Many older Americans feel the sting of this little-known Medicare rule.

Bill Bregar, 65, thought he was doing everything right. With his former employer health insurance plan due to run out in May 2009, he believed that his visit, along with his wife, Ruth, to the Social Security office to sign up for Medicare would be routine.

He was wrong.

They were told they wouldn’t be able to get Medicare coverage until July 2010. Suddenly, in their late 60s, they faced the prospect of 13 months without health insurance.

“My reaction was disbelief,” he recalls. “My wife went into shock.”

Bregar, a former software engineer from Lake Oswego, Oregon, and his wife, Ruth, had run afoul of an obscure rule that is little understood by Medicare beneficiaries, employers, health insurance companies and even some Social Security and Medicare officials. And the Bregar’s experience has led to their congressman, Representative Kurt Schrader, D-Oregon, proposing legislation to change the rule.

Obscure rule hurts beneficiaries

Under current law, working Americans with employer health coverage can postpone signing up for Medicare until after 65. When they retire, accept a buyout or are laid off, they then get an eight-month special enrollment period to sign up for Medicare Part B, immediately and without penalty.

But many people in these circumstances are able to extend their employer coverage for a year or two under a 1986 law known as COBRA, which is what Bill Bregar did.

What people may not realize is that waiting until their COBRA coverage expires to enroll in Part B disqualifies them from the eight-month grace period.

Instead, they must wait to sign up during open enrollment, from January 1 to March 31 each year, and their coverage won’t begin until the following July. They also get hit with a late penalty, an extra charge added permanently to their Part B monthly premium.

The COBRA catch

Social Security officials explain that under the law, people can postpone signing up for Medicare Part B without penalty only while they have group health insurance provded by an employer for whom they or their spouses are still working.

Therefore, time on COBRA – used after employment has ended – beyond eight months does not entitle them to special enrollment.

Although this rule is 24 years old, in recent months several consumer organizations have seen a significant increase in the number of complaints.

The Medicare Rights Center, which tracks calls involving Part B enrollment problems, reports that in 2010 more than 21 percent of these related to the COBRA issue and counting.

The timing may be due to the fact that when the economic recession hit in 2008, more older Americans lost their jobs and opted for COBRA coverage without thinking to sign up for Part B – and are only now facing the consequences. Nobody knows exactly how many people are affected.

This crucial Medicare regulation barring a special enrollment period for people whose COBRA coverage is ending is rarely, if at all, publicized.

It is not mentioned in the Department of Labor’s guidance for people considering COBRA.

It is only briefly mentioned on page 24 of the official handbook, “Medicare and You 2010” – but without any warning of delay in Part B coverage.

It isn’t included in Social Security’s general website information on enrolling in Medicare or in its frequently-asked-questions section – though entering “COBRA” into the site’s search engine leads to an explanation.

But many people do not go to these sources. Instead, they rely on information from their employers, their insurance company or Social Security officials.

Bregar, who accepted a voluntary retirement package from the Hewlett Packard Company in 2007, consulted all three.

On an earlier visit to the local Social Security office when he turned 65, he says the official told him he didn’t need to sign up for Part B until his employer insurance ended. “What he didn’t say,” Bregar adds, was that this wasn’t true “if I stopped working at any time even if my health insurance was still in effect.”

After the bombshell landed, Bregar repeatedly called Social Security. Among some 15 conversations with officials, he says, “two of them told me exactly the same wrong information as I was given in the first place.”

But one suggested he apply for “equitable relief.” This little-known option allows Social Security to investigate cases and reverse decisions if it finds an official has given faulty information.

Bregar wrote a letter applying for relief and took it down to the office. “The lady there said: “Well, I’m happy to forward this on, but I can tell you I’ve been here for 26 years and I’ve only seen one case resolved in favor of the applicant,” he recalls.

At that point, Bregar called the office of his congressman, Schrader. His staff, who’d never heard of the rule either, became interested.

Their calls resulted in a “congressional inquiry” label attached to the Bregars’ Social Security file. Meanwhile, the couple, frantically trying to find insurance, discovered that only one policy – costing aroung $1,700 a month – was available to them.

On the day they were to sign up, Bregar received a call from Social Security. He says the official said simply: “When do you want your Medicare insurance to begin?”

He said: “Next week?” “Done,” she replied.