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Interim guidance clarifies ACA’s application to expatriate health plans

Notice 2015-43, 2015-29 IRB

In a Notice, IRS has provided interim guidance on the application of certain provisions of the Affordable Care Act (ACA) to expatriate health insurance issuers, expatriate health plans, and employers in their capacity as plan sponsors of expatriate health plans, as defined in the Expatriate Health Coverage Clarification Act of 2014 (EHCCA).

Background—ACA market reforms & taxes. The ACA introduced various market reforms to the health insurance industry that provide a range of protections for consumers. Among these reforms are the requirements that a plan provide dependent group health coverage to children until age 26, that a plan provide coverage of certain preventive health services with no cost sharing, and that a plan not apply any lifetime or annual dollar limits on essential health benefits, as well as prohibitions on preexisting condition exclusions and waiting periods in excess of 90 days.

The ACA also imposes several taxes and fees relating to health coverage, including the ACA §9010 fee (i.e., the annual fee on “covered entities” providing health insurance with respect to U.S. health risks) and the fee relating to specified health insurance policies and applicable self-insured health plans under Code Sec. 4375 and Code Sec. 4376 for funding the Patient-Centered Outcomes Research Institute (PCORI fee; see below). The ACA also requires that providers of health coverage that constitutes minimum essential coverage report on the coverage under Code Sec. 6055 and that certain employers report underCode Sec. 6056 with respect to the health coverage offered to their full-time employees.

Earlier guidance. In 2013, the Departments of the Treasury, Labor, and Health and Human Services (the Departments) issued frequently asked questions (FAQs) that provided relief from the ACA market reform requirements for certain expatriate group health insurance coverage. Under that guidance, for plan years ending on or before Dec. 31, 2015, with respect to an “expatriate health plan,” the Departments will consider certain ACA requirements satisfied if the plan and issuer comply with the pre-ACA version of the market reforms outlined in the Public Health Service Act (PHSA). For this purpose, an expatriate health plan is defined as an insured group health plan with respect to which enrollment is limited to primary insureds who reside outside of their home country for at least six months of the plan year and any covered dependents, and its associated group health insurance coverage. The guidance also states that coverage provided under an expatriate group health plan is a form of minimum essential coverage under Code Sec. 5000A. In 2014, the Departments issued further guidance that expanded the scope of the relief and extended it to apply for plan years ending on or before Dec. 31, 2016.

The PCORI fee is imposed only with respect to individuals residing in the U.S. (Code Sec. 4375; Code Sec. 4376) In addition, final regs under those sections exempt any specified health insurance policy or applicable self-insured health plan designed and issued specifically to cover employees who are working and residing outside the U.S. (Reg. § 46.4375-1(b)(1)(ii)(B);Reg. § 46.4376-1(b)(1)(ii)(C) )

In December of 2014, the Expatriate Health Coverage Clarification Act of 2014 (EHCCA) was enacted as part of the Consolidated and Further Continuing Appropriations Act. Among other things, the EHCCA generally provides:

…that the ACA does not apply to expatriate health plans, employers with respect to expatriate health plans (but solely in the employer’s capacity as a plan sponsor of the expatriate health plan), and expatriate health insurance issuers with respect to coverage offered by such issuers under expatriate health plans; (EHCCAA §3(a))
…that health coverage provided by an expatriate health plan to qualified expatriates is minimum essential coverage for purposes of Code Sec. 5000A and any other section of the Code that incorporates that definition by reference; (EHCCA §3(b)(1))
…that the EHCCA’s exemption from the ACA provisions generally does not apply to Code Sec. 6055, Code Sec. 6056, and Code Sec. 4980H, and applies only under certain circumstances to Code Sec. 4980I; (EHCCA §3(b)(2))
…that, effective for calendar years after 2015, an expatriate plan is excluded from the §9010 fee, and special rules apply for the 2014 and 2015 calendar years; (ECHHA §§3(c)(1) and (2)) and
…definitions and special rules for expatriate health plans and expatriate health insurance issuers, including the definition of an expatriate health plan (with a number of specific requirements) and definitions of three types of qualified expatriates. (EHCCA §3(d))

The EHCCA generally applies to expatriate health plans issued or renewed on or after July 1, 2015.

