Last week's U.S. Supreme Court decision that upheld the majority of the U.S. Patient Protection and Affordable Care Act (PPACA, aka "Obamacare"), including the "individual mandate as a tax," may have many Americans living overseas wondering how they will be affected. In general, the individual mandate says that beginning in 2014 U.S. citizens must either carry healthcare coverage or pay a penalty tax that is scheduled to rise to $695 by 2016. Will Americans who live outside the U.S. be able to purchase the new "affordable" insurance on the state- or federal-run exchanges that are being set up under the Act? Will expats be subjected to the penalty tax if they either cannot or choose not to participate?
In consulting lawmakers and underwriters on the question of whether expat Americans will be able to purchase affordable health insurance under PPACA, we've been told that the PPCA focuses exclusively on domestic insurance coverage and is thus generally state-focused. Therefore, unless you're a resident of a U.S. state, at least for now you will not be able to purchase health insurance policies governed by PPACA. For some expat Americans, this will be welcome news, although others may be disappointed, especially those with difficult to insure or expensive pre-existing or chronic health conditions.
Regarding the question of whether Americans abroad will be subject to tax penalties for not owning qualified coverage under the Act, the answer is also no. The PPACA mandate does not include expatriates. It considers expatriates who qualify to use the IRS defined Foreign Earned Income Exclusion (FEIE) to have the minimum required amount of health insurance (even if they do not) and exempts them from having to pay penalty taxes. However, if you do not qualify for FEIE, you may still be obligated to obtain insurance under the PPACA.
Although penalty taxes may not apply, expat Americans with high salaries should be aware that they may be subject to other taxes, depending on their situation. For example, if your adjusted gross income exceeds $200,000 (single filer), $250,000 (married filing jointly), or $125,000 (married filing separately), beginning in 2013 you will have to pay an additional 3.8% tax on passively earned income (including capital gains, dividends, interest, royalties, rents, and annuities). In addition, if you have earned (salary) income above those same thresholds and make Medicare payroll tax contributions, you will have to contribute an extra 0.9% on the amounts you earn above the thresholds.
At least for now, unless you're either a high-earning or part-time expatriate, PPACA may not have much impact if you live abroad. Nevertheless, acquiring adequate health insurance remains important. To make sure that you'll be able to cover the cost of your care if you fall seriously ill while living overseas, review your current expat policy. Know what it covers, and be sure that you have coverage for anything that might be financially catastrophic, or consider a better policy. Plan for future insurance premium rate increases, and consider what will happen if your current coverage ends due to unemployment or is discontinued by the insurer. Having adequate health insurance will protect not only the physical health but also the financial health of you and your family members.
About Creveling & Creveling Private Wealth Advisory
Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future. For more information visit crevelingandcreveling.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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