As if the Covered California application for health insurance and the premium tax credit subsidies was not intrusive enough, they now are requiring more information about your divorce settlement. Covered California has added questions to determine if your alimony is real income. If you recently got divorced and are receiving alimony payments, that income may not be counted and you may only be offered Medi-Cal enrollment.
Alimony May Not Be Real Income For Covered California
Upon renewing Covered California coverage or applying for new health insurance, new questions will pop up if your income is listed as alimony. Specifically, Covered California wants to know the date of the divorce or modification of the decree. This is all to determine if the specified alimony payments can be considered as income for the Covered California premium tax credit subsidies.
The eligibility conditions to receive the premium tax credit subsidies to lower your health insurance rates is not as straight forward as Covered California would like you to believe. The Affordable Care Act, in conjunction with IRS rules, place all sorts of eligibility restrictions on who is eligible for the subsidies. The conditions are so numerous that questions to determine eligibility based on the minutiae of the Affordable Care Act were left to the honesty of the applicant. Of course, this was based on the assumption that the individual or family had an intimate knowledge of rules and regulations.
Covered California has been updating their online application software (CalHEERS) to capture more of the detailed consumer information that relates to the numerous ACA conditions to determine eligibility for the subsidies. They are also doing more cross refencing with federal data bases to find people who may be eligible for Medicare Part A or minimum essential coverage from another government entity. Eligibility for other coverage can prevent the award of any subsidies.
Divorce Alimony Changed Under Donald Trump
The latest questions surrounding divorce settlements is not a function of the ACA, but President Trump’s Tax Cut and Jobs Act of 2017. This legislation changed the characterization of alimony payments paid and received. If the divorce decree occurred before December 31, 2018, the alimony received may be counted as income. If the divorce happened in 2019 or later, the alimony is not considered income for Covered California.
However, if the divorce, that happened prior to the end of 2018, was modified in 2019 or later, that may trigger the income to no longer be counted for Covered California. From the IRS webpage on https://www.irs.gov/forms-pubs/clarification-changes-to-deduction-for-certain-alimony-payments-effective-in-2019
This also applies to a divorce or separation agreement executed on or before Dec. 31, 2018, and modified after December 31, 2018, as long as the modification:
- changes the terms of the alimony or separate maintenance payments; and
- states that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.
The net affect of the change of the characterization alimony as it relates to a countable source of income is that some individuals and families, without the alimony income, will be determined eligible for Medi-Cal, and not a private health plan with the subsidies. This is not necessarily a bad situation if the no cost Medi-Cal health coverage is suitable for the person’s current health challenges.
The change to alimony, where the payer can no longer deduct the payments and the recipient cannot claim it as income, will have positive and negative consequences. If Donald and Melania get divorced, President Trump cannot reduce his taxable income by the alimony he pays and Melania will have to go on Medicaid because the alimony won’t be considered as income.