In the latest Weekly Wright Report:
Divorce and Health Insurance: What You Need to Know
When going through a divorce there are many things to consider, but a crucial one is continued health insurance coverage. Action must be taken well in advance of the divorce to avoid a lapse of coverage. Overlooking this step could lead to catastrophic financial consequences if a severe health issue arises during an uninsured period.
Additionally, the cost of health insurance may be a factor in calculating alimony and child support. Thus, it is important to know that cost before finalizing support issues.
When reviewing your health insurance options, there are three basic means to get coverage: (1) through employment; (2) with the Federal or state governments; and (3) on the open marketplace. In deciding which option is best for your situation, you will need to take into account the type of coverage needed, the cost of coverage (monthly premiums, deductible amounts and out-of-pocket limits), and the availability of prescription coverage.
If you are on your spouse’s employer-based insurance policy at the time of the divorce, you should look into maintaining that coverage. This may be permitted under COBRA or your state’s continuation coverage law.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) allows you to maintain health insurance coverage with your former spouse’s employer for 36 months or until new coverage is obtained, whichever is sooner. COBRA is a convenient option because you keep your same policy. However, it can be one of the more expensive options because you (or your former spouse if that is part of a negotiated settlement) are responsible for the entire cost of the coverage without any subsidy from the former spouse’s employer. The employer’s human resources department can help determine the monthly premium of COBRA coverage.
Continuation coverage varies by state. In Maryland, the rules for continuation coverage are similar to those under COBRA, where you have the option to maintain coverage with an employer sponsored plan upon divorce.
If you are employed at the time of the divorce and your employer offers health insurance, you can elect to enroll in the employer’s health insurance plan. Most group health insurance plans allow changes in coverage, including the election of coverage, only during a period of open enrollment. However, upon divorce, you may sign up for coverage outside the open enrollment period because a divorce, which is considered a “qualifying life event,” is an exception.
It is important to know the deadlines for taking action to continue coverage or elect new coverage under an employer’s insurance plan after the divorce. Generally, you will have 60 days from the date of the divorce to elect continuation coverage. Contact the employer’s human resource office to get the information you need about the options available and the timing for making an election.
Depending on your post-divorce income, you may qualify for health insurance under Medicaid. The Federal government also provides health insurance for minor children through the Children’s Health Insurance Program (CHIP). If your income will decrease as a result of a divorce, you may find you or your children qualify for health insurance through Medicaid or CHIP. It is best to consult with an insurance broker to understand your options for government sponsored insurance.
If you do not qualify for health insurance offered through an employer or the government, you will have to go onto the open marketplace for private health insurance. This is something you would typically do online. However, in Maryland, the state provides counselors to those shopping for coverage. One needs to carefully consider the various coverage options available through the marketplace, as they vary greatly by cost and the degree of coverage. If you are young and relatively healthy, a high deductible policy—which will essentially provide coverage for catastrophic health events—may be a good bet. If you have pre-existing health conditions, a more comprehensive policy may be needed. This is another area where it may be useful to consult with an insurance broker for help in navigating the options in the open market. Typically, a broker receives a fee through the marketplace at no additional cost to you. A broker can also help you determine if you qualify for any government subsidies that would reduce the premium.
Health Savings Accounts (HSAs)
A Health Savings Account (HSA) isn’t a health insurance plan, but it can be a valuable component to your health insurance planning. An HSA is an account in which you may set aside money specifically to pay for qualified medical expenses, which include deductibles, copayments and coinsurance. Generally, funds in an HSA may not be used to pay premiums. To qualify for an HSA, you must have what is considered a high deductible health plan, which is defined (in 2020) as one that has a minimum deductible of $1,400 for an individual and $2,800 for a family.
Funds deposited into an HSA account are not subject to income tax. Thus, to the extent you are using funds in an HSA to pay health care costs, you are paying with pre-tax dollars, which effectively reduces the cost of health care. In 2020, an individual may contribute a maximum of $3,500 into an HSA; the maximum HSA contribution for a family is $7,100.
If you or your spouse has an HSA at the time of the divorce, the funds in the account are likely considered marital property, which are subject to distribution like any other marital asset. However, if HSA funds are going to be transferred from one spouse to another, they must be deposited into a HSA to avoid tax consequences. An accountant may be helpful in providing guidance when settling an HSA.
When leaving a marriage, you may be overwhelmed with all the things that have to get worked out. However, you should not overlook the importance of assuring continued health insurance for you and your children after the divorce. You will also need to decide how you will pay the cost of health insurance once the divorce is final, such as by including the cost in alimony or child support calculations. If you have questions about providing health insurance for you and your family following a divorce, or want help in navigating your divorce, you may contact the Family Law team at Wright, Constable & Skeen.