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Proposed reliance regs explain exclusion from ACA market reforms for expatriate health plans

Preamble to Prop Regs 06/08/2016; Prop Reg § 1.162-31; Prop Reg § 1.5000A-2; Prop Reg § 1.6055-2; Prop Reg § 46.4377-1; Prop Reg § 54.9801-2 ; Prop Reg § 54.9815-2711 ; Prop Reg § 54.9831-1; Prop Reg § 54.9833-1; Prop Reg § 57.2; Prop Reg § 57.4; Prop Reg § 57.10 ; Prop Reg § 301.6056-2

The Departments of the Treasury, Labor, and Health and Human Services (the Departments) have issued proposed regs on the rules for expatriate health plans, expatriate health plan issuers, and qualified expatriates under the Expatriate Health Coverage Clarification Act of 2014 (EHCCA). The proposed regs generally provide that the market reform provisions enacted or amended as part of the Affordable Care Act (ACA) do not apply to an expatriate health plan, an employer, solely in its capacity as plan sponsor of an expatriate health plan, and an expatriate health insurance issuer with respect to coverage under an expatriate health plan. The regs also provide that coverage under an expatriate health plan is “minimum essential coverage” for purposes of the individual mandate.

Background. The ACA’s “individual mandate” under Code Sec. 5000A generally requires non-exempt U.S. citizens and legal residents for tax years ending after Dec. 31, 2013 to maintain minimum essential health insurance coverage (e.g., government-sponsored programs, eligible employer-sponsored plans, and plans purchased in the Exchange) or pay a penalty. The “employer mandate” under Code Sec. 4980H generally requires an “applicable large employer” to either offer its full-time employees and their dependents the opportunity to enroll in an affordable, eligible employer-sponsored plan that satisfies certain requirements and qualifies as minimum essential coverage or face a penalty.

Code Sec. 6055(a) generally requires every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs, and other entity that provides minimum essential coverage to file annual returns reporting information for each individual for whom such coverage is provided.Code Sec. 6056 requires annual information reporting by applicable large employers (ALEs) relating to the health insurance that the employer offers (or does not offer) to its full-time employees. Code Sec. 6056 also requires those employers to furnish related statements to their employees.

The ACA also added a number of so-called “market reform” provisions, including nondiscrimination provisions, guaranteed availability of coverage, and other patient protections. However, certain “excepted benefits” are excluded from these group health plan requirements. These include benefits categorically excluded from the group health plan rules (e.g., disability-only); certain dental, vision, long-term care, and similar benefits offered separately; certain benefits if offered as independent, noncoordinated benefits (e.g., coverage only for a specified disease); and (4) certain supplemental benefits if offered as separate insurance policies.

EHCCA & the application of the ACA to expatriate health plans. An expatriate health plan is generally defined as an insured group health plan with respect to which enrollment is limited to “qualified expatriates.”

Prior to the enactment of the EHCCA, employers, issuers, and covered individuals had expressed concerns about the application of various ACA provisions to expatriate health plans. In December of 2014, the EHCCA was enacted as part of the Consolidated and Further Continuing Appropriations Act. The EHCCA provides that the ACA requirements generally don’t apply with respect to expatriate health plans, expatriate health insurance issuers for coverage under expatriate health plans, and employers in their capacity as plan sponsors of expatriate health plans, except as follows:

…an expatriate health plan qualifies as minimum essential coverage for purposes of Code Sec. 5000A and any other section of the Code that incorporates that definition by reference (e.g., the Code Sec. 36B premium tax credit);
…the employer shared responsibility provisions of Code Sec. 4980H continue to apply;
…the health care reporting provisions of Code Sec. 6055 and Code Sec. 6056 continue to apply but with certain modifications relating to the use of electronic media for required statements to enrollees;
…Code Sec. 4980I continues to apply with respect to coverage of certain qualified expatriates who are assigned (rather than transferred) to work in the U.S.; and
…the annual health insurance providers fee imposed by §9010 of the ACA takes into account expatriate health insurance issuers for certain purposes for calendar years 2014 and 2015 only.

