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IRS Excludes Expatriate Health Plans From ACA Tax

by Mike Godfrey, Tax-News.com, Washington

01 April 2015


The Internal Revenue Service has issued a special rule to exclude expatriate health plans from the Affordable Care Act's health insurance provider fee – the annual fee imposed on insurers of US health risks – for the 2014 and 2015 fee years.

More commonly known as the health insurance tax (HIT), the fee's annual burden on the insurance industry is expected to reach USD14.3bn by 2018, and will then continue to rise based on premium trends every year.

The Joint Committee on Taxation (JCT) has estimated that HIT – essentially a non-deductible excise tax based on the sales price of health insurance – will generate revenues in excess of USD100bn over the ten years from 2014.

It is also expected that the tax will increase individual and small group health insurance premiums by an additional two to three percent. Both the JCT and the Congressional Budget Office have indicated that they expect a very large portion of HIT to be passed through to the purchasers of insurance in the form of higher premiums.

The IRS's new special rule (within Notice 2015-29) will now exclude expatriate health plans from each insurer's share of HIT allocated to it, in proportion to its relative market share as determined by its net premiums written in a data year, which is the year immediately preceding the year in which the HIT is paid (the fee year).

The HIT is imposed on insurers covering a "US health risk," defined to mean the risk of any individual who is "a US citizen, a resident of the US, or located in the US."

Previous HIT regulations did not provide specific rules for expatriate health plans, but in March last year the IRS issued Notice 2014-24, which provided a temporary safe harbor for a covered entity that reported expatriate health plans, defined as "group health insurance policies that provide coverage to employees, substantially all of whom are working outside their country of citizenship; working outside their country of citizenship and outside the employer's country of domicile; or non-US citizens working in their home country."

That Notice allowed an insurer to exclude 50 percent of its direct premiums written for expatriate health plans in determining its HIT liability for the 2014 and 2015 fee years. It was confirmed that certain insurers had applied the allowance in reporting their direct premiums written for purposes of determining their 2014 fee, which was due on September 30, 2014.

However, within the budgetary appropriation bill approved by the US Congress on December 16, 2014, expatriate health plans have now been specifically excluded from HIT, as, for calendar years after 2015, a qualified expatriate (and any spouse or dependent) enrolled in an expatriate health plan is not to be considered a "US health risk."

The new legislation has also provided a special rule applying solely for the purposes of determining HIT for fee years 2014 and 2015. The special rule does not affect the calculation of HIT generally for all insurers, but, instead, after HIT is calculated, it is proportionally reduced for insurers with expatriate health plans to account for their net premiums written for those plans.

Therefore, for fee years 2014 and 2015, an insurer with net premiums written for expatriate health plans will pay lower HIT, but this reduction will have no impact on HIT for the remaining insurers.

TAGS: individuals | expatriates | compliance | Insurance | tax | business | tax compliance | law | insurance | insurance tax | excise duty | Internal Revenue Service (IRS) | tax authority | health care | legislation | United States | revenue statistics | regulation | Expats | Health Insurance | Tax

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