The Patient Protection and Affordable Care Act – What does healthcare reform mean for Divorce?

The Patient Protection and Affordable Care Act was signed into law on Tuesday, March 23, 2010. The complete details are not yet known as many of the provisions require sweeping overhauls to the way medical insurance has been sold and administered in the United States. As is common in bills of such a large magnitude affecting such a vast cross section of the American Public, this legislation will be enacted over a period of years beginning in June of 2010 and culminating with the final legislated change to take effect in 2018. Following is a summary of what I believe, at first glance, to be the most important portions of the reform for Family Law practitioners.

Immediate Access to Insurance for Uninsured Individuals with a Pre-Existing Condition. This provision provides eligible individuals access to coverage that does not impose exclusions for pre-existing health conditions. In the past, pre-existing medical conditions, whether serious or minor, may have precluded an individual from obtaining medical insurance on the open market. Long term legal separations, delayed divorces and other creative solutions were used by negotiators in situations where an un-employed spouse had pre-existing health concerns. This reform will become effective June 30, 2010 and should provide long term solutions for your clients. Coverage under this program will continue until new exchanges are operational in 2014. The exchanges may even offer more affordable coverage than the COBRA continuation insurance many newly divorced and unemployed individuals opt for today. This new venue will enable comparison shopping for standardized health packages, facilitate enrollment and administer tax credits to make coverage affordable for all income levels.

Extending Dependent Coverage. Young adults age 19 through 29 are the largest growing age group in the country at risk of being uninsured. The growing population of un-employed or under-employed young adults has many of them landing back at home after college. Parents are increasingly making planning for the expenses of their able bodied adult children part of their divorce negotiations. Current medical policies provide dependent care for children until they are 19, or 23 if a full-time student. Purchasing catastrophic or high-deductible medical insurance for the kids has become a common risk management solution for parents to insure against major loss if their child should be in an accident or need expensive medical care. The problem remains the relatively high cost and relatively small number of options. The Patient Protection and Affordable Care Act will require any group health plan or plan in the individual market that provides dependent coverage for children to continue to make that coverage available until the child turns 26 years of age. This takes effect for plan years beginning on or after September 30, 2010 and should allow parents to more effectively arrange for sharing the costs of co-parenting their adult children.

There are many other important and far reaching provisions beyond the scope of my writing. The complete 2,409 page text is available at http://docs.house.gov/rules/hr4872/111_hr3590_engrossed.pdf.

So how are we going to pay for it? Tax increases. The upper middle class and wealthy will be footing the bill for much of the increased taxation. An increase in the hospital insurance tax rate (commonly referred to as Medicare payroll tax) and an additional tax on investment income will take effect in 2013. The Medicare payroll tax will increase from 1.45% to 2.35% and a “Medicare contribution tax” of 3.8 percent will be levied on net investment income (e.g., dividends, capital gains, rents, passive income) for taxpayers with Adjusted Gross Income greater than $200,000 ($250,000 for joint returns).

Increased access to affordable coverage should provide flexibility in divorce settings, reduce the use of risky long term planning scenarios and possibly remove expensive COBRA continuation coverage from our lexicon. Like any significant income tax changes, those included in the reform will require changes to support guideline calculations and a base-line understanding of how those changes will affect individuals and families navigating divorce. We will learn more as provisions go into effect in the coming years.