Expatriate Plans in the Wake of the Expatriate Health Coverage Clarification Act

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1 Expatriate Plans in the Wake of the Expatriate Health Coverage Clarification Act May 2016 This white paper replaces our previously published white papers and represents our most recent guidance as of the date above on the impact of the Patient Protection and Affordable Care Act ( PPACA ) and the Expatriate Health Coverage Clarification Act of 2014 ( EHCCA ) on expatriate plans. It covers five (5) main sections: I. Overview The Expatriate Road from PPACA to the EHCCA II. EHCCA s Benefits, Exemptions and Requirements III. Elements of PPACA Live On The Individual Mandate, Employer Mandate and IRS Reporting IV. Implications for International/Foreign Plans and Inpatriates V. Taxes and Fees under EHCCA I. OVERVIEW THE EXPATRIATE ROAD FROM PPACA TO THE EHCCA Enter PPACA: Signed into law on March 23, 2010, PPACA imposed various insurance market reforms, fees (i.e., the Patient Centered Outcomes Research Institute ( PCORI ) Fee, the Transitional Reinsurance Fee and the Health Insurer Fee, as described in Section V below) and other requirements on individual and group health plans issued in the United States. In addition to implementing prohibitions on pre-existing condition exclusions and waiting periods in excess of 90 days, PPACA s market reforms included the requirements that a plan that covers dependents provide coverage 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. Moreover, PPACA imposed various reporting and minimum essential coverage ( MEC ) requirements on individuals, certain large employers and health insurers. Transitional Reliefs: Subject to narrow exceptions, most group health plans, including expatriate plans are subject to the Employee Retirement Income Security Act ( ERISA ) as well as PPACA. ERISA does not apply to plans established and maintained outside the United States primarily for the benefit of individuals, substantially all of whom are nonresident aliens (i.e., foreign nationals who do not reside in the U.S. for more than a short period). In recognition of the serious challenges many of PPACA s requirements posed to expatriate plans, Congress and the federal agencies responsible for implementing PPACA (the Department of Health and Human Services ( HHS ), the Department of Labor ( DOL ) and the Internal Revenue Service ( IRS, together with DOL and HHS, the Departments ) issued several special rules which provided temporary relief to certain expatriate plans. For example, On December 7, 2011, and December 6, 2012, the Departments issued final rules which exempted certain expatriate plans from PPACA s medical loss ratio ( MLR ) requirement and the PCORI Fee, respectively; On March 8, 2013, the Departments issued guidance that certain fully-insured expatriate plans with plan years ending on or before December 31, 2015 would be exempt from most of PPACA s market reforms (the Expat Transitional Relief ); and On January 9, 2014, the Departments expanded the scope of Expat Transitional Relief to cover more of PPACA s requirements and extended its duration to apply to plans ending on or before December 31, Though Page 1 of 13

2 comprehensive, the Expat Transitional Relief was designed to be temporary, and did not apply to self-funded expatriate plans. Enter EHCCA: Signed into law on December 16, 2014, the EHCCA provides U.S. based expatriate plans with comprehensive and permanent relief from most of PPACA s requirements. Specifically, it exempts both fully insured and self-funded plans (issued or renewed on or after July 1, 2015) from most of PPACA s requirements if they comply with EHCCA s requirements. Some key exemptions provided by the EHCCA include relief from PPACA s benefit and plan design requirements (e.g., the out-of-pocket maximum for in-network care and no cost-sharing on in-network preventive care requirements do not apply), relief from PPACA s administrative simplification requirements (e.g., the policy/plan is not required to issue a Summary of Benefits and Coverage or SBC ) and most importantly, relief from PPACA s fees (e.g., the PCORI Fee, the Transitional Reinsurance Fee, the Health Insurer Fee after 2015, and with some limited exception, the excise tax on high-dollar value group health plans beginning in 2020 (popularly known as the Cadillac Tax ). Elements of PPACA Live On: twithstanding EHCCA s breadth, various PPACA requirements live on (e.g., that dependent coverage, if offered, continue to age 26; that non-exempt individuals comply with PPACA s Individual Mandate and obtain minimum essential coverage; that applicable large employers comply with PPACA s Employer Mandate and provide their full-time employees with affordable minimum essential coverage that satisfies a minimum value standard or be subject to a penalty; and that insurers and employers providing minimum essential coverage comply with various IRS reporting requirements). These ongoing requirements have important implications for employers using both U.S. based and foreign expatriate plans; only the former benefits from EHCCA s exemptions. 