Advance, North Carolina - As we are into the Open Enrollment period of Obamacare, (Oct. 1st, 2013-March 31st, 2014), most American Expats are wondering where they fit into this expectation of mandatory medical insurance and if they will have Internal Revenue Issues if they don't participate with a so-called Qualified or Acceptable medical plan?
I've been doing some research and talking to Accountants and International Insurance companies as well as Local US Brokers and, to say the least, many are still in the dark about the domestic ramifications. Whether you're an opponent or proponent of this law, I believe it's here to stay in some form for many years to come... I believe that some type of medical reform was necessary, especially insuring those with medical preexisting conditions... I'm sure there will be many growing pains...
So, how does this affect YOU as an Expat?
What is known as Obamacare' or Patient Protection & Affordable Care Act (PPACA)' is definitely the most massive undertaking inside the USA since the implementation of Social Security back in 1935, this 2,700 page of mandated legislation goes into effect on January, 2014, continuing till fully implemented by 2018. Just to give you a reference on how large an undertaking this is, Healthcare equals 18% + of our country's Gross Domestic Product.
I can be here all day enlightening you on this massive healthcare milestone, however; I will focus on what it means to YOU as an Expatriate! For now, the U.S. Expatriate is unscathed... the dicey part is:
What determines the definition of a U.S. Expatriate?
An individual whose tax home is in a foreign country and who is:
A) A citizen of the United States and establishes to the satisfaction of the Secretary of the Treasury that the individual has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire taxable year, or
B) A citizen or resident of the United States who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days.
Basically the Physical Presence test requires you to be physically present in a foreign country for 330 days in a 365 day period. So the example of someone who is in the U.S. for 3 months each year would not qualify.
The Bona Fide Resident test requires you to be permanently living in a foreign country with no intention of returning to the USA.
While we are on the Tax Issue: One point to remember is that, starting in 2013, there may be an impact on your expatriate taxes if your income exceeds certain levels. Those are $200,000 for a single filer, $250,000 for married filing jointly, or $125,000 for married filing separately. For high-earning expats, you will be required to pay an extra 3.8% tax on passive income such as capital gains, interest, rents, and so on. If you pay Medicare payroll taxes, you will have to contribute an extra 0.9% on income earned above those thresholds.
What Happens If You Don't Meet the Definition of an Expat and Fail to Retain Minimum Essential Coverage?
Beginning in 2014, the Patient Protection and Affordable Care Act (PPACA) requires nearly all individuals to demonstrate and maintain proof of "minimum essential coverage." Failure to demonstrate and maintain minimum essential coverage will leave an individual subject to the individual mandate tax.
For an individual, the tax begins in 2014 and will be $95 or 1 percent (whichever is greater) of household income above the filing threshold. In 2015, it rises to $325 or 2 percent above the filing threshold. In 2016, it reaches $695 or 2.5 percent above the filing threshold. (For families, the figure will be $2,085 in 2016.) After 2016, the amount will rise annually by a cost-of-living adjustment.
Does Obamacare Effect Medicare?
Obamacare, or PPACA, Patient Protection and Affordable Care Act, mainly applies to those under 65. Medicare is a separate government health program. Obamacare rules apply mostly to individual and group health insurance policies for Americans under the age of 65 and who are not yet eligible for Medicare.
The issue you will face is that Medicare does not currently pay any benefits for out of the country services and even the supplemental attached to the Medicare A & B will offer a limited amount of benefit, possibly $50,000 and a limited coverage period of maybe 60 days. (Check with your provider, different companies vary with both benefits and time allowed outside the United States per trip.)
I personally see some major issues that Obamacare will cause on the underlying benefits that Medicare recipients will face. I see participation age limits continuing to increase, I see longer waiting times, I see Benefits and Quality of Providers deteriorating, I see prices for Medicare Advantage increasing... the landscape is ever changing.
Where Do US Expatriates Go From Here?
The first and most important thing to do is speak to your Accountant and Financial Advisor and make sure you are following the rules to retain your Expatriate status. Once this is done, you can be assured that you can retain the correct International Medical Insurance policy that will protect you and your family, mainly for catastrophic accidents or illnesses.
• For younger and middle aged individuals or families, that are healthy, (under age 65), I suggest you acquire a quality International medical insurance plan that can include or exclude the USA/Canada and if you decide to exclude US/Canada coverage and only return to visit a couple of weeks per year... then you can retain a Travel Medical policy when visiting, however; this temporary policy WILL NOT cover the onset of a medical pre-existing condition.
• For younger and middle aged individuals or families, (under age 65), that are dealing with a severe medical pre-existing condition, (cancer, diabetes, heart issues, etc.), I think you may need to reconsider your permanent status in a foreign country and learn to split time between the U.S.A and your second home. My reasoning is this, as much as I dislike this Obamacare overhaul; it has definite advantages for those with medical pre-existing conditions. Those people with chronic or congenital conditions mentioned above can retain the PPACA plan domestically and purchase an International Travel Medical or Air Evacuation plan... so they can return in case of an emergency and be treated in the USA upon their return for little money out of pocket.
• When it comes to those youngsters, age 65 years young or more, you can retain the Medicare Advantage plan along with your Medicare A&B, and live full time outside the USA... purchasing a Travel Medical plan along with a Quality Air Evacuation for less than $2,000-$4,000 per year. Or just purchase the Air Evacuation for less than $700 per year... once you return to the USA, your care is pretty much taken care of!
This information is for educational purposes only, it is highly suggested you contact your Accountant and Financial Investment Professional. Thanks to David McKeegan for some reference points and the awesome linked information from his Expat Tax Services website, GreenbackTaxServices.com.
There are 3 key dates you'll want to mark on your calendar:
• October 1, 2013: Marketplace open enrollment started
• January 1, 2014: PPACA Health coverage starts
• March 31, 2014: Open enrollment ends
Please feel free to contact me with any questions, if I don't know the answer immediately, I will get the answer for you!John W. McGee - President
Insuring People All Over the Globe Since 1992
US Tel: 336-998-9583