Global Mobility Video Transcript: Understanding What the ACA Means for Expatriates and their Health Care Plans
Dec 11, 2014
From the KPMG Institutes
BEN FRANCIS: Hello, and welcome. I'm Ben Francis, and I'm speaking today with Veena Murthy about a somewhat tricky and potentially overlooked area of international assignments, and that is health care coverage for individual employees while they are on assignment.
Veena, I know you've been speaking to a number of multinational employers about their compliance under the ACA. Could you tell us more about that?
VEENA MURTHY: Sure, Ben. Multinational employers -- actually, all kinds of employers, large, small, domestic, international, for-profit, not-for-profit -- have been grappling with the rules in this context. But one of the things they're not realizing is that with respect to the employer shared responsibility requirement, as well as the individual mandate, that foreign assignees inbound to the U.S. as well as U.S. persons on foreign assignments can be subject to these rules.
BEN FRANCIS: Now, those shared responsibility requirements you spoke about, is that the individual mandate and the employer mandate, respectively?
VEENA MURTHY: That's right. So some of the questions that employers should be considering are whether foreign insured plans are considered the right type of coverage. What about self-insured plans, or these so-called expatriate health care plans? And especially, are these considered minimum essential coverage, which is a type of requirement that -- the type of coverage that covers this requirement?
BEN FRANCIS: Now, say you've got an international assignee who's covered by an equalization program, and that assignee is subject to a penalty. It seems to me that the question could arise, is the penalty covered by the equalization program?
VEENA MURTHY: That's right. It's another question that should be considered.
BEN FRANCIS: Now, are there any FAQs or government publications or websites that set out clearly and succinctly some guidance for employer who are dealing with these issues?
VEENA MURTHY: There are general Q&As and some tax tips on the IRS website, as well as some on the HHS website. The problem is, they're general, and they do have a few questions that address international issues. But it's not that straightforward.
BEN FRANCIS: Now, each of these mandates has its own complex rules and exceptions and issues that may require further guidance.
VEENA MURTHY: That's right, Ben. So basically, the important thing to keep in mind is that the individual shared responsibility or individual mandate and the employer mandate operate separately. For individuals, the requirement is that the individual and members of the taxpayer's household have to have what's called minimum essential coverage, or MEC. If they don't, there's going to be a tax penalty on the Form 1040 or the 1040-NR.
On the employer's shared responsibility side, the employer has to offer minimum essential coverage that's of minimum value or -- and, as well as affordable. And if they don't do that, or if they don't offer any coverage, if they have a single employee, full-time employee that goes out on one of these exchanges and get one of these credits or subsidies, and the employer receives a certificate to that effect, the employer can be subject to two types of penalties.
BEN FRANCIS: Now, that term large employer that you used, how large does an employer have to be to meet that definition?
VEENA MURTHY: It's not that large. It's basically the equivalent of 50 full-time employees. What does that mean? You can have 30 employees that actually work 30 hours on average a week, so they're considered full-time employees. And you can have a number of part-time employees that aren't full-time employees, but when you add it all up, they become 50 full-time equivalencies, and that means you're a large employer.
This takes into account the entire aggregated control group of trades and businesses, and it's also important to keep in mind that foreign entities get pulled into that equation.
The other thing to keep in mind is that for 2015, the 50 is increased to 100, just as a transition rule. However, employers between 50 and 99 full-time equivalency employees still have certain certifications and reporting required.
BEN FRANCIS: Now, when did the individual mandate and the employer mandate come into effect?
VEENA MURTHY: Well, they both came into effect as of January 1st, 2014. However, the employer mandate was delayed, so it's actually effective on January 1st, 2015.
BEN FRANCIS: Now, how costly can these penalties be for an individual taxpayer who runs afoul of these rules?
VEENA MURTHY: Basically, it's a complicated formula, and it's a two-step formula. So there are a number of factors to take into account. And the details are on the screen, and can also be found in the regulations.
BEN FRANCIS: Now, that concludes the first part of our discussion. Please stay tuned for part 2, when we will conclude our discussion of this important and interesting topic.