Expatriate medical insurance concerns in the era of Obamacare

In the build up to January’s Attendance Management Forum, Rutherford’s International Account Executive Catherine Trombley (USA), and her partner broker at Sterling Knight, Lawrence Adam, offers insights into healthcare concerns across the pond and what they could mean for expatriate workers.

As Americans headed to the polls last Tuesday for the mid-term elections, many felt the current mood of the mobilized electorate to be a referendum on many of President Obama’s recent policies. Undoubtedly one of the most publicized policies implemented in the first two years of Mr. Obama’s first term has been healthcare reform.

For Americans abroad and for interested viewers around the globe, the specifics of healthcare reform may still not be clear. This article seeks to outline some of the key areas which may affect American Expatriates as well as Expatriates entering the United States on assignment.

It is important for expatriates to be aware of these implications and to keep up-to-date as to the options and requirements that may affect them while on assignment.

The Impact of Obamacare on U.S. Expatriates and Expatriates Working in the US.

The legislation signed into law by President Obama as of March 2009 may affect both U.S. expatriates and expatriates working in the U.S. for several years to come.

The legislation known as the Patient Protection and Affordable Care Act (PPACA) enacts provisions each year from 2010 to 2018 until the full extent of the law is in place.

In addition to the positive concessions made to policyholders, additional tax, logistical, and administrative changes are on the horizon.

Far from being a set of single requirements, the new law requires that the Secretary of Health and Human Services define and interpret literally hundreds of sections of the law. As these interpretations are issued, the face of the law becomes clearer, and expatriates will want to be aware of how each step of the evolution may affect them.

As the results of the 2010 midterm elections come in, it is not clear how Republicans may attempt to amend the PPACA legislation. Contrary to many Republican lawmakers’ election platforms, it is highly unrealistic that the entire legislation would be overturned.

Seven Important Things Expatriates Need to Know About US Healthcare Reform

The below points seek to offer general guideposts on how US Healthcare Reform applies to expatriates.

  1. The Healthcare Reform law does not offer a national health protection, rather it creates a requirement for all US citizens and residents to have a minimum level of health insurance. This health insurance may be offered by the employer, and depending on the size of the employer it may be obligatory upon them to provide coverage. Individual and employer requirements will not be enacted until 2014.
  2. The requirement to purchase coverage affects U.S. citizens and U.S. visa holders only if they actually live in the U.S. This is because these individuals are most likely to receive treatment in the U.S. Therefore, actual citizenship does not matter in this mandate. Instead, it is their legal residency that will be considered.
  3. After the enactment of Healthcare Reform, employers are likely to continue offering their U.S. expatriates a worldwide policy that will cover them in their host country and upon return visits to the U.S. As long as these policies are written by U.S. insurers, these policies will meet the mandated requirements, and will likely be reported on U.S. expatriate W-2 forms. Expatriates assigned to the U.S. will be eligible for inclusion under the local U.S. plan upon their return home.
  4. As in years past, all U.S. citizens living abroad, whether they have dual citizenship or not, will be required to file normal U.S. taxes. As a result of the US Healthcare Reform, a new IRS code has been added (Section 5000A (f)(4)), which states simply that U.S. Expatriates will be treated as having the minimum essential coverage under the new law. They may be exempt from the coverage mandate, if they are already eligible for the IRS foreign income exclusion which currently stands at earnings up to USD 91,000.
  5. For expatriates assigned to the US on a long-term assignment, employers will be obliged to treat them as a local U.S. hire. Their taxation status will continue as a U.S. local hire. If the expatriate’s home country has a taxation treaty with the U.S., they may be exempt from payroll, Medicare, and other social security taxes. However, the coverage mandate under PPACA will still apply.
  6. If the expatriate is considered a highly compensated US expatriate or an expatriate assigned to the US, they will likely have to pay for the new healthcare reform. The new law raises the payroll tax for Medicare for those earning over USD 200,000 (USD 250,000 filing taxes jointly) to 2.35% of wages. In practice, employers will be required to withhold this Medicare tax increase from the paychecks of those earning over USD 200,000 regardless of marital status or spousal income. Any over-withholding will be reconciled upon tax filing via a tax refund. Additionally a 3.8% Medicare tax will be instituted on investment income tax for those earning over USD 200,000 (USD 250,000 filing taxes jointly). This 3.8% tax will be the responsibility of the individual to pay the IRS and will not be deducted via payroll.
  7. Effective tax year 2010, employers offering health coverage to their employees will have to report the full cost of their healthcare-related policies on the employee’s individual W-2 form. This new requirement lays the foundation for the 2014 requirement for employers with over 200 employees to provide coverage. The full amount of the healthcare-related benefits provided will not be considered a taxable income. This measure is simply in place to guarantee that employers are complying with their responsibilities.

Your Health Insurance Considerations

If purchasing health insurance as an expatriate, there are a few pitfalls that can await expatriates of all nationalities and they should look carefully at both the insurance policy and the company from which they intend to purchase the coverage.

Healthcare plans generally offer two primary levels of coverage: basic and comprehensive. Basic plans are usually limited to all of the healthcare services related to inpatient hospital stays only. With a comprehensive plan, coverage will include in-hospital and ambulatory care, as well as the services of doctors, radiology and laboratory tests and other scans in a non-hospital setting. Within both types of policies there are various limits on reimbursement, deductibles, and other limitations, depending on where care is provided. In many countries it is common to see a network of hospitals and doctors affiliated with a certain health insurance company.

These network facilities and specialists typically have pre-negotiated prices for care. It is therefore recommended to ensure that the proper networks are available at the destination city and country to avoid having to assume the cost of charges above the pre-negotiated or reasonable & customary charges.