In addition, the EHCCA specifically excludes expatriate health plans from the annual health insurer fee imposed by ACA Sec. 9010 fee by providing that, for calendar years after 2015, a qualified expatriate enrolled in an expatriate health plan is not considered a U.S. health risk. The Patient-Centered Outcomes Research Trust Fund (PCORTF) fee under Code Sec. 4375 and Code Sec. 4376 is imposed only with respect to individuals residing in the U.S., and expatriate health plans are thus excluded (both under the statute and, to whatever extent not already excluded, under the general ACA exclusion under EHCCA for expatriate health plans). Such plans are also excluded under the EHCCA from the transitional reinsurance program contribution under Sec. 1341 of the ACA, which was designed to help stabilize premiums for non-grandfathered health insurance coverage in the individual health insurance market from 2014 through 2016, as well as the Code Sec. 162(m)(6) $500,000 limit on deductible remuneration attributable to services performed by certain individuals for a covered health insurance provider.

Earlier guidance. IRS issued Notice 2015-43, 2015-29 IRB 73 in July of 2015 to provide interim guidance on the implementation of the EHCCA and the application of certain provisions of the ACA to expatriate health insurance issuers, expatriate health plans, and employers in their capacity as plan sponsors of expatriate health plans. IRS also issued guidance on the health insurance providers fee for expatriate health plans for the 2014 and 2015 years in Notice 2015-29, 2015-15 IRB 873, and in Notice 2016-14, 2016-7 IRB 315 on the definition of “expatriate health plans” under EHCCA for purposes of the fee. The Consolidated Appropriations Act, 2016 (P.L. 114-113) suspended collection of the fee for the 2017 year.

New proposed regs. The proposed regs provide, in accord with the EHCCA, that the market reform provisions enacted or amended as part of the ACA do not apply to an expatriate health plan, an employer, solely in its capacity as plan sponsor of an expatriate health plan, and an expatriate health insurance issuer with respect to coverage under an expatriate health plan.

Definitions. The proposed regs provide a number of definitions, including for:

“Expatriate health insurance issuer.” The proposed regs define “expatriate health insurance issuer” as a health insurance issuer that issues expatriate health plans and satisfies certain requirements, including that the issuer: (1) maintains network provider agreements that provide for direct claims payments with health care providers in eight or more countries; (2) maintains call centers in three or more countries, and accepts calls from customers in eight or more languages; (3) processed at least $1 million in claims in foreign currency equivalents during the preceding calendar year; (4) makes global evacuation/repatriation coverage available; (5) maintains legal and compliance resources in three or more countries; and (6) has licenses or other authority to sell insurance in more than two countries, including the U.S. (Reg. § 54.9831-1(f)(2)) The proposed regs also clarify that a non-U.S. health insurance issuer doesn’t qualify as an expatriate health insurance issuer under the EHCCA.

The proposed regs define an “expatriate health plan administrator,” with respect to self-insured coverage, as an administrator of self-insured coverage that generally satisfies these same requirements.

“Expatriate health plan.” The proposed regs define “expatriate health plan” as a plan offered to qualified expatriates that satisfies certain requirements and that “substantially all” (defined as at least 95%) of the enrollees in which are “qualified expatriates.” In addition, “substantially all” of the benefits provided under an expatriate health plan have to be benefits that aren’t “excepted benefits.” An expatriate health plan is required under the proposed regs to cover certain types of services, like impatient hospital services and emergency services, and the plan sponsor must “reasonably believe” that the benefits provided by the plan provide minimum value, as defined in Code Sec. 36B(c)(2)(C)(ii). Expatriate health plans are also required to satisfy certain requirements that would have applied if the ACA hadn’t been enacted, including requirements pertaining to pre-existing conditions. (Reg. § 54.9831-1(f)(3))

