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HEALTH INSURANCE AND DIVORCE
IN THE AGE OF OBAMACARE

Clare D. McGorrian, Esq.

Maintenance of health insurance coverage can be challenging after a divorce. Recent federal health reforms may expand the options available but may also make the insurance landscape more complicated. This article is intended to help family lawyers and mediators help clients to maximize access to health coverage after divorce in the age of “Obamacare.”

I. HEALTH INSURANCE FOR SPOUSES AFTER DIVORCE

A. PROBATE AND FAMILY COURT LAWS AND RULES

In proceedings for divorce and separate support in Massachusetts, a judge must address health insurance. At the outset, the court must enter an order requiring the parties to maintain existing insurance coverage during the pendency of the action. At subsequent stages, the judge must determine whether one spouse has group health coverage that may be extended to the other spouse. The court shall order that the obligor exercise the option of coverage in favor of the spouse on a group health insurance policy. Alternatively, the court may order one spouse to obtain coverage for the other or to reimburse the cost of a separate insurance policy. G.L. c. 208, §§ 17, 34; G.L. c. 209, § 32; Supp. R. Prob. Ct. 411.

    Impact of Alimony Reform
    Per G. L. c. 208, § 34: “In no event shall the order for alimony be reduced as a result of the obligor's cost for health insurance coverage for the spouse.” Yet post-reform, a court setting alimony for a marriage longer than five years may deviate from the law’s presumptive durational and amount limits based on the obligor’s cost of providing health insurance to the former spouse. G.L. c. 208, § 53(e). The impact of this apparent conflict is not yet clear. Another open question is whether durational limits on alimony in the amended law will lead judges to impose similar limits on an ex-spouse’s health coverage.

B. MASSACHUSETTS INSURANCE LAWS

  1. In General
    Massachusetts family laws operate in conjunction with state insurance laws to preserve access to group health insurance after divorce. The spouse of a group health plan member who is a party to a judgment absolute of divorce or separate support “shall be and remain eligible” for coverage without examination or additional premium, “as if said judgment had not been entered.” The ex-spouse’s eligibility shall continue “through the member’s participation in the plan,” until remarriage of either the member or the spouse, or earlier if provided in the judgment. See, e.g., G.L. c. 175, § 110I(a).
  2. Same-Sex Spouses
    Since Goodridge v. Dept. of Public Health, 440 Mass. 309 (2003), same-sex spouses lawfully married in Massachusetts have been entitled to the protections of G.L. c. 175, § 110I and related laws. Last June, the Supreme Court ruled unconstitutional Section 3 of the Defense of Marriage Act (DOMA), which defines "marriage" and "spouse" exclusively in opposite-sex terms. United States v. Windsor, 133 S. Ct. 2675 (2013). Federal agencies have since issued guidance on the revised meaning of "spouse" and "marriage" in employee benefit plans, to encompass lawful same-sex marriages.
  3. Taxability of a Former Spouse’s Health Benefits
    Federal law exempts from taxable wages employer payments made for health insurance coverage on behalf of an employee, spouse and eligible dependents. A former spouse is not an eligible dependent under federal tax rules. See 26 U.S.C. §§ 105(b), 106(a), 152; 26 C.F.R. § 31.3121(a). Thus, an employer may have to attribute a fair market value to an ex-spouse’s non-COBRA health insurance benefit for federal tax purposes. This amount will be deducted from the employee spouse’s wages. Massachusetts exempts a former spouse’s health benefits from state tax. Dept. of Rev. Dir. 09-2: Personal Income Tax Treatment of Employer-Provided Health Insurance Coverage for an Employee's Former Spouse (2009).
  4. Continuation of Coverage after Remarriage of Member Spouse
    The divorce judgment may provide for continuation of group coverage of the former spouse after remarriage of the member spouse, by means of a rider to the family plan or issuance of an individual plan. The plan or carrier may charge an additional premium for this coverage. See, e.g., G.L. c. 175, § 110I(b).
  5. Geographic Reach of G.L. c. 175 § 110I
    In Foster v. Group Health Incorporated, 444 Mass. 668 (2005), the Supreme Judicial Court interpreted the extraterritorial scope of G.L. c. 175, § 110I: “The provisions of this section shall apply to any policy issued or renewed within or without the commonwealth and which covers residents of the commonwealth.” James and Paula Foster lived in New York City and had health insurance through Paula’s employment with the City. James moved to Massachusetts in 1987, where the couple divorced in 1992. After the divorce, the group plan terminated James’ coverage. The Supreme Judicial Court ruled that G.L. c. 175, § 110I did not apply where Paula lived in New York at the time of the divorce and was insured by companies licensed in New York. The court stated that G.L. c. 175, §110I applies only if the member spouse is a resident of Massachusetts.
  6. Payment of Claims and Notice of Cancellation
    Claims paid on behalf of a divorced or separated spouse must be paid to the medical provider or to the recipient of the services. The insurer must mail notice to the former spouse’s last known address - explaining any right of retroactive reinstatement - if coverage is canceled. See, e.g., G.L. c. 175, §§ 110I(d), (e). The separation agreement should designate which party is responsible to notify the carrier of any change of address so the ex-spouse will timely receive claim payments and cancellation notices.