Expatriates should also be aware of how the claims will be paid. For example, a guaranteed issue policy is easy to obtain. The expatriate generally just fills out a few questions on the application and pays the premium. However, should there be a need to submit a claim, the claimant may be asked for proof that the medical issue at hand is not the result of a pre-existing condition. If the insurance company deems that it is, then the claim will likely be denied.

Conversely, fully-underwritten policies ask detailed health questions on the application. In many cases, they also require a medical history review prior to accepting coverage. Depending on the individual’s health information, the insurance company may accept that applicant with no exclusions or conditions to the policy, they may outright reject the applicant, or they may accept the applicant with exclusions for certain pre-existing conditions and / or an increased premium.

 

Note: If purchasing a health policy from a US health insurer the procedure for an individually-underwritten policy may change significantly as various aspects of the Healthcare Reform come into play. Under the Healthcare Reform laws, premiums charged may only vary based on age, gender, geography, family size, and tobacco use.

As of 2010, US carriers may not deny or exclude the pre-existing conditions of children. Children up to and including age 26 may be covered under their parent’s policy regardless of dependent or marital status. Additionally, no annual limits or sub-limits will be allowed on a policy for any kind of benefit.

In practice these positive concessions may initially lead to a jump in premiums, but thereafter expect to ensure a consistent premium charge that will regulated to some degree by the Government.

Expatriates should also be aware of various health insurance policy exclusions. Some health insurance policies exclude travel in certain instances. There may also be exclusions and waiting periods for pregnancy and childbirth. Coverage on the newborn’s life may be included for the first 15 of 30 days of his or her life.
It is important to note that some health insurance policies limit the time the insured person is covered while visiting the insured person’s home country. Some may even exclude coverage completely while in the home country.

Additionally, if the expatriate’s job duties entail trips to war zones or high risk countries, he should be aware that the policy will likely exclude any claims made during that specific trip or that result from local violence.

While seeking healthcare coverage, expatriates will want to make sure that their policy offers the services of an International Help Centre. These centres can refer claimants to an English-speaking doctor or hospital to assist the claimant in the event of an emergency. If the assignment leads the expatriate to a remote area of the world, the expatriate should make sure that proper Medical Evacuation coverage is in place. In the case of a major medical occurrence, this coverage will pay to transport the claimant to the nearest centre of excellence where the appropriate level of treatment for the condition can be found.

Life Insurance Considerations

Until recently, individuals were only able to purchase life insurance in their current residence or from another country where they had an active connection such as employment, a driver’s license, or a bank account.

Over the last few years, however, with the advances in internet technology, international life insurance has become much easier to purchase. An applicant today, regardless of their citizenship or their residence, can purchase a life insurance policy from any number of sources.
These international policies can offer advantages such as premiums and benefits paid in U.S. dollars, medical exams conducted where the expatriate resides, and payment of the death benefits wherever the expatriate or the policy beneficiary designates.

When selecting a life insurance policy, there are some things the expatriate must be aware of prior to purchasing. First, they should be aware of the ownership and the financial standing of the insurance company they are considering. Whereas in the U.S. where there are regulatory and rating agencies, that may not be the case in the international insurance arena. As a consumer you should take the time to learn of the insurance company’s reputation and practices. In addition, the expatriate should be cognizant that they should not have to pay a higher premium just because of the insurance company’s domicile.

Additionally, the expatriate should keep in mind that the life insurance policy may not cover them while traveling to war zones or high risk countries. If the expatriate’s occupation or industry leads them to these parts of the world, they should be sure to ask explicitly if there are any country exclusions.

Here again, the expatriate should consider using the services of an experienced international insurance consultant to guide you in obtaining the right policy.

Choosing the Right Intermediary / Provider

A professional and independent insurance broker that can understand the needs of the host and home countries is likely in the best position to offer the advice and the insurance protection that is needed. As they deal with these matters on a regular basis, they know the ins and outs of the insurance policies offered by various companies, and they can help you choose the coverage that best fits the specific situation.

Some things to look for in an intermediary would be the carriers with which they work, time in the business, reputation, and credible knowledge of the jurisdictions where the expatriates’ work assignment will lead them.

About the Authors:

Lawrence Adam (Singapore), Chief Operating Officer

Lawrence has 12 years experience in risk management consultancy including corporate finance functions in San Francisco and London. Lawrence previously worked in the Global Corporate Finance Department of Nomura Holdings plc, an investment bank and securities house with USD16bn shareholders equity. Lawrence also previously worked as a Marine Hull Underwriting Executive at Marine Insurance Services (now known as Syndicate 1965 at Lloyds). Lawrence has an MBA from Cranfield University, UK. He is a Fellow of the Chartered Insurance Institute, UK and has been certified in corporate finance advisory by the Financial Service Authority in the UK.

Catherine Trombley (USA), International Account Executive

Catherine Trombley is dedicated to international employee benefits at Rutherfoord International and assists her clients in understanding the requirements and role of benefits around the world. She has recently been an invited speaker at the New York chapter of the International Society of Certified Employee Benefits Specialists and represents Rutherfoord within the Worldwide Broker Network. Catherine is a graduate of Georgetown University and is currently based in the Washington, DC area.

2 Comments - Write a Comment

  1. Thanks for the very clearly written article. One point of clarification: if I am a US Citizen, self-employed, earning and paying taxes exclusively in the US, but living permanently overseas, am I required to buy American insurance? I currently have comprehensive insurance which covers me worldwide except for in the US.

  2. Really educational. You stated that coverage affects only U.S. citizens and U.S. visa holders if they actually live in the country. Does this then exclude expats? I thought there was a period of time, around 300 days which you spent outside of the country and you would no longer be listed as a U.S. citizen. I know that they are expected to file normal U.S. taxes. I completely agree that knowing the exclusions is very crucial. Listing any pre-existing conditions is also vital.

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