1 II. EHCCA S BENEFITS, EXEMPTIONS, AND REQUIREMENTS 1. What qualifies as an expatriate health plan under the EHCCA? Answer: U.S. based plans satisfying the specific requirements under the EHCCA and, in the interim, U.S. based plans that fall within the definition under IRS tice (which refers to the definition in the Expat Transitional Relief as one reasonable definition). The EHCCA generally defines an expatriate health plan as a group health plan, group health insurance, and health insurance offered to a group of individuals that meet certain requirements, including the following: substantially all of the primary enrollees are qualified expatriates ; the coverage does not consist of excepted benefits (e.g., not limited to vision and dental); the plan provides coverage for physician, hospital, emergency, and outpatient services; the benefits satisfy minimum actuarial value levels; if dependents are covered, coverage is available until age 26; the coverage satisfies applicable requirements related to provider networks, claims processing, global evacuation/repatriation coverage, and compliance resources; AND 1 We believe the EHCCA only applies to U.S.-based fully insured and self-insured expatriate plans. However, some argue that it s possible, though unlikely, that a foreign self-insured expatriate plan could also benefit from EHCCA s exemptions if it had complied with ERISA and relevant Internal Revenue Code provisions and otherwise met EHCCA s requirements. Page 2 of 13

3 the plan or coverage meets certain pre-ppaca statutory requirements under HIPAA, ERISA and the Internal Revenue Code that would otherwise apply to it (including parity in mental health and substance use disorder benefits and HIPAA nondiscrimination regulations). twithstanding the above, in IRS tice , the Departments allow employers, plan sponsors, and insurers to apply the requirements of the EHCCA using a reasonable good faith interpretation until further notice. The Departments state that the definition of expatriate plan under the Expat Transitional Relief is generally a reasonable good faith interpretation for certain EHCCA purposes (e.g., relief from PPACA s market reforms). In general, the Expat Transitional Relief defines an expatriate plan as an insured group health plan with enrollment limited to primary insureds for whom there is a good faith expectation that they will reside outside of their home country or outside of the U.S. for at least six months of a 12-month period (which can fall within a single plan year or across two consecutive plan years) and any covered dependents and its associated group health insurance coverage. 2. Does the reasonable good faith standard apply with other definitions of an expatriate health plan outside the Expat Transitional Relief? Answer: Arguably, yes. IRS tice states that insurers and plan sponsors can apply EHCCA s requirements using a reasonable good faith interpretation, and then specifically references use of the expatriate plan definition under the Expat Transitional Relief as an example of a reasonable good faith interpretation of the EHCCA. This suggests that there may be more than one such interpretation. twithstanding, plan sponsors with plans that do not satisfy the definitions under the EHCCA or Expat Transitional Relief may continue to find some narrower relief in other pre-existing definitions of expatriate plan. Definition in the Final Rules of the MLR Requirement issued on December 7, 2011 (the MLR Rule ). Under the MLR Rule, expatriate plan is defined as a group policy/policies that provide coverage to employees, substantially all of whom are: [w]orking outside their country of citizenship; working outside of their country of citizenship and outside the employer's country of domicile; or non-u.s. citizens working in their home country. Insurers offering group health plans that met this definition generally qualified for a partial relief from the MLR requirement. The Departments have specifically stated that issuers can use this definition for purposes of the Health Insurer Fee. Definition in the Final Rules of the PCORI Fee issued on December 6, 2012 (the PCORI Rule ). Under the PCORI Rule, a group plan/policy is considered an expatriate plan if the facts and circumstances show that the group policy was designed and issued specifically to cover primarily employees who are working and residing outside of the United States. Group plans that met this definition were exempt from the PCORI Fee. As discussed below, IRS tice provides a broader definition for purposes of the PCORI Fee and expands the scope of this exemption with respect to the EHCCA. Under IRS tice , group plans and policies are exempt from the PCORI Fee if such plans and policies are: designed and issued specifically to covered 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 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 (6) months per policy year or plan year; OR designed to cover individuals who are members of a group of similarly situated individuals for purposes of 3(d)(3)(C) of the EHCCA (generally student travelers or religious missionaries) and who satisfy the requirements for such groups under IRS tice Page 3 of 13

4 3. Who qualifies as a qualified expatriate under the EHCCA? Answer: There are three (3) categories of qualified expatriates under the EHCCA, each of which includes varying enrollment eligibility requirements. Expats Outside the U.S. - Primary insureds working outside the United States for at least 180 days in a consecutive 12-month period that overlaps the plan year. Inpats to the U.S. - Primary insureds who are temporarily assigned or transferred to the United States for a specific and temporary purpose of assignment and in connection with such assignment are reasonably determined to require access to health insurance and other related benefits and services in multiple countries (such as tax equalization or cross-border moving allowances). Though the EHCCA does NOT currently define the phrase a specific and temporary purpose or assignment, our position is that a period of no more than 180 days may suffice. Students/Missionaries, etc. Primary