As employers continue to overhaul their health care plans to comply with the Affordable Care Act, they should keep in mind that ACA rules don't only apply to domestic employees. Todays employers increasingly rely on a global workforce, and some ACA rules apply to employees working abroad. Similarly, ACA rules also apply to foreign nationals working in the U.S., and if an employer is negligent in ensuring compliance for its expatriate workers, it could lead to costly penalties.
In compliance with the ACAs individual mandate, carrying minimal essential coverage is required even for most expats working abroad. This provision is satisfied by enrolling in eligible employer plans (including grandfathered plans), government-sponsored programs and individual market plans.
On May 1, the U.S. House of Representatives passed a controversial bill that would exempt expatriate health plans, and employers that sponsor them, from the health care coverage requirements of the Affordable Care Act.
The Expatriate Health Coverage Clarification Act of 2014 (H.R. 4414) deems expatriate health coverage to be minimum essential coverage under an eligible employer-sponsored plan according to the Internal Revenue Code. The bill defines a qualified expatriate as a U.S. national, lawful permanent resident or nonimmigrant expected to work abroad for lengthy periods of time in connection with his or her job.
Still, certain exclusions do apply. Employers with expatriate populations typically offer specific plans for those employees, ensuring that they at least meet minimum essential coverage requirements; however, minimum essential coverage is not necessary for an expatriate on a short-term assignment, says Amy Bergner, managing director in the health care practice at PricewaterhouseCoopers Human Resource Services. If an expatriate is only gone for three months or less, he or she can go onto a travel accident plan and is not subject to the individual mandate. The three-month gap is only allowed once during the year, and it must be within consecutive months.
The travel accident plan would never meet requirements of the Affordable Care Act, so that individual could potentially trigger a penalty, Bergner says. But because theres this three-month gap allowed, short-term assignments shouldnt trigger penalties.
There are also other cases in which an expatriate does not have to be covered under the ACA as part of the individual mandate, such as the foreign-earned income exclusion, Bergner says. This exclusion states that for an expatriate to be excused from complying with the individual mandate, he or she has to either be a bona fide resident of a foreign country for an entire year or be physically present in a foreign country for at least 330 days in 12 months.
If Im hosted in Asia for 12 months, Im eligible for this foreign-earned income exclusion, and I would claim the exclusion as an individual on my taxes, Bergner says. Even if I have some kind of a health insurance policy that wouldnt be up to snuff in the U.S. - because maybe it doesnt cover preventive visits or has some kind of dollar cap on it - I would be deemed to comply with this individual mandate.
In the view of Steve Wojcik, vice president of public policy at nonprofit National Business Group on Health, this exclusion is in line with the ACAs original intention. If the expatriate isnt using U.S. services, there isnt the financial drain on this countrys health care system.
It makes sense that this doesnt apply if youre not here in the U.S. for the whole year because the purpose of the individual mandate was to reduce the charity care of the uninsured, Wojcik says. You wont be here, so you wont access hospitals or physicians if youre overseas for the year.
Employers should also be aware that the expatriate question doesnt only apply to U.S. citizens working abroad. This has been a source of confusion, Wojcik says. Even foreign nationals who come to the U.S. to work for more than three months are subject to ACA requirements, regardless of whether the employer is foreign or domestic.
The employer still has a responsibility under the employer mandate provision for those people here in the U.S., but the coverage requirements are fairly generous, Wojcik says. You just have to be covered by a U.S. or non-U.S. insurer or through your home country if youre from a country that has socialized government health care.
While expatriate plans must now meet ACA requirements of the individual mandate, there is some time before the penalties for the employer mandate are incurred, says Stacy Barrow, a Boston-based benefits lawyer at law firm Proskauer and member of its Health Care Reform Task Force. The employer mandate requires employers to offer their full-time employees and dependents the opportunity to enroll in an eligible employer-sponsored health plan that meets minimum essential coverage. This provision goes into effect Jan. 1, 2015, for employers with 100 or more full-time employees and Jan. 1, 2016, for employers with 50 or more employees.
Expatriate plans, however, tend to face some difficulties when it comes to compliance, which is the reasoning behind giving employers a grace period. Host countries might lack independent review organizations, not all preventive services are available abroad, and expatriate plans could require approval from foreign governments, according to the Department of Labors FAQs About Affordable Care Act Implementation.
The DOL also finds that insurers have trouble communicating with enrollees who are outside of the U.S., as well as creating standardized benefits disclosures because of the intricacies of expatriate plans. Taking this into account, employers have another two years to adjust, as long as their current plans comply with certain pre-ACA provisions.
The agencies are still considering how to implement these plans, and any new guidance wont be applicable on plan years ending on or before Dec. 31, 2016, so you have at least until the start of the calendar year Jan. 1, 2016, to take advantage of these transitional rules, Barrow says.
Meanwhile, penalties for the individual mandate are already in place, and an expatriate who is not compliant can expect to see hefty penalties for not meeting minimum essential coverage, Bergner says. The 2014 penalty for noncompliance is $95 per adult or up to 1% of taxable income, but when expatriate plans are no longer protected by the extension in 2016, the penalty jumps to $695 per adult or 2.5% of taxable income. Although this penalty is on the individual, it can also affect employers because some are choosing to pay for their employees penalties for violations of the individual mandate.
Beyond the financial effects of noncompliance, Bergner also finds that the stress of determining coverage can have a major impact on employee satisfaction and productivity. These expatriates are already under pressure with an international move, and ACA remains a source of confusion for many employees. If this issue isnt resolved, the employee could have a difficult time focusing on work and instead be consumed by health care compliance troubles.
I had a call the other day from a client that is bringing a CEO over from the U.K. to the U.S., and they had to get this straightened out because hes really distracted by the ACA and how it will affect him and his family and how it interacts with the U.K. national health system," she says. "Those concerns dont result in government penalties, but they still affect the workforce and need to be handled.
Given the complexities of ACA and its frequent regulatory changes and delays, this is something employers should continue to follow closely, Wojcik says. ACA and its requirements could look different in a years time, and with such large penalties potentially on the line, a lack of oversight of expatriate and foreign-national health plans could be a costly mistake.
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