BP 2016-1 July 20, 2016 The American Benefits Institute is the education and research affiliate of the American Benefits Council. The Institute conducts research on both domestic and international employee benefits policy matters to enable public policy officials and other stakeholders make informed decisions. The Institute also serves as a conduit for global companies to share information about retirement, health and compensation plan issues. In 2014, Congress enacted the Expatriate Health Coverage Clarification Act ( Expat Act ) providing that expatriate health plans that meet certain criteria are largely exempt from the requirements of the Affordable Care Act (ACA), with certain limited exceptions. Following the enactment of the Expat Act, the Department of Treasury (through the Internal Revenue Service) issued Notice 2015-43, providing interim guidance on the Expat Act. On June 10, 2016, the Department of Labor, Department of Treasury, and Department of Health and Human Services (collectively, Agencies ) published proposed regulations providing further guidance on the Expat Act. The proposed regulations also propose new requirements related to: excepted benefits coverage; short-term, limited-duration insurance; and essential health benefits (See the July 20, 2016, Benefits Blueprint). The Council will be submitting a comment letter on the proposed regulations by August 9, 2016. Council member organizations are invited to provide input regarding comments to Kathryn Wilber, senior counsel, health policy, at kwilber@abcstaff.org by August 1, 2016.
The Expat Act provided important relief for expatriate health coverage from certain requirements, fees and taxes under the ACA. The proposed regulations implement the Expat Act and generally track the statutory provisions closely. The proposed regulations are generally applicable for plan or policy years beginning on or after January 1, 2017. The proposed regulations provide that employers, issuers, administrators, and individuals may rely on the proposed regulations pending the applicability date of the final regulations. If the final regulations are more restrictive than the proposed regulations, the final regulations will not have retroactive effect. ACA APPLICABILITY The proposed regulations clarify the application of various ACA provisions to expatriate health plans, as defined under the Expat Act. Per the proposed regulations, if a plan meets all of the requirements to be an expatriate health plan, then it will generally be exempt from the following: ACA s market reform requirements; Patient Centered Outcomes Research Trust Fund (PCORTF) fee; Transitional Reinsurance Program fee; and Medical Loss Ratio reporting and rebate requirements. Additionally, regarding insured coverage, the proposed regulations provide that the ACA Section 9010 annual health insurer fee will be calculated so that qualified expatriates in an expatriate health plan are not included as U.S. health risks. Mirroring the statutory language of the Expat Act, the proposed regulations provide that the 40% tax under Internal Revenue Code ( Code ) section 4980I (commonly known as the Cadillac Tax ) will apply to qualified expatriates assigned to work in the United States, but not those individuals transferred to work in the United States. The proposed regulations do not address the distinction between assigned versus transferred, but note that it is expected to be addressed in other guidance. The employer mandate and individual mandate reporting requirements continue to apply for expatriate health plans, although the proposed regulations allow for electronic delivery of notices to individuals if the individual is first notified that a statement will be provided electronically and is provided a right to opt out of electronic delivery. 2
EXPATRIATE HEALTH PLANS To qualify as an expatriate health plan for purposes of the proposed regulations, as well as the Expat Act, a plan must meet the following requirements: (i) the plan must be underwritten by a expatriate health plan issuer, or if self-funded, administered by an expatriate health plan administrator ; (ii) substantially all of the primary enrollees must be qualifying expatriates; (iii) the plan must comply with certain existing federal law requirements (including the requirement to provide creditable coverage); and (iv) the plan sponsor must reasonably believe that the plan provides minimum value coverage within the meaning of Code section 36B and its implementing regulations. The requirements are further discussed below. Underwriting and Administration To qualify as an expatriate health plan issuer with respect to insured coverage, or an expatriate health plan with respect to self-funded coverage, the entity(ies) must: 1) maintain provider networks that provide for direct claims payments with health care providers in eight or more countries; 2) maintain call centers in three or more countries and accept calls from customers in eight or more languages; 3) have processed at least $1 million in claims in foreign currency equivalents during the preceding calendar year (determined using the Department of Treasury s currency rate in effect on the last day of the preceding calendar year); 4) make global evacuation and repatriation coverage available; 5) maintain legal and compliance resources in three or more countries; and 6) have licenses or authority to sell insurance in two or more countries, including the United States. The proposed regulations state that the requirements above must also be satisfied by an expatriate health plan administrator. For both expatriate health insurance issuers and expatriate health plan administrators, the requirements above can be satisfied by two or more entities in the issuer or administrator s controlled group or through contracts with third parties. Significantly, the proposed regulations also provide that only issuers licensed to engage in the business of insurance in a State and subject to State insurance laws can be expatriate health insurance issuers. Accordingly, foreign issuers generally will not qualify as an expatriate health plan issuer. With respect to self-insured coverage, the proposed regulations are silent as to whether an expatriate health plan administrator can be a foreign entity and, thus, do not appear to impose a similar requirement. 3