insureds who are part of group of similarly situated individuals (1) that is formed for the purpose of traveling or relocating internationally in service of a charitable or social welfare purpose or similar organizations or groups (such as students or religious missionaries) (2) that is not formed primarily for the sale of health insurance coverage and (3) that the Departments determine requires access to health insurance and other related services in multiple countries. Pursuant to IRS tice , until the issuance of further guidance, the Departments will consider an individual to be a member of such a group if the following conditions are met: a. (1) and (2) above are satisfied; b. if the group is 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 (6) months of the policy year (or if the policy year is less than twelve (12) months, for at least half of the policy year), and if the group is 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 twelve (12) months; and c. the group of individuals must meet the test for having bona fide associational ties under the Public Health Service Act (except being actively in existence for at least 5 years). 4. What does substantially all of the primary enrollees are qualified expatriates mean? Answer: Existing guidance under the EHCCA does not provide a definition of the term substantially all other than requiring a facts and circumstances analysis. However, the term has been used almost interchangeably with the term primarily in the past (i.e., MLR Rule and PCORI Rule above). It appears that the Departments used these two (2) terms to ensure than a health plan would not be classified as an expatriate plan when expatriates account for only a limited proportion of the covered population. Additionally, in the context of determining when a foreign group plan falls within the ERISA foreign plan exception, in general, the DOL has indicated that the substantially all standard is not met where even as few as 7.5% of plan participants are not individuals who fall within the requirements for the exception. 5. Are foreign key local nationals included under the EHCCA s substantially all test? Answer:. The EHCCA recognizes coverage needs for foreign key local nationals ( KLNs ) and excludes them from the substantially all test. Under the EHCCA, an individual is not considered a primary enrollee of an expatriate plan if he or she is not a national of the U.S. and resides in his or her country of citizenship. What this means is that coverage of foreign KLNs should not invalidate a plan s status as an expatriate plan under the EHCCA. Page 4 of 13

5 6. What are the requirements for expatriate health insurance issuers under the EHCCA? Answer: Under the EHCCA, to be an expatriate health insurance issuer, the issuer must be a U.S. licensed insurance company or organization (EHCCA does not apply to foreign insurers). Further, to qualify as an expatriate health plan (if insured), among other things, the issuer (together with its affiliates) must offer reimbursements under the plan/coverage for item or services in the local currency of eight (8) or more countries and: have license to sell insurance in more than two (2) countries, maintain network provider agreements (directly or contracted) with providers in eight (8) or more countries, maintain call centers (directly or contracted) in three (3) or more countries and accept calls from customers in eight (8) or more languages, process at least $1,000,000 in claims in foreign currency equivalents each year, make available (directly or contracted) global evacuation/repatriation coverage, AND maintain legal and compliance resources in three (3) or more countries. These same requirements apply to third-party administrators if the expatriate health plan is self-funded. 7. What are the key clarifications and exemptions under the EHCCA? Answer: The EHCCA does the following for U.S. based expatriate health plans: Exempts such plans from most of PPACA s market reforms, including from PPACA s benefit and plan design requirements (e.g., the out-of-pocket maximum for in-network care and prohibition on cost-sharing on innetwork preventive care). Exempts such plans from PPACA s administrative simplification requirements (e.g., the requirement to issue a Summary of Benefits and Coverage or SBC ). Exempts such plans from PPACA s fees (e.g., the PCORI Fee, the Transitional Reinsurance Fee, and the Health Insurer Fee (beginning in 2015). Exempts most plans from the Cadillac Tax (except where a U.S. bound Expatriate is assigned, rather than transferred, to work in the U.S.) Recognizes coverage under such plans as MEC for purposes of the Individual Mandate and as MEC under an eligible employer-sponsored plan for purposes of the Employer Mandate (and clarifies that such mandates continue to apply). Eases some of the administrative burdens tied to IRS reporting for the Individual Mandate and Employer Mandate by allowing employers and health insurance issuers to deliver required information statements to enrollees electronically without their consent (unless enrollees explicitly opt out). Defines the term United States to mean the 50 states, the District of Columbia, and Puerto Rico, which means that U.S. citizens or nationals working outside of these locations for at least 180 days in a consecutive 12-month period that overlaps the plan year (including U.S. citizens or nationals working in the U.S. Virgin Islands, Guam or the other U.S. territories) may be considered qualified expatriates. Page 5 of 13

