Expatriate health plans have been surprisingly difficult to reconcile with the Affordable Care Act (ACA). Proposed regulations set to take effect in 2017 provide some useful guidance to U.S. employers that sponsor expatriate plans as they try to avoid triggering ACA penalties.
The basic contours of expatriate health plans under the ACA have evolved over several years:
- FAQ guidance in 2013 and 2014 generally defined expatriate health plans and then provided that fully insured expatriate plans were generally exempt from the ACA’s market reforms (such as covering children to age 26 and removing annual and lifetime dollar limits).
- The Expatriate Health Coverage Clarification Act of 2014 (EHCCA) broadened this exemption to include self-insured expatriate plans and then added detailed standards for both expatriates and expatriate plans, including the requirements that expatriate plans have to satisfy to be considered “minimum essential coverage” under the ACA.
- A year later, in Notice 2015-43, the Internal Revenue Service (IRS) permitted reasonable good faith interpretations of the EHCCA and stated that it would treat expatriate plans previously determined to be exempt under the FAQ guidance as exempt under the EHCCA.
Now, proposed regulations from the U.S. Department of Labor’s Employee Benefits Security Administration, the U.S. Department of Treasury, and the U.S. Department of Health and Human Services, published in the Federal Register on June 10, 2016, provide new details about basic, underlying expatriate health plan concepts. This new information will help employers determine whether the health coverage they offer to their U.S. employees sent abroad or to foreign nationals posted in the United States meets the legal standards to be exempt from the ACA’s market reforms and to be considered minimum essential coverage.
Under the EHCCA, a plan is exempt from ACA market reforms only if substantially all of its primary enrollees are “qualified expatriates.” For employers, there are two relevant types of expatriates who may be “qualified expatriates”: (1) individuals (often called “inpatriates”) whose skills and expertise precipitate a transfer to the United States for specific and temporary employment purposes, and (2) the more traditional type of expatriate, namely, those individuals working outside the United States for at least 180 days in a period of 12 consecutive months.
The proposed regulations provide additional details about inpatriates. According to the proposed regulations, these incoming employees are only “qualified expatriates” if: (a) they are not U.S. nationals; (b) a plan sponsor reasonably determines that they require health benefits and other support in multiple countries; and (c) they are offered other multinational benefits on a periodic basis (such as tax equalization or compensation for cross-border moving expenses) and not as a one-time de minimis benefit. Under this standard, an employee who is not expected to travel outside the United States at least annually during the coverage period will not qualify.
Substantially All of the Primary Enrollees
The proposed regulations also define “substantially all” to mean that, on the first day of the plan year, less than 5 of the expatriate health plan’s primary enrollees (or 5 percent) are not qualified expatriates—in essence, adopting the 95 percent standard used elsewhere in the ACA regulations.
A primary enrollee is someone eligible for coverage in his or her own right, not as a spouse or other dependent. Only U.S. nationals who reside outside their country of citizenship can be primary enrollees.
Another EHCCA requirement for expatriate health coverage is that a plan sponsor must reasonably believe that the coverage offered under its plan provides “minimum value” under the ACA’s standards, meaning that the plan is expected to cover at least 60 percent of the total allowed costs. Under the proposed regulations, a sponsor could rely on the reasonable representations of the insurer or administrator on this point, unless the sponsor has reason to know that the expatriate health coverage fails to meet the ACA’s minimum value standards.
Expatriate Health Plan Insurers and Administrators
The proposed regulations clarify details relevant to expatriate health plan insurers and administrators. The EHCCA sets a number of standards for entities that either insure or administer claims for expatriate health plans. For example, such entities must be licensed in two or more countries, must have network provider agreements in eight or more countries that provide for direct payments, must process at least $1 million annually in claims in foreign currency equivalents, and must have call centers in three or more countries with the ability to accept customer calls in eight or more languages. The proposed regulations permit an expatriate health plan insurer or administrator to meet these requirements through the use of a member of its controlled group or through contracts with third parties. In any case, U.S. employers will want to seek representations from the service providers that are insuring or administering their expatriate health plans.
Things Left Unchanged
The proposed regulations leave in place other EHCCA requirements for expatriate health plans, such as the requirements to satisfy pre-ACA law; offer reimbursements for healthcare items and services in the local currency of eight or more countries; and offer benefits in the United States, in the countries from which inpatriates were assigned, and in the countries where expatriates are sent. Also, expatriate plans remain exempt from the requirement to pay an annual Patient-Centered Outcomes Research Institute (PCORI) fee, but the excise tax on high-value plans set to take effect in 2020 (known as the “Cadillac Tax”) and the ACA reporting requirements still apply to expatriate plans.
Though the proposed rule will not take effect until January 1, 2017, employers can rely on it until a final rule is issued. Any parts of the final rule that are more restrictive to employers will be applied only prospectively.