation law or plan, a liability policy or plan, or under no-fault insurance.[28] The only exceptions to this general rule have to do with Medicare's relationship to group health plan (GHP) coverage. Where the third party payer is a workers' compensation law or plan, a liability policy or plan, or no-fault insurance, Medicare will always be secondary.

When Congress enacted OBRA ‘93, it resulted in an extremely important change to the MSP statute.[29] Specifically, OBRA ‘93 clarified that, where an individual is covered under both a large GHP and Medicare, Medicare is the primary payer when the individual’s participation in the large GHP is not due to his employment status.[30]

Regulations enacted in 1995 pursuant to OBRA ’93 further clarify that an individual not actively working, who participates in a GHP and who also either receives SSDI benefits or whose participation in the GHP is pursuant to a COBRA election is not considered to have “employment status.”[31] Therefore, if such an individual is also eligible for Medicare, Medicare is primary to the GHP. With Medicare as the primary payer in this circumstance, the GHP essentially becomes a supplemental policy, covering medical expenses not covered by Medicare. However, there is no requirement that the GHP be limited to the ten permitted combinations of benefits reserved for Medigap policies.

           When the claimant or plaintiff is disabled, assurance of future medical care is often the most important consideration in a WC or TPL settlement. Failure to plan properly for future medical coverage can result in unexpected, unpleasant, and sometimes disastrous results for the claimant or plaintiff.

            When an individual becomes injured at work or as the result of an injury for which a third party is liable, the individual often is covered under a GHP. The individual then becomes disabled as the result of his or her injuries and can no longer work. If the individual was injured on the job, he or she will be eligible for WC benefits. In some states, when the individual is injured in an accident involving a motor vehicle, the individual may be eligible for payment of injury related medical expenses under a no-fault policy.

            It is extremely important to remember that WC or no-fault insurance will only pay for injury related medical care. Even in cases where the individual is so seriously injured that all medical care is considered to be injury related, WC or no-fault coverage will no longer be available after a settlement that closes out future medical expenses. Medical expenses not covered under WC or no-fault insurance will be the responsibility of the individual if he or she has no other medical coverage.

            Consider the example of a seriously disabled man who is injured in a work related accident. Even though the man can no longer work due to his disability, GHP coverage is still be available through his wife's employment or though a COBRA extension of the man's own GHP. If the man fails to maintain GHP coverage along with WC, there could be serious consequences after the WC settlement.

Assume that the man decides not to continue his own GHP coverage under COBRA or to enroll in his wife's GHP because WC will cover his medical expenses. The man's WC case continues for 2 years. At that time, a settlement is reached. In the mean time, the man has lost all opportunity to continue his own GHP coverage under COBRA for failure to make a timely election.

            If, following the settlement, the wife is still covered by a GHP through her employer, the man can still enroll in the wife’s GHP. However, WC is not considered creditable coverage under HIPAA. A special enrollment period would not be available, either. Thus, the man will be treated as a late enrollee with more than a 63 day gap in creditable coverage. As a result, the wife’s GHP can deny coverage for the man’s preexisting work related medical conditions for as long as 18 months!

            The man could have preserved creditable coverage by enrolling in his wife’s GHP. The man would be covered so long as his wife remained eligible under her employer's GHP. The man also could have preserved creditable coverage under his own GHP by making a COBRA election. This would guaranty GHP coverage for at least 18 months, eliminating the risk that his wife might lose eligibility under her employer's GHP.

           If the man then applied for SSDI and was determined to have become disabled within 60 days after the COBRA election, his GHP coverage under COBRA could be continued for an additional 11 months. By the end of the extended COBRA period, the man would become eligible for Medicare, due to at least 24 months of SSDI eligibility.

           The man could then enroll in the wife's GHP after the expiration of his 29 month COBRA period. The man would then be covered under the wife's GHP without any preexisting condition exclusions or gaps in coverage. Since the man would also be eligible for Medicare, Medicare would be primary to the GHP. This would provide an extremely comprehensive package to ensure post-settlement medical coverage without thoroughly depleting settlement proceeds on medical costs.

