What to do About Health Insurance After Job Loss or Divorce
Most people only think of health insurance at two very distinct times: when premiums are deducted and when they (or their dependents) get sick.
Unfortunately, certain events, or what the government sees as a qualifying “change in life” event, necessitate a third occasion to reconsider health insurance. Some of these qualifying events include:
- Change in marital status – a divorce, not marriage, would have a pivotal effect since the dependent spouse would lose health coverage.
- Change in employment status – employers typically remove individuals who’ve been laid off from their insurance plan so the newly unemployed will have to face the grim realities of health care alone.
- Age – even though the Affordable Care Act raised the “aging out” threshold, kids still have to leave their parent’s insurance plan once they’re 26 years old.
- A change in zip code, adopting/birthing, and a host of other scenarios are also considered qualifying events. Any of these events can precipitate insurance hardships/exemptions that could cripple a previously dependent individual’s finances.
Sadly, due to their frequency, job loss and divorce are the most common reasons why people run into insurance hardships. It’s not uncommon to see couples going their separate ways after decades of marriage, with a dependent spouse having developed pre-existing health conditions that complicate their search for reasonably priced insurance.
Problems arise when these qualifying events take place outside the health insurance enrollment calendar, and they are exponentially compounded if the dependent is without a job.
The law allows a spouse to keep paying for dependent children’s health insurance, but it won’t explicitly allow them to keep paying for that of their former partner. There are several loopholes that make health coverage easier for the dependent—more on that later.
Be warned, however, that even though most of these qualifying life events will put you through an emotional roller coaster, you’ll be better off learning the nitty gritty of post-divorce health insurance loopholes right away.
Many of these loopholes have expiration dates. In fact, if your ducks aren’t in a row between 1 and 60 days post-divorce (or legal separation in some cases), you’ll be forced to enter the individual health insurance market.
Studies show that high medical bills are the biggest reason people file for bankruptcy as unpaid medical costs tend to have a domino effect on personal finances. We want you to avoid that, so here’s some practical guidance should you find yourself in the midst of a “qualifying event.”
What to do About Health Insurance After Divorce or Job Loss
COBRA Health Insurance – Short for the Consolidated Omnibus Budget Reconciliation Act, COBRA allows eligible individuals who’ve recently lost their job, had their work hours cut, or divorced from a covered employee, to retain a company’s group health insurance coverage. However, because the law no longer recognizes a former spouse as a legal dependent, you (not the employer) would have to pay the full premium each month. In most cases, you’d have to pay 102% (2% for administrative costs) of what others are paying, which is usually still lower than your options in the individual health insurance market.
Note, though, that COBRA applies to employers who have at least 20 employees. If this isn’t the case with your former spouse, don’t worry. Most states have similar group health insurance plans for companies with smaller staffs. Federal employees also have their own version of COBRA, so do your research. Like most health insurance plans, COBRA won’t cover disability and life insurance, so if you have a need for either, you’ll need to look elsewhere.
Employers have to notify their insurance company of the change in status within 30 to 60 days, so it’s best to notify them as early as you can. Otherwise, you won’t qualify. COBRA plans can be extended for 18 to 36 months, pending on certain factors. The risk with COBRA arises from the fact that beneficiaries can lose their plan if the company stops sponsoring said group insurance plans, or if their former spouse leaves the job. Because of this volatility, it’s always better to explore other avenues, especially if you can’t get one through your own employer.
Court Ordered Health Insurance Coverage As Alimony – Depending on your situation, a court can order a covered spouse to keep paying the insurance premium of a dependent spouse (as part of spousal support or alimony). This won’t keep you on your former partner’s insurance, but it will demand that they pay either all or a certain percentage of your COBRA premium.
Medicare and Medicaid – These federal government programs are available to certain classes of low income earners, special needs individuals and senior citizens age 65 and older. Eligibility criteria are quite stringent, so find out whether you qualify before counting on this coverage.
State Sponsored Programs – Programs like SCHIP, intended for children from low income families, are available in many states. Most states independently decide on eligibility standards and provide assistance to families that qualify. So while your current income may not qualify you for Medicaid or Medicare, you may be eligible for a state sponsored program because your state government understands your living expenses better than the federal government. There are even some cases where state-eligible families have income levels far above the poverty level in the country.
Other Sources – These include individual health plans as well as coverage through clubs and associations. Even though these sources are more flexible in terms of what you can include in your plan, they tend to cost more. And since you’ll be responsible for the whole premium, it’s better to do your due diligence before opting for this.
Bottom line? Health insurance hardships/exemptions are a real part of divorce proceedings and other life changing events, and they’re a significant threat to future financial stability. But while the government has done its part to ensure that no one remains permanently uninsured (through COBRA and other state/federal sponsored programs), it’s your response that matters. If you can recognize and deal with your dilemma wisely and in a timely manner, you’ll be able to get the best possible health insurance and keep your finances from taking a beating.