October 18

Divorce and Health Insurance: Does COBRA Make Sense For You?


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divorce advice, divorce and health care, divorce blog, divorce financial planning, divorce tips


Picture of a tree with its leaves blowing away with the saying: Health insurance and divorce go together like death and taxes.Divorce and health insurance rank at the top of list of complicated and painful things you would rather not think about. That’s not surprising.

Getting divorced is like having a hurricane drop into your life. Suddenly, everything in your world is whirling around you and you don’t know what to do or how to stop it.

Unless you have major health issues, the last thing on your mind when you are going through a divorce is probably your health care coverage.

Yet, waiting until your divorce is over before securing health insurance would be a huge mistake.

Another huge mistake would be assuming that you will be able to get affordable medical insurance through COBRA.

Portrait of a cobra in defensive positionCan’t I Just Get COBRA Coverage?

COBRA (otherwise known as the Consolidated Omnibus Budget Reconciliation Act in lawyer-speak), is a federal law that allows you to continue to get health insurance after your divorce from your spouse’s employer. This law makes it illegal for an employer to terminate your health insurance coverage just because you and your spouse got divorced.

COBRA is a fairly painless way to deal with divorce and health insurance. With COBRA, you don’t have to shop for policies or compare coverage. You just fill out the forms your spouse’s employer gives you, send them in, and voilá! You’re covered.

But, COBRA doesn’t apply to everyone.

COBRA only applies to employers with 20 or more employees.  So, if your spouse works for a small employer (one that has less than 20 employees) COBRA coverage may not be available to you. Also, if your spouse is self-employed or unemployed, COBRA won’t apply to you.

But, even if your spouse does work for a small employer, you shouldn’t write off COBRA as a health insurance option until you check with your spouse’s employer.

Many states have enacted “Mini COBRA” laws that cover employers with less than 20 employees. So, even if the federal COBRA law doesn’t apply to you, a state COBRA law might.

What Does COBRA Give Me?

If you qualify for health insurance after your divorce under the federal COBRA law, you will be entitled to get 36 months of coverage by paying the group rate that your spouse’s employer pays.

If you qualify for health insurance after your divorce under a state COBRA law, you may only be entitled to receive 18 months of coverage. (Check with your spouse’s employer or a lawyer in your area to be sure.)

But before you do the happy dance thinking that COBRA will solve all of your health insurance problems (at least for the moment), you need to check out the price. Fair warning: be prepared for major sticker shock.

Stethoscope on top of $100 bills.What Does COBRA Cost?

Just because your spouse may only be paying a relatively small amount for his or her employer-based medical insurance, that does not mean you will get a similarly good deal.

Chances are that your spouse is only paying a portion of the total cost of  his/her health insurance. Your spouse’s employer is paying the other portion.

When you opt in to COBRA coverage you have to pay both the employee and the employer portions of the health insurance premium … plus administrative costs of up to two percent. What that means is that your payments under COBRA can be substantially more than what your spouse pays.  They can also be way more than what you would pay for health insurance on your own.

Why Can’t I Just Stay on My Spouse’s Insurance?

Because health insurance is such a headache, and an enormous expense, some amicable divorcing couples are tempted to just “forget” to tell the employer through whom they have health insurance about their divorce. That way they can just keep the coverage they have, right?

Wrong!

First of all, that’s called fraud. It is a crime.  If you think that you have problems now because you are getting divorced, those problems will pale in comparison to dealing with federal criminal charges.

Second, even if you do “get away with it,” and you keep your medical insurance after divorce with your ex-spouse’s employer, if the insurance company later finds out that you are divorced, it can deny coverage for you at exactly the point when you need it the most. If the company has already paid you benefits that you were not entitled to receive, it can go after you for reimbursement.

All and all, trying to keep coverage that you really are not entitled to keep is a hugely bad idea.

Close up of a left hand with a broken wedding ring on it, signifying Legal SeparationWhat If We Just Get Separated?

Back in the day, if you and your spouse got legally separated, instead of divorced, you were entitled to continue to be covered under your spouse’s health insurance. That was one of the main reasons that couples used to get legally separated rather than divorced.

But, no more.

Many insurance companies have started writing their health insurance policies differently. Some of them now exclude coverage if you are legally separated, just as they exclude coverage if you are divorced.

So, before you assume that you can continue your health insurance benefits if you get legally separated, not divorced, check with your spouse’s employer to see whether that is true.

(If you want to get your own insurance while you are separated, but not yet divorced, you can do so in the marketplace under Obamacare. But, you will not qualify for any cost assistance. People in a “family” must share a family plan to qualify for cost assistance.)

What About the Kids?

Strictly speaking, COBRA doesn’t apply to your kids. But, it doesn’t need to.

Your spouse can continue to keep the kids on his or her employer-sponsored health insurance plan regardless of whether you divorce or not.

Depressed dog with a hot pack on his head: how to cope with divorce!Divorce and Health Insurance: What Do You Do?

Sorting out health insurance issues after you are divorced can be a gigantic nightmare. While COBRA used to provide a good alternative for spouses looking to continue their health insurance after divorce, these days, COBRA may not provide the kind of affordable option you are seeking.

For many people, the cost of medical insurance is a significant part of their overall post-divorce budget. If you fall into that category, then waiting until after you are already divorced to look for health insurance can be a huge mistake.

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