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Subduing a Three-Headed Monster – COBRA, Medicare and Section 125

EverythingHR Staff | 09/02/2021 | Blog

Three topics that, individually, can lead to very complex and nuanced research and cautious responses from Human Resources are COBRA, Medicare and Section 125 pre-tax benefits.  Now, let’s combine all three of these into a single employee-generated question and find out if we are prepared to handle this trifecta…

The scenario involves and employee going on Medicare, but wanting to find out if she can COBRA her husband and pay his premium though pre-tax dollars.  Spoiler alert – the answer is “yes;” but as so often is the case, there is a devil in the details.

Medicare and COBRA: Paying for Premiums on a Pretax Basis

Q       We have an employee who is going on Medicare and plans to continue covering her husband on COBRA until he is 65. Can she pay for his premiums on a pretax basis through payroll, or does she have to pay with after-tax dollars?

A       The short answer is “yes,” she can pay on a pretax basis, but it might depend on multiple factors. First, employers can easily be confused by the conflicting language in the Internal Revenue Service (IRS) regulations, Department of Labor (DOL) notices, and Center for Medicare & Medicaid Services (CMS) rules and the Consolidated Omnibus Budget Reconciliation Act (COBRA) statute for purposes of coverage related to Medicare, especially because there’s a distinction between a person being “entitled to” or “eligible for” Medicare. Since you have stated the employee is going on Medicare (suggesting she has already applied for the benefits), it’s presumed here she is entitled to Medicare for purposes of COBRA. Consequently, being entitled to Medicare affects the eligibility and length of COBRA coverage for her husband.

Next, as long as your employee’s husband was an enrolled dependent under your group health plan on the day before she became entitled to Medicare and he won’t become covered under a group health plan maintained by another employer, his coverage as a qualified beneficiary must be offered for at least 36 months.

Finally, the regulations provide for COBRA payments through a Section 125 cafeteria plan on a pretax basis, and the entitlement to Medicare will allow the employee to make a change in her cafeteria plan election. Note, however, your plan may need to be amended to provide for pretax payment of COBRA premiums or midyear election changes on account of a COBRA-qualifying event.

Question and response provided courtesy of content partner BLR.  Contributor Jason R. Mau is an attorney in the Boise office of Parsons Behle & Latimer.