    II. Some Events that May Trigger a Lapse in Coverage

    Employer Changes Carriers or Plans
    The former spouse may lose coverage when the member’s employer switches insurance carriers or plans. The ex-spouse’s eligibility continues as long as the member participates in the group plan, whether or not judgment was entered prior to the effective date of the plan. See, e.g., G.L. c. 175, § 110I(a). Accordingly, a successor plan issued to the same employer by an insurer subject to Massachusetts law should comply with the divorce judgment.

    Member Spouse Changes Employers
    Massachusetts insurance law requires eligibility for the former spouse whether or not judgment was entered prior to the effective date of the health plan. The statutory language thus implies that any fully insured successor plan issued by an insurance carrier subject to Massachusetts law must comply with the divorce judgment, regardless of the employer. Two major Massachusetts carriers have confirmed this reading in verbal communications with this writer.

    Member Spouse Fails to Maintain Group Coverage
    If the member spouse drops the dependent spouse from the plan or fails to pay premiums, resulting in termination of coverage, there may be a basis for civil contempt under G.L. c. 208, § 35. However, contacting the member spouse’s employer or group plan administrator may permit resolution of the problem without resort to litigation.

III. IMPACT OF ERISA ON POST-DIVORCE HEALTH COVERAGE

The Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., regulates employee health benefit plans offered by private employers other than churches. The Department of Labor enforces ERISA.

ERISA preempts all state laws that “relate to” any employee benefit plan. 29 U.S.C. § 1144(a); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983). However, state laws that “relate to” an ERISA plan but regulate insurance are saved from preemption. 29 U.S.C. § 1144(b)(2)(A); Cellilli v. Cellilli, 939 F. Supp. 72, 76 (D. Mass. 1996). But state laws that regulate insurance do not apply to self-insured plans. 29 U.S.C. § 1144(b)(2)(B); Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747 (1985). Accordingly, self-insured group health plans are exempt from G.L. c. 175 § 110I and related laws. See Bergin v. Wausau Ins. Co., 863 F. Supp. 34, 38 (D. Mass. 1994). A former spouse’s right to stay on an ex-spouse’s self-insured employer group plan is limited to 36 months of COBRA.

Determining Whether a Plan Is Self-Insured
Insurance loss may result from divorce planning based on incorrect assumptions. Because most self-insured plans are administered by insurance companies (acting as third party administrators or administrative service organizations) an “insurance” ID card does not mean the plan is in fact insured. Every ERISA-governed group health plan must provide to a beneficiary, at enrollment and upon request, a summary plan description (SPD), which describes how the plan is funded (by insurance or directly by the employer). See 29 U.S.C. §§ 1021(a), 1022, 1024(b). While a supervisor or manager in the employer’s human resources department may be able to provide this information, the SPD is the most reliable source.

IV. COBRA and other continuation coverage

A. COBRA
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires private employers with 20 or more employees that have group health plans to offer continued health coverage to divorced and separated spouses. See 29 U.S.C. § 1161 et seq. Government employers and church health plans are exempt from COBRA. 29 U.S.C. § 1003(b).