“Qualified expatriate.” The proposed regs define a qualified expatriate as one of three categories of individuals: Category A expatriates are individuals whose skills, qualifications, job duties, or expertise have caused the individual’s employer to transfer or assign the individual to the U.S. for a specific and temporary purpose or assignment tied to the individual’s employment and who the plan sponsor has reasonably determined requires access to health insurance and other related services and support in multiple countries, and is offered other multinational benefits on a periodic basis (such as tax equalization, compensation for cross-border moving expenses, or compensation to enable the expatriate to return to the expatriate’s home country); Category B expatriates are individuals who work outside the U.S. for a period of at least 180 days in a consecutive 12-month period that overlaps with the plan year; and Category C expatriates are individuals who are a member of a group of similarly situated individuals that is formed for the purpose of traveling or relocating internationally in service of one or more of the purposes listed in Code Sec. 501(c)(3) (e.g., charitable organizations) or Code Sec. 501(c)(4) (social welfare organizations) or similarly situated organizations or groups, and meets certain other conditions. (Reg. § 54.9831-1(f)(6))

Health insurance providers fee. The proposed regs provide that for any fee that is due on or after the date final regs are published, a qualified expatriate enrolled in an expatriate health plan as defined in these proposed regs is not a U.S. health risk. The proposed regs may be relied upon with respect to any fee due beginning with the 2018 fee year.

Deductible remuneration limitation. The Code Sec. 162(m)(6) limitation doesn’t apply to expatriate health insurance issuers under the EHCCA. A health insurance issuer is a covered health insurance provider if not less than 25% of the gross premiums that it receives from providing health insurance coverage during the tax year are from minimum essential coverage. Consistent with the EHCCA, the proposed regs exclude from the definition of the term “premium” for Code Sec. 162(m)(6) purposes amounts received in payment for coverage under an expatriate health plan. (Prop Reg § 1.162-31(b)(5)(v)))

Minimum essential coverage—individual mandate. The proposed regs provide that, beginning Jan. 1, 2017, coverage under an expatriate health plan that provides coverage for a qualified expatriate qualifies as minimum essential coverage for all participants in the plan. (Prop Reg § 1.5000A-2(c)(1)(i)(D)) An expatriate health plan that provides coverage to Category (A) or Category (B) expatriates (see above) is treated as an eligible employer-sponsored plan under Code Sec. 5000A(f)(2). An expatriate health plan that provides coverage to Category (C) expatriates (see above) is treated as a plan in the individual market under Code Sec. 5000A(f)(1)(C).

Reporting of coverage—consent to receive statements electronically. The EHCCA permits the use of electronic media to provide the statements required under Code Sec. 6055 and Code Sec. 6056 to individuals for coverage under an expatriate health plan unless the primary insured has explicitly refused to receive the statement electronically. The proposed regs provide that, for an expatriate health plan, the recipient is treated as having consented (after receiving requisite notice) to receive the required statement electronically unless the recipient has explicitly refused to receive the statement in an electronic format, and that the recipient may explicitly refuse either electronically or in a paper document. (Prop Reg § 1.6055-2(a)(8); Prop Reg § 301.6056-2)

PCORTF fee. The proposed regs expand the existing general exclusion for expatriate health plans from the PCORTF fee (currently for plans designed specifically to primarily cover employees who are working and residing outside the U.S.) to also exclude an expatriate health plan regardless of whether the plan provides coverage for qualified expatriates residing in or outside the U.S. (Prop Reg § 46.4377-1(c)) The exclusion is effective for policy years and plan years ending after Jan. 1, 2017.

Excepted benefits. The proposed regs specify conditions for travel insurance, supplemental health insurance coverage, and hospital indemnity and other fixed indemnity insurance to be considered “excepted benefits” that are exempt from the group health plan requirements. (Prop Reg § 54.9831-1)

Effective date. The proposed regs are generally proposed to be applicable for plan or policy years beginning on or after Jan. 1, 2017. However, issuers, employers, and individuals are permitted to rely on them pending the applicability of the final regs.

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

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