Key Things that Foreign Companies Need to Know About the Affordable Care Act and Its Effect on Employers and Employees Catherine E. Livingston, Washington Office September 18, 2013,, 2013 9 18
Background on the Affordable Care Act The Affordable Care Act is a significant new American law that affects virtually every aspect of the American health care system. Hospitals, doctors, and other health care providers Patients Health insurance companies Pharmaceutical and medical device manufacturers and importers Vendors of technology to the health care industry 3 4
Background on the Affordable Care Act The law was enacted in March, 2010. Many provisions are already in effect. Key provisions of the law with the broadest impact go into effect in 2014. These key provisions address the problems many Americans have getting affordable health insurance. 5 2010 3 2014 6
Current State of American Health Insurance Many Americans have health coverage from their employers (49% of the population). Elderly Americans have health coverage through the federal government (Medicare) (13%). Low-income Americans have health coverage through the federal and state governments (Medicaid and CHIP) (16%). 48 million Americans (15-16% of the population) have no health insurance. Source: Kaiser Family Foundation 7 ( 49%) ( (Medicare)) (13%) ( (Medicaid) CHIP) (16%) 4800 ( 15-16%) Kaiser Family Foundation 8
Key Provisions of the Affordable Care Act Individual Mandate Health Insurance Reforms 9 Access to Affordable Coverage 10
Access to Affordable Health Coverage New Health Insurance Exchanges Every state will have a new health insurance exchange. Any individual who is permitted to live in the U.S. may purchase health coverage through the exchange. Health insurance policies sold through the exchange will cover a standard set of benefits and have standard measures of costsharing so individuals can compare the prices. Subsidies will be available for those under a certain income level. 11 12
Individual Mandate All adults and children in the United States must Have health insurance that is minimum essential coverage for all 12 months of the year Qualify for an exemption OR Pay a penalty tax The individual mandate is part of the U.S. tax code. 13 12 14
Individual Mandate This requirement was challenged in law suits that went before the U.S. Supreme Court, which ruled that the requirement is valid under the U.S. Constitution. The individual mandate goes into effect on January 1, 2014. 15 2014 1 1 16
Individual Mandate Minimum Essential Coverage includes Employer-sponsored coverage Coverage purchased in the individual market Medicare (for the elderly and disabled) Medicaid (for low-income individuals) CHIP (for low-income children) Certain types of coverage for military veterans and members of the military and their families. 17 Medicare Medicaid CHIP 18
Individual Mandate Health insurance provided by a foreign government or a foreign insurance company does not automatically qualify as minimum essential coverage. 19 20
Individual Mandate 9 Exemptions (1) Religious conscience (2) Health care sharing ministry (3) Member of Indian tribe (4) Hardship (5) Health coverage is not affordable (6) Incarceration 21 9 (1) (2) (3) (4) (5) (6) 22
Individual Mandate 9 Exemptions (cont.) (7) Short coverage gap (less than 3 consecutive months) (8) No U.S. income tax filing requirement (For 2013, no filing requirement if gross income is below $10,000 for a single person.) (9) Not lawfully present in U.S. Includes individuals who are permitted in the U.S. under immigration laws but who are nonresident aliens for U.S. federal income tax purposes (Form 1040-NR filers). 23 9 ( ) (7) ( 3 ) (8) (2013 10,000 ) (9) (Form 1040-NR ) 24
Individual Mandate Foreign Nationals Living in the United States Exempt if you live in the U.S. for less than half the year and, therefore, are a nonresident alien for U.S. income tax purposes (File no U.S. tax return for a Form 1040-NR) If foreign national is a resident alien (required to file Form 1040), exemptions can still apply. Foreign national who is a resident alien and not exempt needs minimum essential coverage. 25 (Form 1040-NR ) (Form 1040 ) 26
Individual Mandate U.S. Citizens Living Abroad U.S. citizens living abroad are subject to the individual mandate. A U.S. citizen who lives abroad for a calendar year (or at least 330 days in a 12 month period) is treated as having minimum essential coverage. 27 ( 12 330 ) 28
Individual Mandate Paying the Penalty Individuals will report coverage and exemptions or pay penalties on their federal income tax returns (Form 1040, 1040A, or 1040EZ). Parent is liable for penalty if child is claimed as a dependent for U.S. income tax purposes and child lacked coverage or an exemption. The computation of the penalty is complex. 29 (Form 1040, 1040A, 1040EZ) 30
Employer Play or Pay Penalty An applicable large employer must offer health coverage to its full-time employees and their children or risk paying a penalty. The employer play or pay penalty is part of the U.S. tax code. 31 32
