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Affordable Care Act (Four Part Series)

Courtesy of Keyser Benefits

(Note: This is the 3rd article of a 4 part series on the Affordable Care Act courtesy of Keyser Benefits)

The most common choices considered by clients are as follows.

OPTION 1:

Purchase one U.S. expatriate policy covering all applicable individuals:

Pros

  • ease of administration
  • consistency of benefits and administration for all employees regardless of nationality or location
  • limited concerns about employees changing location
  • avoids possibility of employer fines for failure to meet the employer mandate, provided the plan meets the minimum value and affordability requirements
  • avoids potential of employee fines for failure to meet the individual mandate

Cons

  • limited flexibility in plan design
  • may be less price competitive than options 2 and 3
  • U.S. and PPACA requirements (i.e. around type of benefits that must be offered, COBRA etc.) will be
    afforded to non-U.S. citizens working outside the United States
  • certain PPACA taxes may apply
  • certain employees may require locally issued plans in their assignment locations to obtain work visas
  • these plans may not include any employees who are U.S. citizens living and working in the United
    States (Locals) other than for dependents of primary insureds when those primary insureds are  working outside of the United States, however these Locals should be eligible to purchase coverage on an Exchange.

Prerequisites: Must have a U.S. entity to which a policy may be issued and meet other compliance
conditions (e.g. truly covering expatriates, compliance with state requirements if applicable etc.).

 

OPTION 2:

Purchase one non-U.S. expatriate policy covering all applicable individuals:

Pros:

  • ease of administration
  • allows flexibility in plan design
  • consistency of benefits and administration for all employees regardless of nationality or location
  • limited concerns about employees changing location
  • may be more price competitive than options 1 and 3
  • U.S. requirements (i.e. around type of benefits that must be offered, COBRA etc.) likely inapplicable  to these policies, particularly to non-U.S. citizens working outside the United States

Cons:

  •  in certain circumstances where the employer is a U.S. employer and that employer is not offering a
     U.S. issued plan, the employer could be subject to fines in 2015
  • U.S. citizens working anywhere, and non-U.S. citizens working in the United States, may be subject    to penalties under the individual mandate for not having a U.S. plan should they not meet bona-fide
  • foreign resident and/or other exemptions

 

Prerequisites: Must have a non-U.S. entity to which a policy may be issued and meet other compliance conditions applicable to the jurisdiction selected

Other Considerations: Some clients also consider when electing this option whether they want to make an employee "whole" if the employee incurs a penalty under PPACA for not having a U.S. plan. PPACA penalties in this scenario could be incorporated into an employer's tax equalization strategy. Unfortunately the determination of the size of the penalty will not be known with certainty until after annual income tax forms are filed by employees.

 

Option 3:

 

Issue two policies, one U.S. policy covering Americans working anywhere and non-Americans   working in the United States, and another policy issued outside the United States covering non-Americans working outside the United States.

 

Pros

  • allows flexibility in plan design for employees not subject to healthcare reform, while providing a
    solution for employees who otherwise may be subject to the penalty
  • may be more price competitive than option 1 but less than 2
  • U.S. requirements (i.e. around type of benefits that must be offered, COBRA etc.) likely applicable
     only to U.S. policy but inapplicable to non-U.S. policy
  • avoids possibility of employer fines for failure to meet the employer mandate
  • if the correct individuals are maintained on the correct plans, should avoid the possibility of employee
    fines for failure to meet the individual mandate
  • U.S. requirements (i.e. around type of benefits that must be offered, COBRA etc.) likely inapplicable to the non-U.S. policies and thus likely inapplicable to non-U.S. citizens working outside the United States
  • avoids most PPACA taxes, fees and benefit mandates for non-US populations
  • avoids application of U.S. requirements to non-U.S. citizens working outside the United States

Cons:

  • more complex administration
  • inconsistency of benefits and administration depending on employee nationality or location
  • more significant concerns about employees changing location and the employer will need to closely
    track employee movements to insure they are on the correct policy
  • the US plans may not include any Locals other than for dependents of primary insureds when the
    primary insured is working outside of the United States, and the non-US plans will not be sufficient to
     meet the individual mandate requirements for these Locals, however Locals should be eligible to
     purchase coverage on an Exchange

Prerequisites: Must have a non-U.S. and U.S. entity to which each policy may be issued, as well as meet other compliance conditions applicable to each jurisdiction selected

This relief does not extend to non-US issued employer sponsored expatriate plans. Additionally, US expatriates who meet the bona fide foreign resident tax exemption are deemed to meet the mandate requirements, regardless of the type of coverage they have. All bona fide residents of United States territories are treated as having MEC for the purposes of the individual mandate, but this too is a technical IRS determination and all customers and clients are encouraged to discuss their particular situation with their tax and legal advisors. There are many other exemptions to the penalty which include financial hardship, religious and other exemptions.

Ultimately, any person subject to MEC requirements has the choice to either pay the penalty, select coverage which meets the requirements, or apply for an exemption.

It is important to note that "PPACA compliant" coverage is not tied to obtaining a visa to work or enter the U.S. The absence of MEC results only in a tax penalty.

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