The ‘Patient Protection and Affordable Care Act’ (PPACA / ACA) was implemented to address the constantly increasing cost of medical care in the USA and the significant portion of the American population with no medical insurance.
Why was PPACA / ACA implemented?
At the heart of the reform are three key principles: guaranteed cover, uniform rates and the concept of the ‘individual mandate’ (also known as the Individual Shared Responsibility Provision).
The individual mandate ensures that all permanent residents in the USA have a minimum level of health insurance (Minimum Essential Coverage, known as MEC). It is compulsory for all individuals with an annual income above a specified level to buy health insurance, with a fiscal penalty for non-compliance (Shared Responsibility Payment).
Who are exempted from the obligation to subscribe to MEC health insurance?
Two different categories of people do not have to subscribe to MEC health insurance:
Foreign nationals resident in the US:
- Foreign nationals not considered to be permanent legal residents in the US (based on the criteria for a Green Card) or who have spent less than 183 days in the US over the last three years;
- Foreign nationals present in the US on a temporary basis: teachers or trainees with a visa type ‘J’ or ‘Q’; students with a visa type ‘F’, ‘J’, ‘M’ or ‘Q’; professional athletes taking part in a sports event for charity
- Expatriate employees (and their dependents) who have been residing outside their home country for at least 6 months of the plan's year, covered under an insured group health plan via their employer which is regulated by a foreign government (other than the USA). Their cover is considered "MEC".
- Individuals required to have health insurance that is MEC, but who failed to have such cover for a maximum period of three months in the last year (only one such period of three months is allowed per year).
- US nationals residing outside the US for over 330 days in a 12 months period or who are bona fide residents of a foreign country for an entire tax year (US citizens living abroad are subject to the individual shared responsibility, however in certain circumstances, they are treated as having MEC); - US nationals with a gap in cover of less than three months;
- US nationals who cannot afford cover (where the minimum premium payable is over 8% of their household income);
- US nationals belonging to religious sects (only valid for certain sects);
- US nationals who are members of a ‘health care sharing ministry’ (an organization that spreads the cost of healthcare across its members, who all share the same moral or religious beliefs);
- US nationals who are in jail, prison or a similar penal institution;
- US nationals whose income is below the minimum threshold for filing a tax return - US nationals who are members of Indian tribes.
What are the conditions required for health insurance that is ‘MEC’?
With the exception of the cases mentioned above, the ‘Patient Protection and Affordable Care Act’ rules apply to all other individuals considered to be “permanent legal residents” and Green Card holders or “resident aliens” as defined by the IRS (Internal Revenue Service).
People travelling to the US on a temporary basis (and who are therefore not permanent legal residents) do not have to have health insurance that is ‘MEC’. US nationals residing outside the US for over 330 days in a 12 month period are treated as having ‘MEC’.
Purchasing a plan which is not ACA-compliant when settling in the US is possible, but if you are liable for tax in the United States, you will certainly need to pay an additional tax penalty.
Like most international health insurance products, MSH products are not considered as ‘MEC’ and do not meet the requirements of the PPACA regarding the Individual Mandate. If you have this type of international health insurance cover, you will have to pay a fiscal penalty (Shared Responsibility Payment) on completion of your tax return.
How is the ‘Shared Responsibility Payment’ calculated?
The penalty is calculated according to the two criteria below, with the amount paid always being the highest of the two.
- $695 per person for 2016/2017 ($347.50 per child under age 18).
- The maximum penalty per family is $2,085 or 2.5% of your annual income above the applicable threshold.
- The 2,5% Shared Responsibility Payment must not exceed the average national premium for a Bronze plan. Here are some examples of fiscal penalties:
2016 - family of 4. Taxable revenue (after application of the threshold) = $ 80,000;
fiscal penalty = $2,085. As $ 2,000 ($80,000 x 2,5%) is smaller than $2,085 (($695 x 2)+($347.50 x 2));
2016 - couple. Taxable revenue (after application of the threshold) = $ 30,000;
fiscal penalty = $1,390. As $1,390 ($695 x 2) is higher than $750 ($30,000 x 2,5%).
Do health insurance products that meet the requirements of the Individual Mandate provide an adequate level of cover outside the US?
Health insurance products available today at https://www.healthcare.gov via the on-line exchanges set up by certain American states or from health insurers or brokers specialized in health insurance are not typically designed to provide adequate cover for treatment outside the US. As such, individuals who have these products may be exposed to significant costs.
Does the fiscal penalty (linked to the purchase of a health insurance product not considered as ‘MEC’) consistently outweigh the savings I could make on the purchase of a health insurance product that meets the requirements of the individual mandate?
Not necessarily. It all depends on your level of income, the type of health insurance product you have and the nature of your medical expenses.
What are the keywords to understand PPACA / ACA?
Patient Protection and Affordable Care Act (ACA) = name of the flagship law based on the two mandates issued by President Obama which form the key basis for reform of the social protection system in the US.
Individual Mandate or Individual Shared Responsibility Provision = obligation for legal permanent residents, foreign nationals resident in the US and their family members to fulfill one of the following criteria:
- to have a health insurance policy that is considered as ‘Minimum Essential Coverage’;
- to be eligible for an exemption from the requirement for health insurance;
- to pay the Shared Responsibility Payment (SRP) when declaring 2014 (and then 2015…) revenue under 2015 (and then 2016…) federal tax rules.
Shared Responsibility Payment (SRP) = if the taxpayer or any other person in the taxable household does not have health insurance which is recognized as ‘Minimum Essential Coverage’ and is not eligible for an exemption for any month of the respective tax year, the taxpayer must calculate the amount due for his / her "Shared Responsibility Payment".
Minimum essential coverage (MEC) = health insurance cover provided under a ‘government-sponsored program’, an ‘eligible employer sponsored plan’ , a contract in the ‘individual market’, a ‘grandfathered health plan’, or any other coverage recognized by the Department of Health and Human Services (HHS), in agreement with the Secretary of the Treasury, as ‘Minimum Essential Coverage’.