Protecting Children’s Health Insurance Benefits in a Divorce: Qualified Medical Child Support Orders
By Ron Tweel
In almost every divorce involving children, the domestic relations practitioner is confronted with three main issues regarding medical insurance: 1) which party is to provide insurance coverage for the children, 2) how does one guarantee that the children remain covered once that insurance takes effect, and, 3) how does one ensure that the appropriate parent is reimbursed for out-of-pocket medical expenses which are later paid by the insurance company. All three issues represent a significant challenge to the domestic relations practitioner — a challenge which cannot be ignored or left to chance due to the vital importance insurance plays in the continued care of the children of divorcing couples.
FAQs This Article Seeks to Answer:
- What happens to the children’s health insurance in a divorce?
- What is the Employee Retirement Income Security Act (ERISA)?
- What is a Qualified Domestic Relations Order (QDRO)?
- What is a Qualified Medical Child Support Order (QMCSO)?
Medical Expenses for Children of Divorcing Couples
The issue of which party is to provide medical insurance for the children of divorcing couples is most evident in cases where the custodial spouse does not have medical insurance available either because he or she is not working or is employed in a position where health insurance is not provided as a benefit. This issue is commonly addressed by negotiating which spouse is to provide the insurance and including a provision in the separation agreement (and ultimately the decree of divorce itself). Of course, in a litigated case, the practitioner may ask the court to include such a provision in its order. Va. Code Ann. § 20-60.3(7).
There is generally no problem if the provider/payor spouse complies with the separation agreement and/or order by providing the insurance. However, what happens when the obligated party does not comply? The options are limited. The practitioner can utilize the contempt powers of the court to force compliance of the insurance coverage; however, often it takes a considerable amount of time to procure a hearing and, even then, there is nothing the court can do to actually insure the children should the spouse continue to be noncompliant. All the while, the children remain uninsured. The other option is for the party seeking insurance coverage to provide the insurance themselves. At best, this is costly for the party; at worst, the insurance is unobtainable.
Likewise, guaranteeing that the children are not removed from insurance coverage by the noncustodial spouse or the insurance company is difficult when coverage is provided by agreement or court order. Often, a noncustodial parent will cease paying for insurance coverage. By the time the custodial parent learns that the coverage has lapsed it is too late. An uninsured accident or illness can cost thousands of dollars and spell financial ruin for the parent. While court action can punish the noncompliant spouse, often the damage is done.
Finally, the health insurance issue which, in our experience, causes the most conflict between parties after the divorce is reimbursement for out-of-pocket expenses. It is common for the custodial parent to be required to pay a portion of the health care costs at the time the service is received. Later, the health insurance carrier reimburses these costs to the insured but not to the parent who actually paid the expense. Negotiating an agreement which provides that the noncustodial parent is to reimburse the custodial parent for these costs does not guarantee compliance and it can be time consuming and expensive for the custodial parent to pursue reimbursement. Often, custodial parents resign themselves to the belief that it just is not worth pursuing. They give up and the tension between the parties mounts.
Employee Retirement Income Security Act (ERISA)
There exists a far more certain and efficient way to handle these issues. In 1993, Congress amended the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C.S. §§ 1001-1461, which amendment carved out a second exception to the rule that orders emanating from state courts are preempted to the extent they relate to an ERISA plan. Most domestic relations practitioners know that the first exception to ERISA allowed state courts to divide retirement plans by entering a Qualified Domestic Relations Order (QDRO). Such QDRO’s are now used extensively by practitioners. This second exception to ERISA is the Qualified Medical Child Support Order (“QMCSO”), which works much like a QDRO and allows state courts to order insurance plans to provide health insurance to the children of divorcing parties.
Qualified Medical Child Support Order
QMCSOs are a very valuable tool for the domestic relations practitioner because they allow courts to direct private health insurance plans to enroll the children of divorced spouses in the plan, as opposed to ordering one of the parties to do so. No longer are attorneys faced with the uncertainty as to whether a payor spouse will comply with an order to enroll his or her children in their health plan. The plan itself must do so if an appropriate QMCSO is entered by the court. After the children are covered, they cannot be removed from coverage. The QMCSO can even provide for reimbursement of out-of-pocket expenses directly to the custodial parent who is not the one providing the insurance.