Employer Play or Pay Penalty An applicable large employer is An employer that has an average of 50 or more full-time employees or full-time equivalents during the preceding calendar year. Full-time means an average of 30 hours per week or 130 hours per month. Count hours of service performed in the U.S. only. Related companies are treated t as if they were one company for purposes of determining whether they are large employers. 33 34
Which Employers Are Affected? All of them, but especially those with 50 or more full-time employees Businesses, Nonprofits and Governmental Employers Any company, U.S. or foreign, with employees living and working in the United States Employers that are fine-tuning their existing health plans and employers that are making major changes to health plans or offering coverage for the first time 35 36
Employer Play or Pay Penalty Type of health coverage that employer must offer to avoid penalty: Minimum essential coverage Minimum value (covers 60% or more of projected health expenses) Affordable (employee s share of premium is no more than 9.5% of income, and income is what the employer actually pays the employee or what the employer would pay if the employee worked 30 hours per week) 37 60 9.5% 38
Employer Play or Pay Penalty No Coverage Penalty: The employer offered health coverage to fewer than 95% of its full-time employees, AND If at least one full-time employee purchases coverage at a new state health insurance exchange and receives a subsidy, THEN The employer owes a penalty equal to $2000 x total number of full-time employees (disregarding the first 30). 39 95% 2000 30 40
Employer Play or Pay Penalty Insufficient Coverage Penalty: If the employer offered health coverage to at least 95% of its full-time employees, AND At least one full-time employee purchases coverage at a new state health insurance exchange and receives a subsidy, THEN The employer owes a penalty equal to $3000 x total number of full-time employees who receive a subsidy for their exchange coverage. 41 95 3000 42
New U.S. Tax Reporting Requirements Every applicable large employer must file annual reports with the U.S. Internal Revenue Service identifying its full-time employees in the U.S. Every employer that provides health coverage to its employees through a self-insured plan, where the employer takes the risk rather than purchasing insurance, must file annual reports with the U.S. Internal Revenue Service identifying all the individuals in the U.S. covered under the plan. 43 44
Compliance Concerns for Employers Changes to group health plan requirements (if employer offers health coverage to employees) New required information reporting and required notices to employees under the Fair Labor Standards Act (October 1, 2013 deadline) Employee whistleblower claims, retaliation claims If the employer is doing a merger or acquisition, iti how does it account for the potential new liability the other company may bring with it? 45 2013 10 1 M&A 46
Things to Consider if Your Company has Employees Living and Working in the U.S. Be sure the employees know about the new requirement that goes into effect January 1, 2014. If the employee expects to file a U.S. income tax return for 2014, the employee may need health insurance. If your company provides health coverage to workers in the U.S., determine whether that insurance will meet the requirement. If you provide the coverage through a U.S. insurance company, it should be able to answer your questions. 47 2014 1 1 2014 48
Things to Consider if you do Business with Companies in the United States U.S. companies will have to provide health coverage to their full-time workers starting January 1, 2015 or risk a penalty. For some U.S. companies, particularly those with many low-wage workers, the employer play or pay penalty will increase their operating costs. These companies may try to avoid hiring more full-time workers in the U.S. because of the added cost. 49 2015 1 1 50
Contact Catherine E. Livingston Jones Day - Washington clivingston@jonesday.com i 1.202.879.3756 Scott Jones Jones Day Tokyo sjones@jonesday.com 81.3.6800.1813 Disclaimer The views expressed by a speaker at the seminar or contained in this presentation material are those of such individual s own, and do not reflect the views of the Firm. This presentation material is prepared for the sole purpose of explanation of the subject matters of this seminar, and is not intended to provide, and should not be deemed to constitute, legal advice on any specific facts or circumstances. This presentation material is protected by the copyright law, and may not duplicated, quoted, modified, translated or distributed without the prior consent of the Firm. 2013 JONES DAY, All Rights Reserved 51 clivingston@jonesday.com i 1.202.879.3756 sjones@jonesday.com 81.3.6800.1813 2013 JONES DAY, All Rights Reserved 52