  1. Qualifying Event
    COBRA coverage is available to “qualified beneficiaries,” including spouses, who are covered under a group health plan as of the day before a “qualifying event.” The divorce or legal separation of the covered employee is a qualifying event for the spouse and covered children. 29 U.S.C. §§ 1161, 1163, 1167. Because the law does not define “legally separated,” plans generally define the term as they choose. However, at least one court of appeals concluded that “legally separated” implies a proceeding distinct from divorce with a judicial alteration of the marriage pursuant to a final decree.

      Practice Note
      When an employee tells the employer to drop the spouse while a divorce is pending, COBRA permits the employer to terminate coverage but the employer must offer the spouse COBRA when the divorce becomes final. 26 C.F.R. 54.4980B-4 (Q-1).
  2. Notice of Qualifying Event
    The employee or spouse must notify the plan administrator of the final judgment of divorce or legal separation within 60 days of its occurrence, or forfeit the right to COBRA. 29 U.S.C. § 1166(a)(3).
  3. Electing continuation
    A qualified beneficiary has 60 days after the qualifying event to elect COBRA, or 60 days after being sent notice of the right to elect COBRA, whichever date is later. 29 U.S.C. § 1165(1)(c).
  4. Cost of continued coverage
    A group plan may require the qualified beneficiary to pay the entire COBRA premium plus up to a 2 percent surcharge. 29 U.S.C. §§ 1162(3)(A), 1164(1)(B).
  5. Duration of coverage
    Where divorce or legal separation is the initial qualifying event, COBRA will last 36 months. However, if the initial qualifying event is the employee’s termination or reduction in hours and the parties divorce (or legally separate) within 18 months, COBRA for the spouse will be extended to a total of 36 months. 29 U.S.C. § 1162(2).
    • Practice Note

      Coverage will terminate earlier than 18 or 36 months (whichever is applicable) if:

      • premiums are not paid on time;
      • the qualified beneficiary becomes covered by another group health plan;
      • the qualified beneficiary becomes entitled to Medicare;
      • the employer stops offering group health coverage.

B. Government plans
Government employee health plans are exempt from COBRA. 29 U.S.C. § 1003(b)(1). However, federal government workers may continue health coverage post-divorce pursuant to the Federal Employees Health Benefits Act, 5 U.S.C. § 8905. Federal law also provides continuation rights for spouses of military personnel in certain cases. 10 U.S.C. § 1071 et seq. Spouses of Massachusetts government workers have continuation rights consistent with G.L. c. 175 § 110I. See G.L. c. 32A, § 11A (state employees), G.L. c. 32B, § 9H (county and municipal employees).

C. Church plans
Employee health plans offered by churches and certain church-related organizations are exempt from COBRA. 29 U.S.C. §§ 1002(33), 1003(b)(2). An employee of a church or church-related organization that purchases a policy from a Massachusetts insurance carrier has the rights provided by G.L. c. 175, § 110I and related laws.

V. NONGROUP COVERAGE
A probate and family court judge may order that the spouse under a support order help secure and pay for nongroup coverage for the former spouse. See, e.g., G.L. c. 208, § 34. All major insurers in Massachusetts offer nongroup health insurance plans. Some of these plans are available may through the Connector. Premiums vary based on factors age, family size, benefit level and tobacco use. In general, applicants for nongroup insurance must enroll during designated open enrollment periods. Residents with income below 400 percent of Federal Poverty Level may qualify for subsidized coverage in accordance with the ACA.

VI. IMPACT OF HEALTH REFORM ON POST-DIVORCE COVERAGE

While the Affordable Care Act (aka “Obamacare”) does not directly address health insurance after divorce, the law is likely to have a significant impact on health care access in Massachusetts. The federal law builds on changes made by state health law reforms under Chapter 58 of the Acts of 2006. Among the notable developments are the requirement that every person have health coverage, expanded financial assistance for health insurance and changes in permissible insurance practices.

    A. Individual Mandate
    Since July 2007, Massachusetts has required all adult residents to have health insurance that meets certain standards. Exemptions from the mandate are limited to “sincerely held religious beliefs,” a showing that insurance is not affordable or “financial hardship.” See 956 CMR 5.00 et seq. A divorced spouse is subject to the state mandate even where loss of coverage was out of his or her control. Therefore, parties to a divorce action will want to address the timely sharing of Form MA 1099-HC, which must be filed with the state tax return.

