Ben Francis: Welcome back to part 2 of our discussion about understanding the Affordable Care Act and what it means for expatriates and their health care plans. I’m Ben Francis, and I’m joined today by Veena Murthy.
Veena, I understand that an individual assignee might be eligible for an exemption under these rules if that individual is either what’s known as a “qualified individual” as defined in section 911 or if she is a “nonresident alien” individual of the United States.
Veena Murthy: That’s right, Ben, and the 2014 [Form] 1040 instructions, as well as a new Form (Form 8965 and the Instructions) have details on these exemptions.
Ben Francis: I see. So those individuals will be seeing that information reflected on the forms and instructions for their 2014 tax returns.
Now, can you talk a little about minimum essential coverage and how that applies to expatriate employees?
Veena Murthy: Sure Ben. So, very basically, for purposes of both the employer mandate as well as the individual mandate, eligible employer-sponsored plans typically include plans that are offered by a U.S. employer to U.S.-based employees—and that’s in the statute.
However, with international assignees, often they’re on foreign plans, and they’re also on these so-called expatriate plans, and only certain types of such plans meet MEC or minimum essential coverage.
Ben Francis: And what are those, exactly?
Veena Murthy: Certain insured expatriate plans under transitional rules that expire in calendar year 2015; certain self-insured group health plans; as well as certain insured plans regulated by foreign governments.
So, guidance issued by the Centers for Medicare & Medicaid Services (CMS) which falls under the U.S. Department of Health and Human Services (HHS) offer clarity on how these rules apply and the conditions and requirements.
One thing to note is that there are certain notice and reporting requirements in order to fall within these.
Ben Francis: Now, as many people are aware, there was some legislation that got passed right at the end of last year in December 2014, and that included some changes to the U.S. tax law. Were there any provisions in the legislation that impact expatriate health plans?
Veena Murthy: In fact, yes, there were, so there have been changes since our last shoot of part 1 of this video series.
So President Obama on December 16, 2014, passed the Appropriations Act—he signed the Appropriations Act, and that was intended to address fiscal 2015 appropriations and budgeting, but it actually included something on expatriate health plans that can meet both MEC as well as be considered eligible employer-sponsored coverage for purposes of the employer mandate. Two things to keep in mind right now on that are that the requirements are very detailed in order to fall within that, and also they’re not effective until July 1, 2015, for expatriate health plans that are issued or renewed on that date.
Ben Francis: Now, in cases other than those that you just outlined, can health coverage that is either provided by or mandated by a foreign government—or any other types of foreign health coverage other than those you’ve already addressed—can those meet the definition of MEC?
Veena Murthy: They can if they do an application. So basically HHS provides for an application process for plans that don’t otherwise meet MEC under the various rules and guidance. The HHS, or CMS actually, issued sub-regulatory guidance under this on October 31, 2013, so the application process requirements are within that.
Ben Francis: I see. Now, I’ve heard that HHS is expected to publish a list of foreign health care coverage that meets the definition of MEC.
Veena Murthy: That’s correct. To date, we haven’t seen any foreign health coverage on that list, though.
Ben Francis: Now, what if an employer is not providing employer-sponsored MEC to their assignees? Can that employer offer those employees something like a pre-tax benefit or a nontaxable reimbursement that can go towards the cost of coverage from either a healthcare exchange or for buying private insurance?
Veena Murthy: That’s a really important question. If an employer provides an employee pre-tax or nontaxable money or reimbursements for that employee to purchase health care on a public exchange, the employer can be subject to very strict penalties because that’s not considered employer coverage. And that can be $100 per day per employee, potentially more.
Ben Francis: Now, very briefly, what is expected of a large employer that has expatriate employees?
Veena Murthy: Well, to be honest, there are a lot of things to be considered. So, for example, they’re going to want to think about whether they have exposure for US outbounds but especially for foreign inbound employees. They’re also going to want to think about whether the children of those employees are required to be offered coverage for purposes of the employer mandate. There are also complex rules in terms of figuring out which types of full-time employees you have to offer coverage to, and there are special rules to consider when you’re thinking about assignees in that context.
Now, the other thing is that even if the assignee has minimum essential coverage, if that’s foreign coverage, they need to think about whether it also meets minimum value and affordability, which are the requirements under the employer mandate.
Separately, they also should be thinking about from the individual mandate perspective, “These are assignees, are they going to be subject to the individual penalty?”
Ben Francis: Okay. Now, can a foreign entity meet the definition of that term that you’ve used, a large employer?
Veena Murthy: Absolutely. So, a non-U.S. employer can be a large employer, because the determination of whether they have 50 “full time equivalent” employees to be a large employer– as well as whether they actually have full-time employees – is based on services within the US. So, if you think about it you could have a non-U.S. employer that’s a stand-alone entity—they have no US affiliates or associated entities—or they could be part of a multinational employer group.
Ben Francis: We’ve all heard that large employers who fail to offer appropriate coverage can be subject to penalties. Now, could you outline what those penalties are?
Veena Murthy: Sure, Ben. So basically, the penalty is only triggered if a large employer has an employee that’s a full-time employee that goes out on the exchange and is eligible for a credit or subsidy, and there are two potential separate penalties that could apply to a large employer. They’re fairly complicated, and details are on the slide.
One is more stringent than the other, and that one relates to if the employer is not offering coverage at all, versus if the employer is offering coverage, but it’s not minimum value or affordable.
Ben Francis: So there’s clearly a lot at stake here.
Veena Murthy: That’s right, and we’ve barely managed to scratch the surface, but hopefully we’ve helped heighten awareness and let people know that, at a high level, there are things to consider.
Ben Francis: Now, if our viewers would like additional information, there’s a very good article, written by Veena, that is published in our publication, The Expatriate Administrator. That is entitled “The Impact of the Affordable Care Act on International Assignees and Their Health Care Plans.” It’s a very easy-to-read article, it contains a lot of useful information, and it’s easy to digest because it’s set out in an FAQ format. If people, after reading that, still have additional questions or concerns, they should be talking to their tax advisers.
So that concludes our discussion today. Thank you very much for joining us, and thank you, Veena, for being our presenter today.
Veena Murthy: My pleasure Ben, thank you.