Health Care Planning After Divorce

January 8, 2020

Mallory Kretman, CFP, talks about important considerations for health care planning after divorce, including: COBRA, exchange subsidies, and higher-deductible policies with a healthcare savings account. She also covers why some divorcees need to contact Medicare during the initial enrollment period.


Mallory: After the divorce is finalized. Generally if the spouse was covered by their ex spouse on maybe a work plan or something, they now need to find a way to get healthcare going forward. And Linda talked a little bit about COBRA, which is a really great option. Generally COBRA will last for 36 months, but sometimes at the state level it could go on longer. 

Another option for health care is going to the state exchange and getting an affordable care act subsidy. And sometimes these can be pretty significant. It can save you hundreds of dollars per month in healthcare premiums. And the interesting thing about the subsidies is that it’s based on your income, not your assets. So one can have significant assets, but if your income is at a lower level and we’ve listed the maximum, the upper level cap on the subsidies for a single person or for a family of four, you could save some money.

Laura: To build on that, the cost of the policy on the exchange could be less than COBRA and so with both are probably well worth looking at.

Mallory: Absolutely. That’s something that we often help our clients with is we’ll evaluate their different options and find the one that is most cost effective for them. A third and another great option is shopping the open market for a high deductible healthcare policy. When you have a high deductible healthcare policy, you’re able to contribute to an account called a health savings account or an HSA. In our industry we really love HSAs they’re quite tax advantaged, so when you’re contributing, when you’re putting money into an HSA, you’re doing it with pretax dollars and then when you take money out of the HSA to pay for qualified medical expenses, you’re not paying any tax on that. So it’s tax advantaged both going in and coming back out as long as it’s being used on qualified healthcare expenses.

Mallory: One other thing in regards to healthcare planning, it’s just one pitfall we wanted to make you aware of, is if you have a client nearing age 65 and they’re covered by a work health plan, they may be required or they should sign up for Medicare even though they’re covered by their employer. There’s a penalty for Medicare part B. If the client doesn’t sign up when they’re first eligible to sign up, there could be a 10% penalty per 12-month period where they’re eligible and they don’t sign up. And so if they continue to think they’re good, they’re covered by their employer policy and they let that go for quite a while, that 12-month period compounds on itself. For example, if you wait 36 months, it’s a 30% penalty the entire time you have Medicare part B. We always encourage everyone, if you’re nearing or at age 65 definitely check with Medicare and see if your employer policy is good to continue with or if you must sign up for Medicare.

Laura: This is such a common issue, not just with folks going through divorce, but many folks will work until age 66, 67, 68 is very, very common, and yet they don’t know that they need to call Medicare in order to find out if they need to take any action. And taking that action may not cost them any money. It’s a bit like checking a box, but it’s important to do. In Minnesota, there’s a free resource called the Senior Linkage Line, and that is not in your resources, but if you just Google, “Senior Linkage Line,” it’s a free resource funded by the state tax dollars where you can call and ask any question about Medicare, health insurance, long-term care planning, et cetera. And so we’ll often have our clients that are working beyond age 65, start with us with a call to those folks just to make sure we’re looking at everything. And then we’ll go from there to the research because it’s important and it can be a costly miss.

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