    Coverage is also mandated by the Affordable Care Act for tax year 2014, subject to limited exceptions. Individuals who do not have qualifying coverage and are not exempt will pay an excise tax.

    B. State health insurance exchange
    The Health Connector is Massachusetts’ health benefit exchange under the Affordable Care Act. A qualified health plan offered by the exchange must cover certain essential health benefits including emergency services, hospitalization, maternity care, mental health services, prescription drugs, laboratory services, preventive services, and pediatric services.

    C. Financial assistance with health coverage costs
    Individuals “lawfully present” in the United States may qualify for financial assistance for certain plans purchased through the Connector. The assistance takes the form of premium tax credits and/or cost-sharing subsidies. To be eligible, household income must be less than or equal to 400 percent of the Federal Poverty Level (FPL). An individual whose employer (or spouse’s employer) offers insurance is not eligible for financial help unless the plan subsidizes less than 60 percent of the total allowed cost of benefits or the employee portion of the premium exceeds 9.5 percent of household income.

    D. Changes in permissible insurance practices
    The changes to acceptable insurance practices resulting from the Affordable Care Act are many. Some that may affect access to and scope of health coverage after a divorce include: 1) elimination of pre-existing condition exclusions; 2) elimination of annual and lifetime limits on the dollar value of essential health benefits; 3) prohibition of waiting periods longer than 90 days, and 4) required coverage of certain preventive services.

VII. DRAFTING HEALTH INSURANCE PROVISIONS FOR SEPARATION AGREEMENTS

separation agreements have relied on “standard” language; for example, “husband will cover wife on his group plan as long as there is no extra cost.” This boilerplate may not adequately protect the parties. Due to complex health insurance rules, divorcing couples should gather relevant information about current and potential sources of coverage and plan for future costs. They should work out cost-sharing details before submitting a proposed judgment to the court. The final separation agreement should designate as clearly as possible who will pay the premiums and other costs, such as copayments, deductibles, and uninsured expenses. In addition, potential additional costs should be considered, including an employer’s reduced contribution to the premium, assessment of tax on the former spouse’s benefit, increases in plan charges overall, and benefit changes resulting in higher out-of-pocket liability. Addressing allocation of reasonably foreseeable health insurance scenarios in the proposed judgment may avoid costly returns to court.

APPENDIX
HEALTH COVERAGE PROGRAMS FOR LOW-INCOME MASSACHUSETTS RESIDENTS

MassHealth
As a result of the Affordable Care Act, eligibility for MassHealth (the Massachusetts Medicaid program) will now include virtually all lawfully present non-elderly adult residents (19 to 64) with income at or below 133 percent of the Federal Poverty Level, regardless of “category” (e.g., child, parent, disabled, elderly). Higher income levels apply to other eligible populations, including children. For more information, call 888-665-9993 or 800-841-2900 or visit www.mass.gov/masshealth.

Connector Care (income up to 300% FPL)
Commonwealth Care will be replaced by Connector Care this year. The new program will look like Commonwealth Care in terms of premiums and co-pays and will have enhanced benefits. Pursuant to the Affordable Care Act, the Connector must offer different plan tiers – Platinum, Gold, Silver, Bronze and catastrophic for those under 30 years. The higher the tier the lower the cost-sharing required (e.g., copays, coinsurance, deductibles). For more information, call 877-623-6765 or visit www.mahealthconnector.org.

Subsidies for Individuals with Income between 300 and 400% FPL
The Affordable Care Act expands the group of residents eligible for premium help, from a current maximum of 300 percent FPL under Commonwealth Care to a new maximum of 400% FPL. This assistance is only available for a subset of plans offered by the Connector. Individuals in this income group are eligible only for partial premium subsidies in the form of tax credits, not for cost-sharing reductions. (See contact information for Connector above.)

Children’s Medical Security Plan
This limited coverage plan is available to children up to age 19 who are over-income for MassHealth and do not have access to primary or preventive care. The Health Safety Net (see below) pays for necessary inpatient services for CMSP-covered children. For more information, call 800-909-2677 or visit www.cmspkids.com.‎

Health Safety Net
Community health centers and hospitals in Massachusetts provide free and reduce-fee care to residents with income up to 400 percent FPL who are uninsured or underinsured. Residents with income over 400 percent FPL who have “extraordinary” medical bills may qualify for a reduction of charges through the Medical Hardship program. Applications for the Health Safety Net and Medical Hardship programs can be obtained at the point of service, in hospitals and community health centers. For information about the Health Safety Net visit http://www.mass.gov/chia/provider/health-safety-net/for-patients.html.