6 8. When does EHCCA take effect? And how long does it last? Answer: EHCCA s exemptions are permanent and apply to expatriate health plans that are issued or renewed on or after July 1, Are any PPACA provisions still applicable to expatriate health plans after passage of the EHCCA? Answer: Yes, but not most. The EHCCA grants broad exemptions from most of PPACA s provisions to expatriate health plans. However, in addition to compliance with certain pre-ppaca statutory requirements (such as the federal mental health parity law under the Public Health Service Act and the federal non-discrimination regulations under HIPAA), expatriate health plans must still comply with certain PPACA requirements, for example: Plans must cover a child to the age of 26, if coverage of dependents is offered; The benefits must satisfy a minimum value standard in accordance with actuarial methodologies; Issuers and plan sponsors must comply with the IRS MEC reporting requirements, though they are permitted by default to deliver required information statements to individuals electronically unless the recipient opt-outs of electronic delivery. te this is different for MEC that does not fall within the EHCCA, where individuals must affirmatively consent (opt-in) to receive electronic delivery; and The Cadillac Tax (which has been deferred from 2018 to 2020) continues to apply to certain employersponsored coverage provided to employees who are assigned (rather than transferred) to work in the U.S. III. PPACA LIVES ON THE INDIVIDUAL MANDATE, EMPLOYER MANDATES AND IRS REPORTING The EHCCA does not exempt individuals and employers from their respective mandates under PPACA. In fact, the EHCCA specifically provides that the Employer Mandate and the information reporting requirements under Sections 6055 and 6056 of the Internal Revenue Code continue to apply. As such, plan sponsors and health insurers that provide MEC during the calendar year are still required to report to the IRS certain information about individuals covered by MEC and also to provide a statement to those individuals. Also, applicable large employers must report to the IRS information about their compliance with the Employer Mandate and provide a statement to full-time employees. 1. When are expatriates (and inpatriates) subject to the Individual Mandate? Answer: The Individual Mandate applies to all U.S. citizens and all foreign nationals who are in the U.S. long enough during a calendar year to qualify as resident aliens for federal income tax purposes. It requires all non-exempt individuals to maintain MEC for themselves and their non-exempt dependents during the calendar year or face certain potential tax penalties when they file their U.S. tax return. Resident alien status is determined using various IRS tests, including the green card (Lawful Permanent Resident) test or substantial presence test (i.e., very generally, being physically present in the U.S. on at least 31 days during the calendar year and more than 183 days during the three (3) year period that includes the current year and the two (2) years immediately before. A foreign national may also make a first year election to be treated as a U.S. resident under Section 7701(b)(4) of the Internal Revenue Code. n-resident aliens are typically foreign nationals who do not reside in the U.S. for more than a short period (e.g. short term business travellers). The monthly penalty (if no exemptions apply) for each non-exempt individual in the taxpayer s family will either be a percentage of the household income that is over the tax-filing threshold (2% in 2015 and 2.5% thereafter) or if larger, 1/12 of a flat dollar amount assessed on non-exempt family member with no MEC ($325 per uninsured person age 18 and over in 2015 and $695 age 18 and over in 2016 and $ per uninsured person under age 18 Page 6 of 13

7 in 2015 and $ per uninsured person under age 18 in 2016, subject to family cap at 300% of annual flat dollar amount). 2. Are there applicable exemptions to the Individual Mandate? Answer: Yes. Several exemptions exist that may exempt individuals from needing to have MEC (e.g., short coverage gap exemption, income below tax return filing threshold, no affordable coverage available, religious objection, hardship exemption, member of recognized Indian tribe). Individuals must file Form 8965 with the IRS to claim an exemption. Inpats to the U.S. - Foreign nationals who live in the U.S. for a short enough period that they do not become resident aliens for federal income tax purposes are exempt from the Individual Mandate even though they may have to file a U.S. income tax return. In general, a foreign national who is a resident alien by virtue of meeting one of residency tests (the green card test or the substantial presence test) or by making a first year election must have MEC to avoid paying the potential penalties under the Individual Mandate. Outbound U.S. expats - U.S. citizens and residents working and/or living outside the U.S. are exempt from the Individual Mandate for a given month if the month falls in a period during which the individual meets one of three conditions (a, b, and c are generally individuals who qualify for a foreign income exclusion): a. Lives abroad for entire calendar year - The individual is a U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year; or b. Physically present abroad for at least 330 days in a 12-month period - The individual is a U.S. citizen or resident who is physically present in a foreign country or countries for at least 330 full days during a 12- month period (the individual is exempt for any month in the tax year that is included in that 12-month period); or c. Citizen/National of foreign country with U.S. income tax treaty - The individual is a resident alien who is a citizen or national of a foreign country with which the U.S. has an income tax treaty with a nondiscrimination clause and who is a bona fide resident of a foreign country for an uninterrupted period that includes the entire tax year; or d. Bona fide resident of U.S. territories - The individual is a bona fide resident of a U.S. territory (Guam, American Samoa, the rthern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands). Trailing dependents The dependents of outbound U.S. expatriates remain subject to the Individual Mandate unless otherwise exempted. The Individual Mandate requires all non-exempt individuals to maintain MEC for themselves and their non-exempt dependents during the calendar year or face certain potential tax penalties when they file their U.S. tax return. 