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There are many opinions on whether the changes are positive or negative, but no matter what side of the fence you fall on, knowing how it impacts you is of the utmost importance. As a US expat, you are less affected than residents of the US, but here are the 5 things you DO need to know.
This means that you are deemed to have sufficient coverage to avoid the additional taxes that are assessed to those who do not meet the minimum essential coverage requirements. Whether or not you actually have any health care coverage in your host country (or expatriate health coverage from the US) is irrelevant if you qualify as a resident of a country other than the US.
Expats can qualify by exemption by proving their residency in another country. Generally, if you qualify for the Foreign Earned Income Exclusion, you satisfy the minimum essential requirements in the eyes of the US government. To qualify for exemption you must pass one of the two residency tests:
If they remain in the US long enough to be considered a resident alien, they will be required to obtain the minimum essential coverage or be subject to an additional tax (which is assessed based on each month in a tax year that one does not have sufficient coverage, as outlined by the plan).
There are definitely some gray areas in the mandate when it comes to non-residents in the US. ACA applies to ‘applicable individuals’ who are lawfully present in the US. Generally, those who are here for less than 3 months are not subject to ACA regulations. Once the 3 month period passes, they are considered lawfully present and must comply with the mandate. However, penalties for failing to comply are included with the taxpayer’s return for the year of failure—if a resident or non-resident alien isn’t subject to US tax and has no US filing requirement, there is no way to enforce the penalty so noncompliance becomes a non-issue.
It is important to note that coverage under a foreign healthcare policy does not exempt you from the ACA requirements. Minimum essential coverage doesn’t actually refer to the level of benefits a plan provides—it is based on the plan being a ‘qualifying US plan.’ As such, foreign policies may have similar coverage to US health plans, but will still not meet the minimum essential coverage for exemption. A qualifying policy must be issued in the US and one must be a resident of the state from which the coverage was issued. Resident aliens with such coverage would need to enroll in a US plan or choose to pay a penalty (which, essentially, could cost less than enrolling in a US plan, especially if coverage exists under an international policy).
For clarification, minimum essential coverage includes the following:
Minimum essential coverage does not include coverage providing only limited benefits, such as coverage only for vision care or dental care, and Medicaid covering only certain benefits such as family planning, workers’ compensation, or disability policies.
It was stated that these plans face special challenges in complying with the law and the government has granted a temporary exemption for fully-insured expatriate plans through December 31, 2015. This exemption applies to plans that limit enrollment to ‘primary insured’s who reside outside their home country for at least six months of the plan year and any covered dependents.’ Thus, the new benefits, such as the elimination of pre-existing conditions, free preventive and wellness care and the ability to add children up to age 26, are not available on your expatriate plan.
Unfortunately, short-term overseas contractors fall into an Obamacare ‘gap.’ You don’t qualify for residency in another country, but you also can’t purchase a US health plan through the exchange because you don’t currently reside in the US. So you have two options: you can choose to obtain expatriate health coverage through a US plan (which will satisfy the minimum essential coverage if you qualify for such a plan) or pay additional penalties on your expatriate taxes, which are as follows:
Clearly there is much to learn and understand about Obamacare but many US expats will be unaffected for as long as they live outside the US. If you are planning a return to the US or are unsure about qualifying for exemption through the residency tests, it is wise to contact an expert in expatriate taxes who can help clarify your status.
For more information about how Obamacare affects you or to learn more about expatriate taxes, please get in touch and one of our expert CPA’s or IRS Enrolled Agents will be happy to assist you!