Interim guidance. In light of the guidance issued and in effect prior to the enactment of EHCCA, the Departments have determined that issuers, employers, and plan sponsors need additional time and guidance to modify their current arrangements to comply with EHCCA’s requirements. Until the issuance of further guidance, and except as otherwise provided in Notice 2015-43, taxpayers are generally permitted to apply the EHCCA requirements using a reasonable good faith interpretation. In particular, until the issuance of further guidance, treatment of an expatriate health plan (as defined in the 2013 FAQs) as an expatriate health plan for EHCCA purposes is generally a reasonable good faith interpretation. However, these good faith rules do not apply with respect to the PCORI fee and the §9010 fee (see below).

As stated above, EHCCA’s exemption from the ACA provisions generally does not apply to the reporting requirements of Code Sec. 6055 and Code Sec. 6056. Providers of minimum essential coverage and applicable large employers (as defined in Code Sec. 4980H) must comply with those requirements regardless of whether the coverage is offered and/or provided through an expatriate health plan. However, for expatriate health plans, statements to individuals reporting minimum essential coverage under Code Sec. 6055 or offers of employer coverage under Code Sec. 6056 may be furnished in electronic format unless the recipient refuses to consent to that format. (EHCCA §3(b)(2)

Special rule—PCORI fee. Until the issuance of further guidance, issuers and plan sponsors are permitted to determine the PCORI fee by excluding the lives covered under a specified health insurance policy that is issued or renewed on or after July 1, 2015, or under an applicable self-insured health plan for plan years starting on or after July 1, 2015, if the facts and circumstances demonstrate that the policy or plan:

1. was designed and issued specifically to cover primarily employees (a) who are working and residing outside the U.S., or (b) who are not citizens or residents of the U.S. but who are assigned to work in the U.S. for a specific and temporary purpose or who work in the U.S. for no more than six months of the policy year or plan year; or
2. was designed to cover individuals who are members of a group of similarly situated individuals for purposes of EHCCA §3(d)(3)(C) under the special rule for groups of similarly situated individuals (below).

For purposes of determining whether an insured is residing outside the U.S., issuers and plan sponsors may rely on the most recent address on file for the primary insured.

Special rule—groups of similarly situated individuals. EHCCA provides that enrollment in an expatriate health plan is generally limited to “qualified expatriates.” EHCCA’s definition of a qualified expatriate includes an individual who is a member of a “group of similarly situated individuals.” (EHCCA §3(d)(3)(C))

Until the issuance of further guidance, the Departments will consider an individual to be a member of a group of similarly situated individuals for purposes of EHCCA §3(d)(3)(C) if the following conditions are met:

i. the group of individuals satisfies the standards under EHCCA §§3(d)(3)(C)(i) and (ii);
ii. in the case of a group organized to travel outside the U.S., each member of the group is expected to travel or reside outside the U.S. for at least six months of the policy year (or, in the case of a policy year that is less than 12 months, for at least half of the policy year), and in the case of a group organized to travel within the U.S., each member of the group is expected to travel or reside in the U.S. for not more than 12 months; and
iii. the group of individuals meets the test for having associational ties under PHSA §2791(d)(3)(B) through (F).

Effective/applicability dates. Notice 2015-43 applies to policies that are issued or renewed on or after July 1, 2015, and plan years that start on or after July 1, 2015. It does not apply for purposes of the §9010 fee, the application of the EHCCA to which was covered, for the 2014 and 2015 fee years, in Notice 2015-29, 2015-15 IRB (see Weekly Alert ¶  38  04/02/2015).

Comments requested. The Departments anticipate issuing guidance under the EHCCA and request comments on clarifications needed for the statutory definitions of the terms “expatriate health plan” and “qualified expatriate,” as well as the interaction of the EHCCA with existing relief for expatriate health plans.

References: For exemption from ACA group health plan requirements for expatriate health plans, see FTC 2d/FIN ¶  H-1325.18C  ; TG ¶  7617  .