The world of health insurance has become more complex and more difficult to navigate over the last few years. However, one constant remains: It is best for you to have health insurance. When going through a divorce, it is vital that you are aware of the health insurance selections available to you based upon your medical needs and your tax bracket. These options should be investigated before your divorce is finalized so that the expense of insurance is factored in when calculating your monthly expenses, and the expenses of any minor children, which impacts spousal and/or child support.
There are multiple insurance options available depending upon your network of providers, your age, your employability with a company that has a group plan, state aid, or coverage through a spouse’s employer plan.
If you are usually healthy and only require a doctor for checkups, the insurance you need is more for catastrophic coverage. This type of coverage offers a low monthly premium but a high deductible. (A deductible is the amount you pay per calendar year before insurance begins covering any of the cost of services.) A high deductible is worth it if it keeps your monthly premium low, but only if you are not regularly seeing doctors. If you are older or if you have multiple practitioners, prescriptions, regular tests, and lab work throughout the year, then the insurance you need should have a lower deductible so that insurance starts paying for your expenses earlier in the year. This type of coverage has a higher monthly premium, but it is oftentimes well worth the cost of more of your services being covered by insurance.
One thing to be aware of is that prescription coverage typically has its own deductible or out-of-pocket threshold separate from your premium. If you have regular prescriptions, be sure to inquire about the prescription coverage and out-of-pocket limit.
The out-of-pocket maximum is another term you will hear about when researching your insurance options. This is slightly different than the deductible. Your out-of-pocket maximum includes both expenses related to meeting your deductible, as well as the co-pays you pay and other smaller items that do not apply to your deductible. Your insurance will cover more medical services once you reach your out-of-pocket maximum, which is different with every policy. When you have a family plan, there may be an out-of-pocket maximum per family member, as well as an out-of-pocket maximum for the entire family. This is another point to clarify as you investigate your insurance options.
There are two different kinds of policies: a PPO (preferred provider organization) and an HMO (health maintenance organization). An HMO requires you to select a primary care physician. In the event you need to see a specialist, your primary care physician must make a referral to the specialist before you can schedule an appointment. A PPO does not require any referral system in the event a specialist is needed. With either policy, it is important to be aware of your network of covered providers. Oftentimes the difference between using a provider within your insurance network instead of outside the network will result in a substantial savings. In many circumstances your insurance policy will not cover any services provided by an out-of-network provider.
If at the time of your divorce you are on your partner’s employer-based insurance policy, then you should inquire as to your options to maintain coverage with that employer after the divorce. This can occur under two different potential statutes.
The first statute is referred to as COBRA. COBRA stands for Consolidated Omnibus Budget Reconciliation Act of 1985. COBRA allows an employee departing a company to maintain coverage with his/her former employer until such time as new coverage is obtained or upon the expiration of a specified period of time. In other words, your former spouse, the employee, has this same right to continued coverage upon termination of employment. The period of time for which coverage is available can range from 18 months to 36 months, depending upon the size of the company and/or its individual rules. COBRA is convenient when you aren’t sure what policy to obtain or if you have several providers that are covered under the policy to whom you don’t want to lose access. The downside is that maintaining insurance through COBRA will likely be one of your more expensive insurance options. Frequently, your partner can easily obtain information from the Human Resources Department regarding the projected monthly premium cost in the event you want to elect COBRA. If you elect coverage through COBRA, then you will pay for your monthly premium cost directly to the employer and the employer will pay for your insurance as a part of the employer’s group plan.
The second statute is a state rule that may or may not exist in your specific state, but it is worth looking into. In Illinois it is referred to as continuation coverage. The rules are similar to COBRA. If you are divorcing your spouse who is covered under a plan that qualifies for continuation coverage, then you have the option to maintain coverage with the same plan through the employer at your sole cost. This option is beneficial particularly when you are an older individual and the cost of obtaining insurance on the open market is more costly. If you are over the age of 55 and elect this continuation coverage, then you have the right to maintain coverage through the employer-based policy until such time as you are eligible for Medicare. This duration is obviously much more beneficial then coverage through COBRA.
Under this alternative, if you are not an employee, you are given the option to maintain coverage under that same policy as if you were an employee except that you have to pay 100 percent of the cost of your coverage. Just like COBRA, your payment of the premium cost is made to the employer and the employer maintains the coverage as a part of the group plan.
