New guidance from the Internal Revenue Service (IRS) leaves in place the limited Affordable Care Act (ACA) exemptions set out in the Expatriate Health Coverage Clarification Act of 2014 (EHCCA). IRS Notice 2015-43 (Notice) permits a good faith interpretation of the EHCCA exemptions and attempts to reconcile the EHCCA’s definition of “expatriate health plan” with the definition announced in prior Affordable Care Act (ACA) guidance. The Notice also clarifies that the Patient-Centered Outcomes Research Institute (PCORI) fee generally does not apply to expatriate plans. The Notice applies to policies issued or renewed on or after July 1, 2015, but does not apply to the annual fee for health insurance providers imposed by section 9010 of the Patient Protection and Affordable Care Act (Public Law 111-148).
Revisiting the EHCCA
The EHCCA provided certain exemptions from various ACA provisions for expatriate health plans issued or renewed on or after July 1, 2015. EHCCA Section 3(a) clarified that the ACA does not apply to (1) expatriate health plans, (2) employer-sponsors of those plans, or (3) expatriate health insurance issuers. The EHCCA did not provide an exemption from the ACA reporting requirements (although it created a new electronic delivery rule for certain individual statements), and did not exempt sponsors from tax imposed by section 4980I of the Internal Revenue Code (commonly referred to as the “Cadillac” tax) for individuals with highly specialized skill sets and expertise temporarily assigned (not transferred) to the United States for specific employment-related purposes.
To qualify as an expatriate health plan within the meaning of the EHCCA, the plan must be a group health plan, health insurance offered in connection with a group health plan, or health insurance offered to a group of similarly situated individuals formed for a tax-exempt or other purpose that does not include the sale of health insurance coverage. Additionally, the plan must provide coverage for primary enrollees who substantially consist of “qualified expatriates” who are not United States nationals residing in their home countries. Qualified expatriates under the EHCCA include:
- individuals whose skills and expertise precipitate a transfer to the United States for specific and temporary employment-related purposes;
- individuals working outside of the United States for at least 180 days in a consecutive 12-month period that overlaps the plan year; and
- as previously highlighted, individuals who are members of a group formed for a tax-exempt or other purpose related to traveling or relocating internationally (e.g., missionaries and students), except purposes related to the sale of health insurance coverage.
Notice 2015-43 permits reasonable good faith interpretations in applying the EHCCA and treats plans previously determined to be expatriate health plans under prior ACA guidance as expatriate health plans under the EHCCA. Prior ACA guidance issued in March of 2013 generally defined expatriate health plans as insured group health plans with enrollment limited to primary insureds residing outside of their home country for at least six months of the plan year, in addition to associated group health insurance coverage. January 2014 ACA guidance clarified that the definition of an expatriate health plan extends to situations where there is a good faith expectation that the primary insureds will reside outside of their home country or the United States for at least six months of any twelve-month period falling within a single plan year or across consecutive plan years.
The Notice provides a special rule for determining the PCORI fee. A health insurance issuer or plan sponsor may exclude lives covered under specific policies issued or renewed (and self-insured plans for plan years starting) on or after July 1, 2015, if the issuer or sponsor designed and issued the policy or plan to cover primarily:
- employees working and residing outside the United States;
- employees who are not United States citizens or residents, but either are assigned to work in the United States for a specific and temporary purpose or are assigned to work in the United States for no more than six months of the policy or plan year; or
- individuals who are members of a group of “similarly situated individuals,” pursuant to the EHCCA.
According to the Notice, the most current address on file will suffice for purposes of determining the primary insured’s residence.
Similarly Situated Individuals
As a final matter, the Notice explains that the IRS will treat certain individuals as members of a group of similarly situated individuals, satisfying the EHCCA’s qualified expatriate definition in the following situations:
- the group satisfies the EHCCA’s standards related to international travel or relocation, and the group’s organizational purposes are unrelated to health insurance sales;
- the group is organized for international travel and expects all members to travel or reside outside of the United States for at least six months of the policy year (or, for policy years that are less than twelve months, for at least half of the year);
- the group is organized to travel within the United States and expects all members to travel or reside in the United States for no more than twelve months; and
- the group satisfies the Public Health Service Act’s test for associational ties (that is, the group is generally (i) formed and maintained in good faith for purposes other than insurance, (ii) does not condition membership on health factors, (iii) provides health coverage to all members regardless of their health status, but only in connection with membership, and (iv) satisfies all applicable state law requirements).
Although the IRS issued the Notice, it reflects the collective views of the U.S. Department of Treasury, the Department of Labor, and Department of Health and Human Services. The Notice advises of future guidance pursuant to the EHCCA and solicits public comment on the EHCCA’s expatriate health plan and qualified expatriate definitions.