3. Is coverage under foreign insurance plans considered MEC? Answer: Yes, under certain circumstances. On October 31, 2013, the Centers for Medicare & Medicaid Services of HHS ( CMS ) issued sub-regulatory guidance recognizing the coverage under a group health plan provided through insurance regulated by a foreign government (and not regulated by a U.S. state) as MEC under PPACA. Only group health coverage can qualify as MEC under the 2013 guidance. An individual insurance plan purchased from a foreign issuer does not qualify as MEC. Generally, the following types of foreign insured group health plan coverage are considered MEC: (1) coverage that is provided with respect to an individual who is physically absent from the U.S. for at least one day during the month and (2) coverage that is provided with respect to an individual who is physically present in the U.S. for an entire month and the coverage provides health benefits within the U.S. Page 7 of 13

8 while the individual is on expatriate status. If those criteria are not met, insurance coverage issued by a foreign issuer will only be MEC if it is certified as such by CMS after application and approval. Applications for MEC certification require that coverage meet substantially all of the market reform provisions of PPACA (such as prohibitions on preexisting condition exclusions and annual and lifetime limits). Once recognized as MEC, a plan/plan sponsor must provide notice to enrollees who are citizens and nationals of the U.S. that the coverage has been recognized as MEC and must also comply with the information reporting requirements of Section 6055 of the Internal Revenue Code starting in 2016 with respect to the 2015 calendar year (i.e., providing subscribers under the group plan with Form 1095-B or 1095-C information statements that allow such subscribers to show their satisfaction of MEC when preparing their U.S. tax returns) (note that it is unclear whether this reporting requirement applies to the plan/plan sponsor or the issuer since only the issuer is required under Section 6055 of the Internal Revenue Code to report with respect to insured coverage). Such notice and reporting requirements may be easily overlooked by foreign plans/issuers that are not otherwise subject to PPACA. As with self-funded group health coverage, sponsors of the recognized foreign group health plans do not need to apply for MEC certification with HHS as required for other types of coverage under the MEC Final Rules issued by HHS on June 26, Are inpatriate employees working in the U.S. included in the employer s calculation of the total number of fulltime employees for purposes of determining whether such employer is an applicable large employer under the Employer Mandate? Answer: Yes. Section 4980H of the Internal Revenue Code provides that an employer, together with other employers in its controlled group, who employed an average of at least 50 full-time and full-time equivalent employees on business days during the preceding calendar year is considered an applicable large employer subject to the Employer Mandate. Such applicable large employers must generally offer their full-time employees affordable MEC under an eligible employer-sponsored plan that provides minimum value or potentially be assessed a penalty if a full-time employee qualifies for a premium tax credit for coverage through the health insurance exchange. Section 4980H further defines a full-time employee ( FTE ) as an employee who is employed on average at least 30 hours of service per week. The statute does not require the FTE to be a U.S. citizen or permanent resident. Additionally, under the final rule issued by the IRS on Shared Responsibility for Employers Regarding Health Coverage, in determining the total number of hours of service, all hours of service for which an individual receives U.S. source income are hours of service for purposes of FTE determination. So, inpatriate employees who provide at least 30 hours of service per week in the U.S. would be counted as FTEs regardless of their citizenship or residency status. Further, under the final rule, employer means the entity that is the employer of an employee under the U.S. common law standard, which implies that inpatriate employees temporarily assigned by their foreign parent company to a U.S. subsidiary could be considered employees of the U.S. subsidiary for purposes of FTE calculation. 5. Could such inpatriate employees be eligible for federal premium subsidies? Answer: Yes. An inpatriate employee could be eligible for premium tax credits and cost-sharing subsidies if he or she is lawfully present in the U.S., and has met the income and other criteria under Sections 36B(c)(1)(B) and (e) of the Internal Revenue Code and the implementing regulations. Federal Premium Subsidies: Beginning in 2014, individuals who purchase health insurance coverage through exchanges will be eligible for financial assistance if their income is generally no more than 400% of the federal poverty line (250% for cost sharing assistance). Two forms of financial assistance may be provided: (a) a premium assistance tax credit to lower the amount of premium the individual or family must pay for their coverage; and (b) Page 8 of 13

