The U.S. Patient Protection and Affordable Care Act (“ACA”) requires most people who live in the United States to either have a minimum level of health insurance coverage (“Minimum Health Insurance”) or, in the absence of an applicable exemption, pay a penalty to the Internal Revenue Service. The Minimum Health Insurance coverage rules apply to many but not all non-U.S citizens including Israeli citizens who are lawfully present and working in the United States, including those individuals who are classified as employees (“Non-U.S. Employees”) as well as those who are classified as independent contractors (collectively, “Non-U.S. Workers”). This client update focuses on: (i) whether a U.S. employer’s Non-U.S. Workers and the family members of such individuals are subject to the ACA’s Minimum Health Insurance coverage requirements; (ii) if so, whether the employer is obligated to offer such Minimum Health Insurance coverage to these individuals and their families; (iii) what penalties may apply to U.S. employers and their Non-U.S. Workers in the event that such Minimum Health Insurance coverage is not secured, and (iv) what other health insurance related considerations apply to Non-U.S. Workers and their employers.
As a general rule, the ACA requires all Non-U.S. Workers to have Minimum Health Insurance coverage for some, if not all, of the time that such workers reside in the United States, or, in the absence of an applicable exemption, pay a penalty to the Internal Revenue Service. Specifically, the ACA’s Minimum Health Insurance coverage obligations generally apply to Non-U.S. Workers for the time period during which the workers are classified as “resident aliens” for U.S. federal income tax purposes. Individuals who are not U.S. citizens and are not working, but who are legally present and residing in the U.S. (such as spouses and children of Non-U.S. Workers) may also be subject to the same rules regarding Minimum Health Insurance coverage. This determination must be made on a case-by-case basis for each individual.
The Non-U.S. Worker’s obligation with respect to Minimum Health Insurance coverage does not trigger any legal obligation on the part of the employer to offer or provide such Minimum Health Insurance coverage to the Non-U.S. Worker. The Non-U.S. Worker’s obligation is personal to the worker and does not transfer to the worker’s employer.
Worker and/or Employer Penalties
If a Non-U.S. Worker or other individuals (spouses or children) are subject to the ACA’s Minimum Health Insurance coverage requirements but do not have Minimum Health Insurance coverage, then these individuals may owe a penalty to the Internal Revenue Service known as the “Individual Shared Responsibility Payment.” The penalty is a variable amount that is calculated as the greater of (i) a designated percentage (for 2016, 2.5%) of the household income of the persons filing an income tax return together, and (ii) a per person sum (for 2016 $695 per adult, $347.40 per child, with a family maximum of $2,085), subject in either case to an overall cap. The cap is based on the annual average premium for a particular sub-set or level of Minimum Health Insurance coverage known as “bronze level” coverage available through the U.S. government’s Health Insurance Marketplace (healthcare exchange website). For 2015, that premium amount was $2,484 per year for an individual and $12,240 per year for a family with five or more members. When calculating the designated percentage of household income, tax filers are permitted to deduct a specified amount of income from their household income. For 2015, the Internal Revenue Service set that deductible amount at $10,300 for a single person and $20,600 for a family that files as married filing jointly, in each case for tax filers under 65 years of age.
Income tax filers must indicate on their federal tax returns whether or not they have Minimum Health Insurance coverage. A filer who files jointly with a spouse and/or claims dependents (for example minor children) on their income tax return must also specify whether the spouse and/or the dependents have Minimum Health Insurance coverage. If any of these individuals do not have Minimum Health Insurance Coverage, then a monthly penalty will be assessed based on the number of months during the particular tax year that each individual in the household was required to, but did not have, Minimum Health Insurance coverage. For persons that do not have Minimum Health Insurance coverage for the required period, the tax filer must calculate and note the Individual Shared Responsibility Payment due and/or any applicable exemption. Payment of the penalty is made as part of the payment of the filer’s federal income tax payment for the relevant year. If an individual owes but does not pay the applicable Individual Shared Responsibility Payment, then the Internal Revenue Service will hold back such payment amount from future tax refunds.
Certain exemptions from the penalty are available, including, but not limited to, exemptions based on an individual’s low income level, the length of time an individual does not have Minimum Health Insurance Coverage during a particular tax year, and under certain circumstances for the first and/or the last year that an individual is considered a resident alien.
An employer is not responsible for a Non-U.S. Worker’s Individual Shared Responsibility Payment. This is the case even for an employer that qualifies as an Applicable Large Employer (as defined below), but does not offer health insurance coverage to its employees.
