Health Insurance After Divorce

“Obamacare” is dramatically affecting most families’ lives and finances these days, so it is only natural to wonder how the Affordable Care Act might potentially impact Massachusetts couples going through a divorce.

The answer is that in the Bay State, we will not see many changes due to the fact that we have had mandatory coverage since our Health Care Insurance Reform of 2006. In families where one spouse has an out-of-state employer, they may see a difference, but the vast majority of families will be unaffected by federal health care reform.

Health Insurance Coverage for Children

Usually both parents want health insurance coverage for their children, so it can be relatively easy to negotiate — especially when the couple uses Mediation or Collaborative Practice. The divorce agreement usually stipulates who will be covering the children, but recognizes that significant changes of circumstance (such as a change in job or insurance coverage) could warrant a modification. The emphasis, however, continues to be ongoing coverage for the children.

Coverage for a child is historically determined by certain milestones, including emancipation, graduating from college, or reaching a particular age. Before the milestone is reached, the child remains on the covering spouse’s family plan.

The issue to be aware of here, however, is that there is now an occasional disconnect between Massachusetts divorce law and the federal health insurance law. For instance, under both “Obamacare” and Massachusetts law, a child can be covered by the parents’ health insurance until age 26 if certain criteria are met. Massachusetts divorce law, on the other hand, only gives courts the authority to order parents to cover responsibilities related to their children until the age of emancipation, which at the very latest is 23 years old. It is likely that a court case will eventually bring the discrepancy to the forefront, but for now, there is a grey area of up to three years. Parties can address this discrepancy by agreement.

Health Insurance Coverage for the Non-Employee Spouse

Determining ongoing health insurance coverage for the non-employee spouse is more complicated and can potentially lead to more conflict. Even before Massachusetts health care reform or the Affordable Care Act, public policy decreed that everyone should have insurance. In practice, this has generally meant continuing coverage through COBRA (Consolidated Omnibus Budget Reconciliation Act) in the case of a spouse losing his/her job or going through a divorce, or under provisions of Massachusetts law allowing for ongoing coverage for a former spouse under certain circumstances.

According to current federal law, if a divorcing spouse jumps through all the correct hoops and files the appropriate paperwork in a timely manner, s/he can continue COBRA coverage for up to 36 months after the divorce becomes final (which can be as much as three or four months after the hearing). One or both parties must pay for the non-employee spouse’s individual coverage under COBRA, which can get quite expensive considering that the cost can be up to 102% of the original plan (including 2% for an administrative fee), since there is no employer subsidy. The payment of the premiums is another subject for negotiation.

Under federal COBRA law, the employer is required to disclose all COBRA particulars to the spouse. The problem is that Massachusetts law does not match up. In the Bay State, HR departments do not have to make sure the divorcing spouse understands how the Massachusetts statutes work. Because of this, many HR departments do not understand the details of the law and when asked, can give faulty or misleading information. It is critical that employees ask the right questions of the right people. One major group of employers who are exempted from Massachusetts law are employers who are “self-insured.” If the company is self-insured, they are not required to offer continuing coverage to former spouses. Note that some employers will do so (provided the additional premiums are paid) as a gesture of goodwill or as an incentive to employees, but fewer employers are doing so if they can avoid it.

Generally, if the non-employee spouse remarries, s/he can no longer use COBRA or the employee spouse’s family plan under Massachusetts law. If the employee spouse remarries, a rider is sometimes offered that can be cheaper than COBRA but still has a premium. Parties can then negotiate how these additional premiums are allocated. Additionally, as employer expenses continue to rise, the employer may reason that since s/he is providing a benefit, health insurance coverage should be included in the employee’s taxable income as the law dictates (though this has only been sporadically applied until recently).

In the past, the inability of a former spouse to remain on the employee’s health plan often meant the non-employee spouse had to either pay outrageous amounts for health insurance, go without coverage, or find another source for coverage, such as joining a professional organization that helps individuals secure good insurance plans. These days, the non-employee spouse has more alternatives. If COBRA is too expensive and the employer is not required to offer ongoing coverage for a former spouse, the non-employee spouse can go on the Health Connector to find a different plan. While the Connector plans often will not be as good as the employer plan due to the fact that there is strength in numbers, they do offer another option. This did not used to be the case.

Making Informed Decisions

When contemplating a divorce, it is important to ask a lot of questions to be sure both you and your spouse fully understand your health insurance options. Make sure you have in your possession all the information readily available so that you can make a truly informed decision about what is right for your family.

In a divorce situation, money is typically tight for most couples, so what is “affordable” can easily become a relative term. Knowing that there are several options out there can help ease concerns.