9 cost sharing assistance to limit the plan s maximum out-of-pocket costs, and for some people will also reduce other cost sharing amounts (i.e., deductibles, coinsurance or copayments) that would otherwise be charged to them by their insurance plan. 6. Are the employer penalties under the Employer Mandate triggered if at least 1 employee goes on an exchange and qualifies for a subsidy due to their income level? Answer: Yes. The Employer Mandate under PPACA provides that an applicable large employer will be subject to monthly penalty of $ ($2,000 annual penalty) for each full-time employee over 30 full-time employees (as the first 30 full-time employees are exempt) for each month in which (a) the employer does not offer MEC under an eligible employer-sponsored plan to at least 95% of its full-time employees, (b) at least one full-time employee of the employer signs up for a qualified health plan through an exchange, and (c) such employee receives federal premium tax credit or cost-sharing reduction. Additionally, if the employer offers MEC under an eligible employer-sponsored plan to at least 95% of its full-time employees, but the coverage offered to a full-time employee in a month is either unaffordable (more than 9.5 percent of household income or, if using an affordability safe harbor, W-2 wages, rate of pay, or the federal poverty line) or does not provide "minimum value", and that employee receives a federal premium tax credit or cost-sharing reduction for coverage purchased through an exchange for that month, the employer may be liable for a penalty of $250 for that month ($3,000 annual penalty). This penalty also applies if the employer offers coverage to at least 95% of its full-time employees, but an employee in the percentage not offered coverage receives a premium tax credit or cost-sharing reduction. Per IRS tice , the affordability percentage and potential penalty amounts will be inflation adjusted (i.e., 9.56% for 2015 and 9.66% for 2016; and $2,080/$3,120 for 2015 and $2,160/$3,240 for 2016). 7. When did the Employer Mandate become effective? Answer: January 1, 2015, and no penalties under the Employer Mandate will be assessed against applicable large employers for failing to provide employee health coverage that constitutes MEC, provides minimum value, and is affordable prior to January 1, Pursuant to the preamble to the final rules implementing the Employer Mandate, employers with full-time and full-time equivalent employees that meet certain requirements must submit IRS information reports on their employees and health coverage in 2015, but will not be subject to any Employer Mandate penalties in Meanwhile, employers with 100 or more full-time and full-time equivalent employees will be allowed to gradually offer coverage to their full-time employees without being subject to the $2000 per full-time employee penalty the employer must offer coverage to at least 70% of full-time employees in 2015 and at least 95% of full-time employees in 2016 and later years. Employers with 100 or more full-time and full-time equivalent employees that do not meet these standards may be assessed a penalty, as described above in #6. The EHCCA clarifies that expatriate health plans offering employer-sponsored coverage to Qualified Expatriates are considered eligible employer-sponsored plans for purposes of the Employer Mandate, but does NOT exempt employers from the Employer Mandate or issuers and employers from the information reporting requirements under Sections 6055 and 6056 of the Code. 8. Could the Employer Mandate apply even if an expatriate were subject to an exemption under the Individual Mandate? Answer: Yes. The exemptions available to individuals and employers under their respective mandates do not completely overlap. As such, the Employer Mandate may require that an applicable large employer offer MEC under an eligible employer-sponsored plan to an expatriate or inpatriate employee who is exempt from the Page 9 of 13

10 Individual Mandate. Likewise, the Employer Mandate may not apply with respect to an expatriate or inpatriate employee who is otherwise required to maintain MEC in order to satisfy the Individual Mandate. 9. What are the reporting requirements under Section 6055 and 6056 in a nutshell? MEC Reporting under Individual Mandate - Section 6055 of the Internal Revenue Code addresses the required reporting to the IRS and responsible individuals (i.e., subscribers) of information relating to covered individuals who are enrolled in MEC by health insurers, self-insured employers, and other entities that provide MEC. Reporting under Employer Mandate Section 6056 of the Internal Revenue Code addresses the required reporting to the IRS and full-time employees of information relating to offers of health coverage by applicable large employers to their full-time employees. What must Insurers provide? For the 2015 calendar year and forward, U.S. insurers must issue Forms 1095-B (a health coverage document) to subscribers enrolled in fully insured expatriate and domestic plans that are MEC. Likewise, foreign insurers/plan sponsors seeking to have foreign group health coverage recognized as MEC must also provide a Form 1095-B under the CMS guidance provided on