The problem with QMCSOs is that the majority of domestic relations lawyers are either unfamiliar with or not using them. One indication of this is the computer search we performed on West Law which revealed only one case in which a QMCSO was even mentioned in an opinion. This really does not make sense as QMCSOs are very easy to draft and they offer a much higher level of protection to children than negotiated agreements or court orders.
Authority for Qualified Medical Child Support Orders is found in Chapter 18 of ERISA, Subchapter 1, Subtitle (B), part 6, which is entitled “Continuation Coverage and Additional Standards for Group Health Plans.” 29 U.S.C.S. §1169. As stated above, QMCSOs order group health care plans to enroll the children of divorced parties as “alternate recipients” of the plan and to provide them with the benefits of the plan. The term “Medical Child Support Order” is defined as “any judgment, decree, or order (including approval of a settlement agreement) which–(i) provides for child support with respect to a child of a participant under a group health care plan or provides for health benefit coverage to such a child, is made pursuant to a State Domestic Relations law (including a community property law), and relates to benefits under such plan, . . . if such judgment or decree or order (I) is issued by a court of competent jurisdiction or (II) is issued through an administrative process established under State law and has the force and effect of law under applicable state law.” 29 U.S.C.S §1169 (a)(2)(B). Therefore, it is first necessary for the practitioner to secure a Medical Child Support Order from a court of competent jurisdiction before the Plan Administrator can make the determination that the order “qualifies” and is, therefore, a Qualified Medical Child Support Order. Once again, this procedure is very similar to that used in the QDRO process.
The statute defines the term “Qualified Medical Child Support Order” as a “Medical Child Support Order–(i) which creates or recognizes the existence of an alternate recipient’s right to, or assigns to an alternate recipient the right to, receive benefits for which a participant or beneficiary is eligible under a group health plan, and (ii) with respect to which the requirement of paragraphs (iii) and (iv) are met. 29 U.S.C.S. §1169 (a)(2)(A). The “participant or beneficiary” of which the Code speaks is, of course, the parent who is covered under the health care plan. The requirements of paragraphs (iii) and (iv) are as follows: paragraph (iii) requires certain information to be included in the order, including:
The name and last known mailing address (if any) of the participant and the name and mailing address of each alternate recipient covered by the order, except that, to the extent provided in the order, the name and mailing address of an official of a state or a political subdivision thereof may be substituted for the mailing address of any such alternate recipient,
a reasonable description of the type of coverage to be provided to each such alternate recipient, or the manner in which such type of coverage is to be determined, and
the period to which such order applies.
29 U.S.C.S. §1169 (a)(iii). Paragraph (iv) places a restriction on new types or forms of benefits and states:
A medical child support order meets the requirements of this paragraph only if such order does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan, . . .
29 U.S.C.S. §1169 (a)(iv).
It is not necessary for the practitioner to draft two orders; rather, one order should be drafted which meets the requirements of both a Medical Child Support Order and a Qualified Medical Child Support Order. The form provided in the appendix to this article is designed to make it easier for the practitioner to satisfy all of the above-enumerated requirements. However, an understanding of these requirements is certainly helpful when tailoring the order to fit a particular case. The bottom line is that all ERISA group health plans are subject to QMCSOs. So long as the order contains the required information and is issued by a court of competent jurisdiction pursuant to state domestic relations law, the health plan must enroll the children and provide benefits. It is not even necessary that the judgment, decree or order contain the above required information so long as the separation agreement contains these provisions and that agreement has been ratified and incorporated into the decree of the court. (NOTE: The QMCSO may be included in a separate order or included in the final decree of divorce.)
Some important things to remember about QMCSOs are as follows:
Federal law permits a QMCSO to continue in effect until the alternate recipient actually graduates from college. However, under Virginia law, courts cannot order child support beyond the child’s 18th birthday unless that child is a full-time high school student, not self-supporting and is still living in the home of the party seeking support, with the maximum time period being the child’s 19th birthday. Va. Code Ann. § 20-124.2(C). While the parties may negotiate coverage through the completion of the child’s college degree, it would be reversible error for the court to do so outside of any agreement between the parties. Ultimately, the maximum time period under which a child can be covered pursuant to a QMCSO is dictated by the terms of the plan. The drafting attorney should contact the plan administrator and obtain a copy of the plan description in order to insure no violation of the plan occurs.
