When negotiating a divorce or separation agreement, a bigger toolkit is always better.
That’s why many family law attorneys have embraced the Affordable Care Act. The health care reform law provides a number of new possibilities that, combined with existing Maryland statutes, may make it easier for divorcing parties to reach an agreement, several advisers said.
The ACA does not, however, give the court ammunition to order either spouse to do something, said Ferrier Stillman, a partner at Tydings & Rosenberg LLP in Baltimore.
For example, the ACA helps resolve issues involving the availability of health insurance to children and the spouse who was not the policyholder. The law allows parents to extend their health care coverage to their children up to age 26. Prior to the ACA, the cutoff was age 18, or 22 if the child was a full-time student.
“There were often disputes about how young-adult children were going to be covered after they graduated from college,” Stillman said. “Now, another tool in the toolkit of negotiating a separation agreement is that one party can offer to cover the child until they’re 26.”
But the ACA does not require parents to extend their coverage that long; it simply creates the option.
“So the more ways you have to resolve all these individual issues that may be a source of tension between the parties, the easier it is to resolve the whole case,” Stillman said.
For agreements already in place when the law changed, though, the ACA might mean several extra years’ worth of premiums for the parent who contracted to cover the kids.
The risk is not just theoretical: the Court of Special Appeals has already affirmed a ruling that the 2010 law automatically extended a father’s 2007 agreement to insure his daughter for as long as she remained “eligible for coverage” under his employer’s health plan. In Todd Richardson’s case, that meant an extra seven years of premiums, since eligibility under his employer’s pre-ACA plan ended at age 19.
The Court of Special Appeals found the agreement was objectively clear and unambiguous, and declined to consider Richardson’s subjective intent about the effect of Obamacare’s changes to the law.
The October decision in Richardson v. Richardson (No. 1348, Sept. Term 2012) is unreported, so it can’t be cited as precedent. However, with additional legislation on ACA likely in the coming years, it’s worth keeping in mind when drafting agreements based on eligibility for coverage.
Finding coverage for the ex-spouse
The Maryland Health Connection and the other new health insurance exchanges created under the ACA also increase the availability of individual insurance plans for the spouse who was not the policy-holder.
Prior to the ACA, “divorce lawyers spent a lot of time worrying about how to continue health care coverage for a dependent spouse or a spouse who had been on the other spouse’s insurance,” said Morriah H. Horani, a family law associate at Pasternak & Fidis P.C. in Bethesda.
That often meant resorting to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), which, among other things, allows the former spouse of the policy holder to remain covered under the same plan.
But COBRA coverage is expensive, and time-limited, Horani said.
The purchasing spouse will pay the same group rate as before the divorce — less expensive than purchasing as an individual — but will rarely be eligible for the employer contribution, which means he or she must pay the entire premium.
Additionally, COBRA coverage is temporary, lasting for 18 to 36 months. Unless the purchasing spouse has another source of employer-provided coverage at that point, he or she would have to find an individual plan.
“Pre-ACA, that was problematic for a couple of reasons,” Stillman said. “The individual plan wouldn’t have covered pre-existing conditions, and it would typically be more expensive than the group plan that the former spouse previously had.”
Maryland acted to address such problems by passing its own coverage continuation laws, according to Ronald Ogens, a principal at Offit Kurman in Bethesda.
Insurance Article §15-408 requires group insurance plans issued or delivered in the state to offer continuation coverage at the group rate to the employee’s former spouse until the non-employee remarries, becomes eligible for Medicare or accepts other coverage.
Also, Family Law §11-111 requires group plans to include a provision saying that the employed spouse will pay for the non-employee ex-spouse to continue that coverage, unless otherwise specified in the divorce agreement.
Ogens said that’s why it’s important for family law attorneys to designate in the separation agreement who is going to pay for continuing coverage.
“Maryland has taken care of its citizens by having this law in effect…,” he said. “Those statutes may become less important because some of the things they were designed to defend are now covered under the Affordable Care Act.”
Specifically, the ACA forbids insurance companies from refusing coverage due to pre-existing conditions. Individual plans are supposed to be more affordable on the new exchanges, and low-income earners may be eligible for federal tax credits to subsidize the cost of health insurance plans bought via the exchange.
Even so, the Affordable Care Act does not solve the non-employee ex-spouse’s problems; it just provides more options, Ogens and others emphasized. Each individual’s situation will determine whether it makes more sense to buy a policy from the exchange or stay on the ex-spouse’s plan.
Finally, even if the ex-spouse finds a subsidized plan on the exchange, “there’s still going to be more costs for health insurance overall for the family unit than there were prior to the divorce,” said Tydings & Rosenberg’s Stillman.
“It’s always less expensive to have one group policy for the whole family through one spouse’s employment that it is to have two policies,” she said. “That’s just a result of getting divorced. The ACA is not a panacea.”
The ACA’s individual mandate, which went into effect this year, might also come into play during separation negotiations, since going without health insurance is no longer a cost-free option.
“For families with one or both spouses or children who were uninsured, the individual mandate can create an extra expense at a time when the parties are already stretched very thin because they’re now supporting two households instead of one,” Stillman said. “But it doesn’t create anything new for divorcing parties in particular.”
Some people do choose to pay a fine instead of buying insurance. The penalty for 2014 is either 1 percent of annual household income or $95 per person ($47.50 for a minor) per year, whichever is higher.
Several family lawyers said they know of nothing in the ACA that mandates which parent owes the penalty for an uninsured child. That point might be negotiated as part of a divorce agreement, or the judge could make the decision, they said.
Horani, of Pasternak & Fidis, questioned whether a judge would order either parent to pay the penalty. If a parent is insured but the children are not, Horani thinks a judge would be less far more likely to order a parent to add the children to his or her policy, if doing so would be reasonably affordable.
A more certain tally
The ACA could also change the dynamic surrounding spousal support or alimony, because there is more information available about the actual costs of health insurance, Horani said.
In the past, judgments have been more speculative, “and it’s hard for the judge to make an order based on a guess about how much health insurance will cost,” she said.
“Now you can say to a judge that your client is required to have health insurance, and you can go on the exchange to see a range of prices for plans that are actually being sold,” Horani said. “It brings more certainty to financial negotiations.”
When it comes to child support, the amounts are already based on the statutory guidelines and Maryland law already allows health insurance and extraordinary medical expenses to be considered when calculating each parent’s obligations. So, several attorneys said, the ACA is less significant in that area.
“Spouses are the bigger fish to fry,” Horani said.