Going through a divorce can be a stressful experience, and some items may be overlooked. Nevertheless, if you are in this situation, you should be sure to pay some attention to future health insurance. Medical bills and health insurance premiums can be extremely expensive; any lapse in coverage might lead to a financial crisis.
The fine points of paying for health insurance after a divorce will vary by your specific circumstances, including the terms of current coverage and state law. That said, here are some general thoughts to help you in this area.
For covered employees
In many families, Spouse A and Spouse B are married; the health insurance is provided through a group plan from Spouse A’s employer. If you are Spouse A, you should notify the appropriate person at your company when divorce proceedings are initiated. Removing Spouse B from the coverage may save you money by lowering the insurance premiums, even if you continue to carry the children on the policy.
During the pendency of the case Spouse B should remain on the coverage unless otherwise advised. After the finalization of your divorce, your spouse may ask you to continue his or her coverage but that’s probably not feasible. After a divorce, your ex-spouse generally won’t qualify for coverage on your plan.
Disconnected from coverage, Spouse B might request that you pay the premiums for ongoing health insurance, as part of the divorce negotiation. If possible, see if that amount can be included in an alimony agreement because alimony you pay will be tax deductible.
For covered spouses
On the other hand, you might be Spouse B, covered by health insurance from Spouse A’s workplace. After a divorce, you likely will lose that coverage, so you won’t have health insurance.
If you’re employed and work for a company with a health plan, you can go onto that plan after or during divorce due to this life changing event. However, without such an opportunity, your best choice might be to rely on the Consolidated Omnibus Budget Reconciliation Act, known as COBRA.
COBRA, a federal law, requires companies with 20 or more employees to continue group health insurance to certain parties, including divorced spouses. Many states have similar laws that cover firms with fewer employees.
However, COBRA has certain drawbacks. You’ll have to pay premiums calculated at 102% of the plan’s cost, which probably will be much more expensive than the often-subsidized group coverage provided to employees. Beyond cost, COBRA for ex-spouses will last no more than 36 months. After that, you’ll have to supply your own health insurance.
Even with these concerns, COBRA can be a worthwhile stopgap while you seek coverage of your own. To qualify, you must notify the administrator of the group plan within 60 days of being divorced. Once you’re on COBRA, you can take the time to seek alternative health insurance, perhaps via the Affordable Care Act exchanges.
You should retain a knowledgeable attorney to help you negotiate the terms of a divorce, and that advice should cover future health insurance—whether you are Spouse A or Spouse B. Maintaining coverage is vital. Our office can help you and your counsel work out a tax-efficient agreement.