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Divorce Can Sink Your Health Coverage -
What To Do First
When a marriage comes undone, so can an ex-spouse's health
insurance safety net. For the spouse facing a loss of coverage,
it's a double whammy. First, they're in a rushed position to
find coverage. Second, they'll be shocked to find out how much
it costs.
Buying individual coverage is a huge wake-up call
today, and it's a particularly harsh reality to scramble for
coverage in a divorce situation if they're less than 65 years of
age (when Medicare kicks in). A February study by the Henry J.
Kaiser Family Foundation said that in 2006, annual insurance
premiums for individuals averaged a total $4,242. For a family,
that average was $11,480. For those in group plans, workers
picked up 16 percent of that total for individual coverage and
27 percent for family coverage.
For individuals stuck paying for
their own coverage, those numbers can be unaffordable. It's a
particularly big problem for women because they are more likely
than men to be covered as dependants. Kaiser reported that in
2004, one in six privately insured women reported she postponed
or went without needed care because she couldn't afford it.
Here are some important things individuals can do to assure
they have affordable health coverage when facing a divorce:
Try to get on your own plan at work: If you are
employed but have been on your spouse's plan, make your first
phone call to human resources at your employer and ask if and
when you can enroll. If you can't enroll immediately, see if you
can keep your ex-spouse's plan through COBRA, which we'll
discuss next. You and your dependent children may be eligible
for a special enrollment period under provisions of the Health
Insurance Portability and Accountability Act (HIPAA).
Go COBRA: In 1986, Congress passed the Consolidated
Omnibus Budget Reconciliation Act (COBRA), which provides
employees, retirees, spouses, former spouses and dependent
children the right to temporary continuation of health coverage
at group rates. This coverage, however, is only available when
coverage is lost due to certain specific events — fortunately,
divorce is one of them. Buying coverage under COBRA means you'll
be paying the full premium for coverage (sometimes up to 102
percent). You'll have up to 36 months to keep COBRA coverage,
which is a good period of time to find a better option. Remember
that companies with under 20 workers don't have to comply with
COBRA.
See if your spouse can keep the kids on his or her plan:
It's traditional — though far from guaranteed — that the
higher-earning spouse agrees to put the kids on his or her
health plan. To force the spouse who's losing coverage to absorb
the cost of health insurance for themselves and their dependents
can be financially devastating, so if you are in this position,
make it a key point in your divorce settlement negotiations.
Seek out coverage at associations: If you are a
part-time worker not eligible for work-based coverage, consider
coverage through an industry or professional association that
markets health coverage to its members. The coverage is
typically very basic and you need to scrupulously check out the
quality of benefits, but for basic coverage, it's a Band-Aid
until you can qualify for something better.
Go for a high-deductible policy if you can afford it:
High-deductible policies (policies with a deductible of at least
$1,000) are a better deal for healthy individuals who want to
keep their monthly premiums lower. Insurance agents who market
individual health insurance sell these health policies, which
are called "catastrophic" insurance because they cover
major medical expenses as long as policyholders pay for routine
care out-of-pocket. With many of these plans you have the option
to open a health savings account (HSA) to help you offset the
amount of that big deductible in a tax-advantaged account.
Get necessary healthcare expenses out of the way: With
so many details individuals face during a divorce, it might be
easy to forget this, but if you need glasses or if you planned
on any elective medical procedures, get them done before you go
off your spouse's coverage or have to switch to COBRA. That goes
for spending out your share of the dollars in the medical
savings account (MSA) you have under your spouse's coverage.
Don't be sneaky about it; just make it part of your agreement.
July 2007 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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