Select Health Insurance Resources

Center for Consumer Information & Insurance Oversight www.cciio.cms.gov (Affordable Care Act)
Department of Labor/Employee Benefits Security Administration www.dol.gov/ebsa617-565-9600 (ERISA)
Federal Employees Health Benefits Program http://www.opm.gov/healthcare-insurance/healthcare/
Group Insurance Commission www.mass.gov/gic or (617) 727-2310 (state and certain municipal employees)
Health Care For All HelpLine 1-800-272-4232 (advice, referral, enrollment assistance)
Health Law Advocates 617-338-5241 (free legal help for eligible MA residents in accessing health care)



1The official name for “Obamacare” is the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (March 23, 2010) (Affordable Care Act or ACA), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010).
2 G.L. c. 175, § 110I (commercial insurance carriers); G.L. c. 176A, § 8F, G.L. c. 176B, § 6B (Blue Cross Blue Shield of Massachusetts); G.L. c. 176G, § 5A (HMOs); G.L. c. 32A, § 11A (Group Insurance Commission for state employees and retirees); G.L. c. 32B, § 9H (county and municipal employees and retirees).
3 "Spouse" means an individual lawfully married under any state law, including an individual legally married to a person of the same sex in a state that recognizes same-sex marriages but domiciled in a state that does not recognize such marriages. "Marriage" includes a same-sex marriage legally recognized as a marriage under any state law. “State” includes the District of Columbia, U.S. territories and possessions, and foreign jurisdictions with legal authority to sanction marriages. Dept. of Labor Tech. Rel. 2013-04, http://www.dol.gov/ebsa/newsroom/tr13-04.html.
4See Simpson v. T.D. Williamson, 414 F. 3d 1203 (10th Cir. 2005); compare Falcone v. Teamsters Health & Welfare Fund, 2007 U.S. Dist. LEXIS 39525 (E.D. Pa. 2007) (self-insured union plan permitted to terminate wife’s coverage when she and employee husband “separated” as defined by plan even though there was no “legal separation” under Pennsylvania law).
5 The Supreme Court upheld the federal insurance mandate in National Federation of Independent Business v. Sebelius, Docket No. 11-393 (June 28, 2012), http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf.
6 ACA §§ 1302(a), (b).
7ACA §§ 1401(a), 1402. An individual is lawfully present if she or he is, and is reasonably expected to be for the entire period of enrollment for which a credit or cost-sharing reduction is claimed, a citizen or national of the United States or an alien lawfully present in the United States.
8ACA §§ 1401(a), 1402(b). The law considers only employee-only charge in calculating affordability; thus if employee only coverage costs less than 9.5 percent will be deemed affordable even if individual needs family coverage and cost for that exceeds 9.5 percent.
9 Massachusetts insurance carriers may feel the changes less due to a longstanding requirement of guaranteed issue coverage in the individual market and the impact of the 2006 state health reform law.
10 See ACA §§ 1001, 1201, 10101; see also 75 Fed. Reg. 37188 (June 28, 2010).


Clare McGorrian is a senior staff attorney and Director of the Commercial Insurance Appeals Program at Health Law Advocates (HLA). Clare was the first staff attorney hired by HLA, and served on the legal staff from 1997 to 2005. During that time, Clare was lead counsel for Health Care For All v. Romney, a class action lawsuit to improve dental care access for children on MassHealth. In 2005, Clare established a private practice focused on health insurance disputes and disability benefits. As a private attorney, Clare frequently consulted to HLA on the remedial phase of HCFA v. Romney and other matters. Clare rejoined HLA in June 2013. Clare is on the Massachusetts Bar Association Health Law Section Council and has also been active in the Boston Bar Association. Clare speaks and writes frequently on health care law as it affects consumers. She teaches at New England Law Boston and Suffolk University Law School and has been a visiting lecturer at Tufts University. Clare is a graduate of Harvard College and Northeastern University School of Law.


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