Worker Options for Health Insurance Coverage
Non-U.S. Workers (and other individuals) who are subject to the ACA’s Minimum Health Insurance coverage requirements may obtain health insurance coverage from (i) the U.S. government’s Health Insurance Marketplace (https://www.healthcare.gov/), (ii) a qualifying employer-sponsored plan if such plan is available, or (iii) a U.S. or international insurance company, whether directly or through an agent, broker or on-line seller. Non-U.S. Workers should evaluate these options based on a number of factors including but not limited to costs, medical services provided, non-medical services that are tailored to or helpful for Non-U.S. Workers, such as the ability to speak with insurance company representatives in the worker’s native language, and any continuing health insurance related obligations from the worker’s “home” jurisdiction. Not all insurance products available from U.S. or international insurance companies qualify as Minimum Health Insurance, so the details of the coverage should be clarified prior to the purchase of such coverage. Health insurance coverage which is sponsored by a U.S. employer generally qualifies as Minimum Health Insurance coverage, but this should be confirmed on a case by case basis.
Non-U.S. Workers (and other individuals) who are subject to the Minimum Health Insurance coverage requirements may decide that they prefer to pay the Individual Shared Responsibility Penalty rather than obtain Minimum Health Insurance coverage. This choice may not be as illogical as it initially seems. The Non-U.S. Worker may decide not to have any health insurance or, more understandably, that the health insurance coverage considered most suitable by the worker for the worker’s personal and family needs is coverage that does not qualify as Minimum Health Insurance coverage under the ACA. In such a situation, the Non-U.S. Worker should view the amount of the anticipated Individual Shared Responsibility Payment as part of the cost of the non-qualifying insurance and determine whether the non-qualifying insurance is still the preferred option.
Final Thoughts for Employers
Because Non-U.S. Workers likely will be required by law to either have Minimum Health Insurance coverage for at least some if not all of their time working in the United States or, in the absence of an applicable exemption, pay an Individual Shared Responsibility Payment to the Internal Revenue Service, even employers that do not provide any health insurance benefits should consider the health insurance-related costs that the worker will incur as relevant to the employee’s compensation rate when hiring a Non-U.S. Worker. The issue of compensation rate is particularly relevant for current employers as the ACA generally prohibits employers from paying or reimbursing employees directly for the cost of their health insurance premiums, since the ACA considers such direct employer premium payment or reimbursement arrangements to function as “group health plans,” which generally fail to meet certain ACA requirements. It is noteworthy that employers that offer non-conforming group health plans to their employees, including plans that reimburse the cost of health insurance premiums, may be subject to Internal Revenue Service penalties of up to $100 per day per employee. The IRS agreed not to enforce these penalties temporarily after the ACA was enacted in order to give employers a chance to make their policies compliant with the ACA. That policy ended, however, as of June 30, 2015 other than with respect to certain group health plans offered by employers that have validly elected to be treated as S-corporations for U.S. federal income tax purposes.
It is worth noting that employers that qualify as “Applicable Large Employers” under the ACA are obligated to offer some measure of health insurance coverage to their full-time employees and their dependents (which includes Non-U.S. Employees and their dependents), or potentially pay an employer-based penalty to the Internal Revenue Service. Determining whether an employer qualifies as an “Applicable Large Employer” requires a very fact specific inquiry. In general, an employer that had an average of 50 or more full-time - including full-time “equivalent” - employees during the prior calendar year is considered an “Applicable Large Employer.” Full-time “equivalent” employees are additional deemed employees that must be added to the full-time employee count based on the number of part-time employees employed by an employer, if any, and the number of hours worked by such part-time employees. The ACA regulations include extensive guidelines detailing the criteria for determining a particular employer’s number of full-time employees, including but not limited to the number of hours an employee must work in order to qualify as full-time, if and how to include seasonal work-force members in the full-time employee count, how to determine an employer’s number of full-time “equivalent” employees, and the extent to which related companies including companies outside the United States should combine their employee count. Independent contractors are not included in full-time employee or employee “equivalent” calculations and Applicable Large Employers are not obligated to offer of health insurance coverage to independent contractors or their dependents.
Finally, employers should keep in mind, that with few exceptions, U.S. employers are obligated to provide employees (but not independent contractors) with a written notice at the start of the employee’s employment with information regarding the availability of health insurance coverage through the U.S. government’s Health Insurance Marketplace for Individuals and Families. This notice obligation applies to U.S. employers, regardless of whether the employer is an Applicable Large Employer or offers health insurance coverage to its employees, or whether the employer’s employees enroll in any employer-sponsored health insurance coverage.