            Prior to the WC settlement, even during any period in which the GHP may be primary to Medicare, the GHP will not generally be required to cover medical expenses that are covered under WC or no-fault insurance. If the beneficiary is receiving medical benefits under a WC plan or no-fault insurance, the GHP can, and usually will, deny coverage. However, for a seriously disabled individual, it still makes sense to consider paying GHP or COBRA premiums during the period before settlement to preserve the option of GHP coverage without preexisting condition exclusions later.

            In the case of an individual whose injuries are not work related or who is not eligible for medical coverage under a no-fault policy, it is even more important to maintain GHP coverage through a spouse’s policy or a COBRA election during the period before settlement. Certainly, the individual will want to preserve the ability to obtain future GHP coverage without preexisting condition exclusions. Further, without GHP coverage, the individual will be left having to pay for medical care out of pocket until a settlement is reached; or to rely on public benefits, such as Medicare or Medicaid, to pay for pre-settlement medical care. However, entitlement to Medicare may not come until the 30th month after the injury; and Medicaid may not be available at all unless the individual meets the strict income and resource tests for eligibility.

            It is also true that any payment a GHP, Medicare or Medicaid might make for injury related medical expenses prior to a WC or TPL settlement will be subject to each entity’s right of subrogation or indemnity. Each will have the right to assert a lien or claim against the proceeds of any later TPL or WC settlement or award. If Medicare has a secondary payer claim, this will need to be paid out of settlement proceeds before any other distributions. After Medicare, Medicaid and the GHP will also need to be reimbursed. This is a factor that will need to be considered at mediation in arriving at a settlement amount that will be sufficient to cover the claimant’s or plaintiff’s future needs as well as the satisfaction of any existing claims or liens.

            However, after final settlement of the WC or TPL claim, payments by a GHP or Medicaid for injury related medical expenses will no longer result in a subrogation claim or lien. The same will be true of Medicare, so long as Medicare’s interests under the MSP statute regarding both past and future medical expenses have been reasonably considered in the settlement.

[1]. 29 U.S.C. § 1162.

[2]. 29 U.S.C. § 1163.

[3]. 29 U.S.C. § 1162(2)(A)(i).

[4]. 29 U.S.C. § 1162(2)(A)(iv).

[5]. 29 U.S.C. § 1162(2)(A)(ii).

[6]. 29 U.S.C. § 1162(2)(A).

[7]. Id.

[8]. 29 U.S.C. § 1162(2)(D)(ii); Geissal v. Moore Medical Corp., 000 U.S. 97-689, 118 S.Ct. 1869, 141 L.Ed.2d 64 (1998).

[9]. 29 U.S.C. § 1162(2)(A)(v).

[10]. IRS Announcement 98-22.

[11]. IRS Announcement 98-22; 29 U.S.C. §1162(2)(D); Geissal v. Moore Medical Corp., 000 U.S. 97-689, 118 S.Ct. 1869, 141 L.Ed.2d 64 (1998).

[12].Geissal, supra, note 156.

[13]. Id.

[14]. 29 U.S.C. § 1162(2)(D); Geissal, supra, note 180.

[15]. Id.

[16]. 29 U.S.C. § 1191b(a)(1).

[17]. 29 U.S.C. § 1181(g).

[18]. 29 U.S.C. § 1181(b)(1)(A).

[19]. 29 U.S.C. § 1181(a).

[20]. 29 U.S.C. § 1181(c)(1).

[21]. Id.

[22]. 29 U.S.C. § 1181(c)(2)(B).

[23]. 29 U.S.C. § 1181(a).

[24]. 29 U.S.C. § 1181(b)(3).

[25]. Id.

[26]. 29 U.S.C. §1181(f)

[27]. HCFA Bulletin 99-01 (June, 1999).

[28]. 42 U.S.C. §1395y(b)(2)(A)

[29]. 42 U.S.C. §1395y(b)(1)(B).

[30]. Id.

[31]. 42 C.F.R. §411.104(a)(2); 60 Fed. Reg. 45,344 (August 31, 1995).