Note: Plan sponsors with insured coverage issued by a foreign issuer will likely need to undergo a separate analysis to determine compliance with or exemption from the ACA s requirements than plan sponsors with insured coverage issued by a U.S. issuer. In addition, self-funded coverage administered by a foreign entity may fall within the scope of the Expat Act, while insured coverage issued by a foreign entity would not. Required Qualified Expatriate Participation To meet the requirements to be an expatriate health plan, substantially all of the primary enrollees in the plan must be qualified expatriates. The proposed regulations define primary enrollee as the individual covered by the plan or policy whose eligibility for coverage is not due to that individual s status as the spouse, dependent or other beneficiary of that individual. These individuals cannot be non-u.s. nationals residing in their country of citizenship. The proposed regulations define substantially all, as, effectively, a 95% threshold determined as of the first day of the plan year. (Less than 5% or 5 (whichever is greater) of the primary enrollees can be individuals who are not qualified expatriates.) There are three categories of qualified expatriates for purposes of the proposed regulations: (A) inpatriates; (B) expatriates; and (C) non-employment related groups of similarly situated individuals. A. Inpatriates The first category of qualified expatriates consists of non-u.s. nationals who are transferred or assigned to the United States for a specific and temporary purpose or assignment tied to the individual s employment with the employer. A plan sponsor must reasonably determine that these individuals require access to health coverage in multiple countries, and such individuals must be offered other multinational benefits on a periodic basis. The proposed regulations provide that an individual who is not expected to travel outside the United States at least one time per year during the coverage period would not reasonably require access to health coverage in multiple countries. The proposed regulations also state that a one-time, de minimis benefit is not a periodic offer of other multinational benefits. 4
Note: The proposed regulations do not specify which entity must keep track of whether an individual is offered other multinational benefits. Given the lack of clarity on this point, plan sponsors should ensure that they maintain records of multinational benefits that are offered to individuals covered under expatriate health plans. Coverage for these individuals is generally treated as an eligible employersponsored plan, and, thus, is minimum essential coverage for purposes of the individual mandate, employer mandate, and related ACA reporting requirements (which continue to apply to expatriate health plans). B. Expatriates The second category of qualified expatriates consists of individuals who work outside the United States for at least 180 days in a consecutive 12-month period that is within a single plan year or across two consecutive plan years. With respect to these individuals, an expatriate health plan must offer certain specified services in the country in which the individual is present in connection with his employment. Note: The proposed regulations do not clarify the countries in which services must be provided. The Agencies have requested comments on this, so it is likely that the final regulations will include additional guidance on this point. Coverage for these individuals is generally treated as an eligible employersponsored plan, and, thus, is minimum essential coverage for purposes of the individual mandate, employer mandate, and related ACA reporting requirements (which continue to apply to expatriate health plans). C. Non-Employment Related Inpatriates and Expatriates The final category of qualified expatriates consists of individuals who are expected to travel or reside outside the United States for at least 180 days in a consecutive 12-month period that overlaps with the policy year or individuals who are expected to travel or reside in the United States for not more than 12 months. This group must also meet the test for associational ties under the Public Health Service Act ( PHSA ). Coverage for these individuals is not employment-related. As such, this coverage is treated as coverage on the individual market that qualifies as minimum 5
essential coverage for purposes of the individual mandate and individual mandate reporting. Reasonable Belief of Minimum Value Coverage In addition, under both the Expat Act and the proposed regulations, to be an expatriate health plan, the plan sponsor must reasonably believe that the plan satisfies the ACA s minimum value requirements of Code section 36B. Note: The proposed regulations specify that for this purpose, a plan sponsor is permitted to rely on the reasonable representations of the insurance issuer or administrator regarding whether the plan satisfies minimum value requirements unless the plan sponsor knows or has reason to know that the benefits fail to satisfy the minimum value requirements. Generally, the proposed regulations related to expatriate health coverage implement the helpful relief provided in the Expat Act from certain ACA requirement. In addition to the provisions relating to expatriate plans, the proposed regulations also include some new proposed requirements for group hospital and other fixed indemnity insurance and short-term limited duration coverage. The Agencies invite comments on these provisions as well as possible changes to rules for specified coverage in the future. These provisions are discussed in a related Benefits Blueprint summary. 6