The term enrollment period refers to the time period during the year when the employer can make changes to the employee’s enrollment in the insurance policy (such as selection of policy, changing dependents).
If at the time of your divorce you are employed and your employer offers health insurance, you can also elect to enroll in your employer’s health insurance policy. Sometimes, if you are not a full-time employee, health insurance is not available, but often employers can make other arrangements.
If your divorce is effective outside of the open enrollment period for your employer policy or your spouse’s employer policy, it is still possible to change the dependents enrolled in the policy. Divorce is considered a life event that allows the insurance company to make a change in the policy outside of the open enrollment period, provided that the change request is no more than 30 days after the life event. A copy of the final judgment for dissolution of marriage will need to be provided to the insurance company to show proof of the life event.
Depending upon your income and family size, you may qualify for insurance coverage under Medicaid through the federal government. In order to qualify for Medicaid, there is a base annual income that you cannot exceed. In some states the program covers all low-income adults below a certain income level. Each state has varying degrees of qualification. Additionally, the federal government, in conjunction with the states, provides health coverage to eligible children through Medicaid and CHIP (Children’s Health Insurance Program). CHIP is administered by states based upon federal requirements. If you are in the process of a divorce, and your reported income will decrease as a result, then you or your children may qualify for insurance coverage through Medicaid.
Oftentimes state aid is available as well. In Illinois, there is a program that provides insurance for children that do not have access to coverage, known as All Kids. The program provides children with affordable health insurance regardless of immigration status or health condition. Every state is different with varying degrees of coverage and availability, so once again it is best to investigate your options with the assistance of a broker if necessary.
The Affordable Care Act, also referred to as “Obamacare,” was passed by Congress in 2010. The Act initially required that each U.S. citizen maintain health insurance coverage, and failure to provide proof of such coverage on an annual basis resulted in a penalty owed to the federal government. The mandate to maintain insurance coverage continues today; however, due to appeals and “rewrites,” there is no longer a penalty or fee charged if you fail to maintain health insurance. Whether mandated or not, it is to your benefit to have health insurance coverage.
Navigating the open market for insurance can be complicated. Although the process is online and ideally supposed to be simple for the everyday consumer, most individuals fill out the online application incorrectly, which can result in signing up for the wrong insurance. This author highly recommends using an insurance broker to circumnavigate the online process. A broker receives a fee through the marketplace process directly at no additional cost to you (not even a hidden cost disguised as a more expensive policy).
The insurance options available on the marketplace are limited and are not very inclusive as to the providers available. Depending upon your income, the government may offer a subsidy in the form of a reduced premium, which is something a broker can assist you in determining.
Health Savings Accounts (HSAs)
You may have heard of health savings accounts, or HSAs. An HSA is not a health insurance plan but instead is an account held at a banking institution that allows you to set aside money to pay for qualified medical expenses such as deductibles, copayments, and some other expenses (but not premium costs). Funds deposited into an HSA account are pretax dollars and thus reduce your overall cost of health care. You may only contribute to an HSA if you have a high deductible health plan, which includes a plan obtained on the marketplace. When you are enrolling in a plan on the marketplace, you can determine if the plan is “HSA-eligible” or your broker can assist you in making that determination. In 2020, the threshold of an HDHP is a minimum deductible of $1,400 for an individual and $2,800 for a family. In 2020, the maximum contribution for an individual into an HSA will be $3,550, and the maximum contribution into an HSA for a family will be $7,100.
If you or your spouse has an HSA, the funds in the account are likely marital funds, and therefore the account is subject to distribution just as any other asset. However, if funds in an HSA are going to be distributed to the other spouse, the funds must be transferred into another HSA in the name of the receiving spouse in order to avoid tax consequences, which could occur if the funds are no longer used for qualified medical expenses. It may be necessary to ask a qualified accountant if there is any consequence if the dissolution of marriage is accomplished in the middle of a year, thereby impacting the allowable maximum contribution when a person’s status transitions from family to individual in the middle of a year. This may impact how the funds are distributed into the new HSA as well.
The complexity of identifying the best insurance options available for you is not something that you should ignore or determine at the end of your divorce case. The cost of the insurance policy can make a large difference in your support needs either in the cost of your monthly premium or in factoring your cost for medical services. No matter the insurance you select, it is important to ensure continuity of coverage so that there is no gap in coverage when you change policies.