October 31, A 1095-B is similar to a W-2 Form and subscribers will use it when preparing their tax returns to verify that they have been provided with MEC and have satisfied the Individual Mandate for the prior calendar year. The subscribers will be responsible for sharing the form with any dependents that might require the 1095-B information. Insurers must also file a copy of the Forms 1095-B and a Form 1094-B with the IRS. What must applicable large employers provide? Applicable large employers subject to the Employer Mandate (i.e., those with 50 or more full-time and full-time equivalent employees) must issue Forms 1095-C to full-time employees to report the information required for Sections 6056 (and Section 6055 if the plan is self-insured this applies to all enrolled employees, including part-time). Applicable large employers must also file a copy of the Forms 1095-C and a Form 1094-C with the IRS. The information reported on Form 1094-C and Form 1095-C is used in determining whether an employer owes the IRS a shared responsibility payment under the Employer Mandate. Form 1095-C is also used by the IRS and the employee in determining the eligibility of the employee for a premium tax credit. Electronic Delivery EHCCA allows employers and health insurance issuers to deliver the Forms to enrollees electronically without their consent (unless enrollees explicitly opt out). The opposite is true for domestic health plans where individuals must affirmatively consent (opt-in) to electronic delivery (the default is paper). Forms at a Glance Group Type Required Form 6055 Reporting (Insurer Responsibility) Applicable Large Employer (fully insured) Form 1095-B (transmitted to IRS via Form 1094-B) Required Form 6055 and 6056 Reporting (Employer Responsibility) Form 1095-C Sections I, II (transmitted to IRS via Form 1094-C) Applicable Large Employer (self-funded) N/A Form 1095-C All sections ( ) (transmitted to IRS via Form 1094-C) IV. IMPLICATIONS FOR INTERNATIONAL/FOREIGN PLANS AND INPATRIATES 1. Does PPACA apply to international/foreign plans? Page 10 of 13

11 Answer: It depends. An international plan, a health insurance plan issued by a non-u.s. insurer, will likely be subject to PPACA (a) if the insurance issuer is licensed in a U.S. state to provide such insurance or (b) if such plan is considered an employee welfare benefit plan under ERISA. The following factors will be considered in determining whether an international plan is an ERISA Plan: the number of U.S. citizens/residents covered by the plan, the number of inpatriate employees covered by the plan, and the amount of benefits administration carried out in the U.S. (where plan records are kept, where plan decisions are made, etc.). The stronger the plan s nexus to the U.S., the more likely such plan will be deemed to be subject to ERISA, U.S. state insurance laws and consequently, PPACA. Since there is no bright line test, a facts-and-circumstances analysis is necessary to determine the applicability of PPACA to a specific international plan. 2. Does the EHCCA apply to an international/foreign plan? Answer:, the EHCCA only applies to U.S. based fully insured and self-funded plans. Similar to how we interpret the Expat Transitional Relief, fully insured expatriate plans under the EHCCA must be issued by a health insurance issuer as defined by the Public Health Service Act (i.e., an insurance company, insurance service, or insurance organization... which is licensed to engage in the business of insurance in a [U.S.] State and which is subject to [U.S.] State law which regulates insurance. ) 3. Are international/foreign plans providing coverage for inpatriate employees considered MEC? Answer: Yes, under certain circumstances. See Question 3 in Section III for more detail. V. TAXES AND FEES UNDER THE EHCCA The EHCCA exempts U.S. based fully insured and self-funded expatriate plans from most of PPACA s fees (e.g., the PCORI Fee, the Transitional Reinsurance Fee, the Health Insurer Fee, and the Cadillac Tax beginning in 2020). However, such exemptions are still subject to implementing regulations from the Departments and subtle exceptions. For example, though most U.S. based expatriate plans are exempted from the Cadillac Tax, the tax will continue to apply to employer-sponsored coverage offered to employees who are assigned (rather than transferred) to work in the U.S. Further, the Departments have issued targeted guidance on the implementation of the EHCCA and the PCORI Fee, which may subject certain expatriate and inpatriate plans to the PCORI even in the wake of the EHCCA. Summary of the PPACA fees applicable to group health plans: The Health Insurer Fee, also called the Health Insurance Tax, is an annual, permanent fee collected from insurance companies in the business of providing health insurance for United States health risks based on their net written premiums with respect to health insurance. Section 9010(d) of PPACA defines United States health risks to mean a health risk of any individual who is (a) a United States citizen; (b) a resident of the United States, or (c) located in the United States, during the period such individual is so located. The fee became effective beginning in 2014 (based on 2013 net premiums written). On December 18, 2015, the Health Insurer Fee was suspended for one year (2017) and will be back in effect for o Under the EHCCA, qualified expatriates (including their spouses, dependents and other enrolled in such plans) will NOT be considered U.S. health risks for calendar years after For calendar years 2014 and 2015, special rules applied whereby the insurer received the benefit of the exclusion under the EHCCA in Page 11 of 13

