Ex-spouses stuck without health insurance could find cheaper coverage
By: Elizabeth O’Brien
It’s been well noted that divorce among the over 50 crowd is on the rise, spreading like crow’s feet even as the overall divorce rate has dipped. Financial headaches related to health care can loom large in later-life divorces, experts say. Yet if the Affordable Care Act works as intended, the law could prove to be a game-changer, by easing the financial burden of health insurance for divorced people who get dropped from their spouses’ plans.
About 115,000 women lose their private health insurance every year in the wake of divorce, according to a study last year out of the University of Michigan, and many don’t regain coverage quickly. Many of these women either don’t have jobs outside the home or work at jobs that don’t provide insurance, and some women with employer-sponsored coverage can no longer afford the premiums. Many former spouses qualify for post-divorce COBRA health benefits under their ex-spouse’s plan, but this coverage is both prohibitively expensive and limited in duration, typically to 36 months, advisers say.
The cost of health insurance is one of the many factors that makes “gray divorce” particularly hurtful to the retirement readiness of women. A study released earlier this year by the National Bureau of Economic Research noted that people who are single (for any reason, including divorce) typically lag far behind married people in the amount they’ve saved. Older women who are too young to qualify for Medicare have been particularly financially vulnerable if they lose insurance, since pre-existing conditions often make it hard to find affordable coverage—or any coverage at all—on the individual market.
But post-divorce health-care costs will decline for some Jan. 1, and coverage will become more accessible, starting with the full implementation of the Affordable Care Act. Under President Obama’s signature health-care law, insurance companies will no longer be able to deny people coverage or charge them more due to pre-existing conditions. “It gives the non-working spouse the freedom to move on and not worry about their health,” said Judy Resnick, a private wealth adviser with the Johnston, Resnick, Mittman Group, in Century City, Calif., part of Bank of America Merrill Lynch’s private banking and investment group. “It will take one of the fears out of divorcing—I think it’s huge.”
(Despite the efforts of some Republicans in Congress to defund Obamacare, a report by the bipartisan Congressional Research Service has noted that “substantial ACA implementation” might continue even during a temporary government shutdown. Link courtesy of The Washington Post’s Wonkblog.)
Health-care concerns can be so pressing that some older would-be divorcers wait to finalize their divorce until they turn 65 and are eligible for Medicare, attorneys said. The fear of going without coverage due to a pre-existing condition “sends fear up and down the spines of women,” said Janice L. Green, a family law attorney in Austin, Texas. In the past, some couples would get a legal separation but remain married for the health benefits, but fewer employers these days offer the option of covering the separated spouse, said Lili Vasileff, a certified divorce financial planner and founder of Divorce and Money Matters in Greenwich, Ct. (She added that failure to disclose a change in marital status, including legal separation, to an employer could get the employee in serious hot water, held liable for fraud and required to pay back all insurance charges paid on the separated or ex-spouse’s behalf.)
A factor in alimony talks
Lower prices aren’t the only potential benefit the law offers to older divorcers. Health-care costs are often a factor in divorce negotiations, and the Affordable Care Act might make it easier to calculate costs for ex-spouses who buy individual coverage through the marketplaces, said Erika Salerno, a family law attorney with Kreis Enderle in Kalamazoo, Mich. That’s because these exchanges are designed to make comparison-shopping for policies easier, with more transparent price information—experts have said the experience will be like booking a vacation through a travel site like Travelocity. The coverage offered within each of the metal-tiered policy levels—platinum, gold, silver and bronze—is standardized so that each requires policyholders to assume the same percentage of out-of-pocket costs.
Under Obamacare, many people will be eligible for a government tax credit toward their insurance coverage, and the availability of this subsidy will likely factor into spousal support calculations, said David Tracy, manager of the Tulsa Family Law Center and a member of the American Academy of Matrimonial Lawyers. Indeed, health insurance costs often enter the equation when one spouse owes another spousal support (some states call this alimony, others maintenance). Those with pre-existing conditions often argue for larger support payments, since their costs will be greater.
Starting next year, if a spouse who doesn’t have workplace-based insurance is eligible for subsidies, the opposing side may try to use that fact to argue for lower support payments, Salerno said. For policies bought on the state marketplaces, households qualify for sliding-scale subsidies if members make up to 400% of the federal poverty level, or $94,200 for a family of four, $62,040 for a family of two, and $45,960 for a single person. What’s more, the ex-spouse who’s paying support might become eligible for a subsidy as a result, Tracy said, since alimony is counted as taxable income by the recipient but is tax deductible for the payer.
Many states will also expand their Medicaid program under the Affordable Care Act, raising the eligibility threshold to allow coverage for people making up to 138% of the federal poverty level, or about $15,800 for a single person and $32,500 for a family of four, to use the government insurance program for the poor. It’s possible that this new level will open up the program to more divorced people who don’t get employer-sponsored coverage, and that attorneys for the opposing side might argue for lower support payments on that basis. “I can’t imagine there won’t be a crafty lawyer arguing that,” Salerno said.
More on insurance and divorce
Regardless of how the Affordable Care Act may change the landscape, there are some other health-related considerations for those contemplating or in the midst of divorce after age 50. Here are a few key factors to consider:
Insurance premiums . At the start of divorce proceedings, Green advocates obtaining a temporary court order to ensure that all insurance premiums get paid as usual. This goes for health insurance, where one spouse could drop the other; life insurance, whose value can be used to secure alimony payments; and long-term-care insurance premiums.
Lost future caregiving . In some instances when a longtime couple is divorcing, Green has worked into the divorce agreement the value of future caregiving that would have been provided by the departing spouse. “How do you measure the sense of security, knowing someone is there?” she said. While it may be harder to quantify the emotional peace of mind, there are ways to quantify the financial benefit of future caregiving that becomes lost to an ex-spouse, she said. (She’s included this in a divorce agreement even when the couple has adult children and when neither spouse is sick.) If they don’t already have it, Resnick advises her divorcing clients to buy long-term care insurance if they can pass medical underwriting.
Long-term-care coverage . If a couple already owns long-term-care insurance together, they need to research what happens to their coverage in a divorce. While couples in the past were sometimes issued a single policy for both lives, most of today’s policies are issued separately, one for each member, said Jesse Slome, executive director of the American Association for Long-Term Care Insurance. With separate policies, the parties must notify the insurer so they can get billed separately, and they’d likely retain any spousal discount, Slome said. It gets more complicated if the couple has a so-called “shared care” rider on their policy, which allows one spouse to tap the other’s benefit pool, he said, noting divorcing parties should consider dropping that rider.
Power of attorney . If you’ve named your soon-to-be ex as your health-care power of attorney, you’ll need to change that to another person who you’d like to make medical decisions for you if you’re no longer able to do so yourself.