Posted on Dec 21, 2015 by Rob McBroom
As an American living abroad, you are legally required to submit a tax return in the US every year, regardless of whether you have an income in the country or not. The interesting thing about this rule however is not that you have to report your income, but that it is through your tax return that you are now legally required to purchase health insurance.
Due to the much-touted adoption of the Affordable Care Act (ACA) in the US, and its direct relation to taxation, there has been some confusion as to whether Americans living abroad need to actually purchase health insurance or not. To that end, we have created this mini-guide which gives a brief overview of the ACA and what Americans living abroad need to be aware of.
Background of the ACA
ACA, Mandatory health insurance, Obamacare, whatever name you call it, the fact of the matter is that Americans are bound by law to now have health insurance. Officially signed into law in 2010, the mandate of the ACA is to provide all Americans with affordable health insurance which in turn helps them offset the ever increasing cost of medical care.
By 2014 most provisions had come into effect, and as Gallup noted in an article earlier this year, the rate of uninsured in the US has dropped from 18% in late 2013 to 11.4% at the end of the first half of 2015.
Are Americans living in China required to secure ACA compliant health insurance?
As we mentioned above, Americans living abroad are required to file income taxes in the US each year, and if their income is over a certain amount, will be required to pay taxes. But how does this relate to health insurance and the ACA?
Believe it or not, the ACA is actually closely related to taxation through what is called the "individual shared responsibility provision". This provision is overseen by the IRS (link may not work in China) which defines it thusly, "Starting in 2014, the individual shared responsibility provision calls for each individual to have qualifying health care coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return."
In plain English, this means that you are required to prove that you have secured health insurance for each month of the tax year when you file your taxes. This is usually as simple as ticking a box on your tax return. To curb confusion, this provision clearly states who is, and isn’t included under the ACA.
As the IRS states, "All U.S. citizens living in the United States are subject to the individual shared responsibility provision as are all permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes.” In other words, Americans and foreigners living IN the US are required to meet the minimum requirements for health insurance coverage which can be found here.
The question here however is whether Americans living in China fall under this regulation? Yes they do, to an extent.
What we mean by this is that there are specific situations where Americans, or foreigners considering going to the US as expats (long term, more than a year) are required to have ACA-compliant health insurance coverage.
The most common situation being that, according to healthcare.gov, "You qualify for a health coverage exemption: [if] you’re a U.S. citizen who either:
- Spent at least 330 full days outside of the U.S. during a 12-month period OR
- Was a bona fide resident of a foreign country (or countries) for a full tax year"
If you are a resident alien who is from a country which has a tax treaty with the US, and was a bonafide resident of another country for the calendar year, you are also exempt from securing health insurance.
What will happen when you file your taxes is that you will be deemed exempt, which means you are automatically considered to have secured minimal coverage. The IRS also notes that, "minimum essential coverage includes a group health plan provided by an overseas employer.” So, if you have a group plan that is ACA compliant, then you should not have to worry about securing a compliant plan.
One thing exempt Americans need to be aware of
In truth, almost all American expats living in China will be exempt from securing an ACA compliant plan, but there is something you still need to consider and that is if you are planning to repatriate back to the US, as technically, you will need to have an ACA plan when you move back.
Beyond that, if you do head back to the US for a short holiday (less than 35 days), and need to seek medical attention, you will be required to pay full price. This is obviously something you would like to avoid, and one of the preferred ways to do so is by securing an international health insurance plan that provides coverage in the US.
The experts at Pacific Prime China can help you find a plan, or can help answer your questions regarding the ACA. Please contact us today to learn more.