12 the form of a percentage reduction in the Health Insurer Fee based on the expatriate premiums accounted for by the Treasury in their fee calculation (practically, the result is the same except that the 2014 and 2015 adjustment did not affect the other insurers fee due, whereas in 2016 and later years, their fee will be impacted). The PCORI Fee applies to both fully-insured and self-funded health plans with plan years ending after September 30, 2012 and before October 1, The PCORI Fee is assessed based on the average number of covered lives for each plan year, which number does NOT include primary insureds residing outside the U.S. and their dependents no matter where they reside. o o Under the final rule issued by the IRS on December 6, 2012 on the PCORI Fee, plans (both fully-insured and self-funded) providing coverage for primarily employees working and residing outside the U.S. are exempt from the PCORI Fee. In general, whether an individual is residing in the U.S. is determined based on whether the individual is physically present in the United States (i.e., has a place of abode in the U.S.) and for these purposes, issuers may rely on the most recent address on file for the primary insured. The exemption does not apply to group plans covering primarily inpatriate employees. As to those plans that cover a mix of expatriate employees and inpatriate employees, the applicability of the exemption was less clear and required a facts-and-circumstances analysis. On July 20, 2015, the Departments issued a special rule for the PCORI Fee as part of its interim guidance (IRS tice ) on the application of the EHCCA. IRS tice provides that when determining the PCORI Fee, insurers and plan sponsors can exclude lives covered under an expatriate health plan issued or renewed after July 1, 2015 if the facts and circumstances demonstrate that the policy and plan was: Designed and issued specifically to cover primarily employees (a) who are working and residing outside the U.S. (i.e., Outbound U.S. expatriates and TCNs), 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 (6) months of the policy year or plan year (i.e., Inbound U.S. Expatriates staying no more than six (6) months per policy or plan year); OR Designed to cover individuals who are members of a group of similarly situated individuals for purposes of 3(d)(3)(C) of EHCCA (i.e., qualified expatriates who are students or religious missionaries) as described in the special rule for such groups under IRS tice The Transitional Reinsurance Fee applies to both fully-insured and self-funded group health plans. The fee is established as a temporary fee for the three years from 2014 to Plans that strictly, or when using a reasonable good faith interpretation under IRS tice , qualify as expatriate health plans under the EHCCA (whether fully-insured or self-funded) are exempt from the Transitional Reinsurance Fee. Prior to the passage of the EHCCA, only fully-insured expatriate plans were exempt pursuant to the final rule issued by HHS in March 2013 and the Expat Transitional Relief. In order to synchronize the various exemptions around the Transitional Reinsurance Fee and their timing, following the passage of the EHCCA, the Departments also issued guidance exempting certain self-funded plans from the fee in 2015 and 2016 if they would have satisfied the definitions under the Expat Transitional Relief but for their self-funded status. The Risk Adjustment Fee applies to insurance issuers of risk-adjusted plans in the non-grandfathered individual and small group market to help fund the administrative costs of running the risk adjustment program under PPACA. The Risk Adjustment Fee is permanent and began in This fee generally would not apply to expatriate plans -- almost all of which are large group plans. Additionally, the Risk Adjustment Fee does not apply to self-funded plans. The EHCCA exempts all expatriate health plans that satisfy its requirements from the Risk Adjustment Fee. Page 12 of 13

13 Taxes and Fees at a Glance Onshore Fully Insured & Self-Funded Expat Plans that meet EHCCA requirements 1 Subject to PPACA s market reforms? 2. Any PPACA Mandated Benefits, but there are EHCCA required benefits required (e.g., EHB)? 3. Any Special Rules or Relief? Yes (comprehensive relief under EHCCA) 4. Taxes & Fees: PCORI (Annual Fee/Phased out 2019/ $2 per member per year (PMPY), indexed to medical inflation) (Only for individuals working/residing in U.S.) Transitional Reinsurance Fee (Annual Fee / / $63 PMPY 2014, $44 PMPY 2015, TBD 2016) Health Insurer Fee (Annual Fee / Permanent / beginning 2014 /based on market share of Health Insurer), except generally for plans specifically designed primarily for inpatriates staying over 6 months of the plan year Offshore Fully Insured & Self-Funded Expat Plans (caveats do not apply to self-funded plans), unless becomes subject to ERISA/IRC Yes (but possibly, if U.S. tax elections apply, such as Section 953(d)) (Only for U.S. Health Risks) Risk Adjustment Fee (Annual Fee / Permanent / beginning 2014 / individual and small group market only / estimated at $1 PMPY) Cadillac Tax (Excise tax on high-dollar value group health plans/beginning 2020) Final regulations have not yet been issued and tax is not applicable until EHCCA does not exempt employer-sponsored health coverage offered to qualified expatriates assigned (rather than transferred) to work in the U.S. 5. Recognized as MEC for Individual Mandate? Yes Yes (if meets certain requirements under CMS 10/31/13 guidance) # # # We will continue to provide guidance as it becomes available. Page 13 of 13