The QMCSO should define the costs of the child’s health insurance coverage. This will allow the court to address who is responsible for the premium payment. The law is unclear as to whether a family premium covers the child or a single premium covers the child. However, if this is defined in the QMCSO, then there should be no confusion.
The statute states that the order meets the requirements only “if such order does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan.” 29 U.S.C.S. §1169 (a) (iv). While this language seems clear, it is actually uncertain whether an alternate recipient may choose benefits which are not exactly the same as the benefits chosen by the participant. It is our opinion that the alternate recipient cannot choose benefits which differ from those chosen by the participant. The only exception may be when a child lives outside of a service area of an HMO in which the participant is enrolled. The child may be able to enroll in another HMO or in another plan available to participants who live outside of the service area. Once again, if the QMCSO addresses this issue, this may not be a problem. Ultimately, the plan administrator will make the final determination as to whether or not the order violates the plan; however, the more specific the order, the less chance there is for confusion.
If you are dealing with a plan which will not consider the alternate recipient to be a “dependent” within the meaning of the plan’s eligibility requirements and, therefore, will not allow the child to be covered, the QMCSO will override this and require the health insurance provider to cover the child regardless. This is also the case when one is dealing with a plan that has specific enrollment period requirements. It is possible that the QMCSO may order the health insurance provider to cover a child immediately, as opposed to waiting for the next enrollment period.
The procedure which the plan administrator must follow to determine the Medical Child Support Order’s qualified status is as follows: The plan administrator is required to notify the participant and each alternate recipient of the receipt of that order and the plan’s specific procedures for determining the qualified status. The plan administrator then has a “reasonable period” of time to determine whether the Medical Child Support Order qualifies and to then notify the participant and the alternate recipient of such determination. In administering QMCSOs, the plan administrator is a fiduciary and, therefore, subject to general good-faith ERISA standards in determining, processing, and administering QMCSOs. Civil actions may be brought by a state or a state agency to enforce compliance with QMCSOs.
Once children are covered under the health plan, they cannot be removed either by the noncustodial parent or by the plan unless the employee terminates his employment. It is unclear whether a QMCSO can require a noncustodial parent’s employer to cover the child under its group health care plan and require the non-employee custodial parent to pay for the coverage after the employee terminates his employment; however, once again, the child likely has the same COBRA rights as the participant.
Benefit payments for reimbursement pursuant to a QMCSO are paid directly to the alternate recipient or the alternate recipient’s custodial parent. The QMCSO should define to whom these benefits are to be paid. Therefore, a big advantage to a QMCSO is that it is not necessary for the custodial parent to pursue the noncustodial parent for reimbursement of these benefit payments.
QMCSOs: A Valuable Tool
We have demonstrated that QMCSOs are a very valuable tool for the domestic relations practitioner as they offer far more protection to children than the traditional way of requiring the parent to cover the children on their health insurance policies. However, Virginia State law does not require entry of QMCSOs. How then, do practitioners convince the attorney for the non-custodial parent to execute a Medical Child Support Order? One must explain the benefits of a QMCSO and demonstrate that those benefits outweigh any negative impact of the order. For example, the practitioner can explain that a QMCSO will limit future conflict between the parties. An example of this is the requirement that reimbursements be paid directly to the custodial parent. That is, the noncustodial parent will not feel that the custodial parent is “hassling” him or her for reimbursement of expenses. QMCSO’s really take it out of the hands of the parties and place the responsibility for reimbursements directly upon the shoulders of the insurance plan. Clearly, this would limit animosity between the parties. Further, the QMCSO can provide that the payment of the insurance be deducted directly from the non-custodial parent’s paycheck. This again will reduce conflict between the parties because the payments will be timely made. The health care plan will also have to keep the alternate recipient informed of all aspects of the plan, to provide a plan summary, and to notify of any changes in the plan, all of which make it easier for the non-custodial parent in that he or she does not have to constantly call the plan in order to receive answers to questions. In fact, the custodial parent will not have to turn to the non-custodial parent every time he or she has a problem with insurance because he or she will have direct access to the health care plan itself.
This new tool allows practitioners to assure clients that the children will remain covered under the designated health insurance plan regardless of the action or inactions of the parents and will also allow direct reimbursement from the insurance provider to the parent who paid the medical expense. Also, there is really no downside for either parent and counsel for both should agree to the entry of a QMCSO for the benefit of the children.