“Minimum Essential Coverage”–And How To Avoid It
The U.S. government is on a mission to keep Americans and their money from leaving the country. By now, you’ve heard about FATCA. This Foreign Account Tax Compliance Act, signed in 2010, has yet to take full effect but is already starting to make it more difficult for Americans to do business around the world. Even if you find a bank still willing to do business with U.S. persons, you’re likely to find, as well, that you can’t make or take payments to or from that account.
I’m exaggerating a bit, but the situation is worsening quickly, and FATCA is only one piece of this diabolical puzzle. Many see the new IRS Form 8938, for example, as a predecessor to the implementation of a U.S. wealth tax.
The Senate did fail to get a new law passed that would have made it possible for the IRS to have an American’s passport revoked if the IRS deemed that American owed US$50,000 or more to them in taxes. For now. I think you can expect to see that proposal pop up in other legislation at some point.
With all the effort going into keeping Americans and their money at home, it’s curious that the Obama administration would now do something to encourage Americans to move overseas. The Affordable Health Care Act, which requires all U.S. persons to have health insurance, exempts and excludes several groups. If you don’t have health insurance through an employer or other source, you, as a U.S. person, are required to purchase the “minimum essential coverage” as set out in the law unless…
- You are a member of an Indian tribe (they are independent nations, after all)…
- You are an illegal alien (maybe the idea is they’ll go home if they are cut off from the health care system)…
- It’s against your religion (Tom Cruise is looking a little less crazy)…
- You happen to be in jail (I guess the prison health care system is good enough for you in that case)…
Additionally, if you can’t afford coverage, you’re exempt.
Look deep enough into the law, and you find another set of people who are not required to invest in the “minimum essential coverage”–those who qualify for the Foreign Earned Income Exclusion (FEIE). If you do, you are automatically considered to have the minimum essential coverage. Note that you don’t have to take the FEIE. You just have to qualify for it.
In other words, if you’re a bona-fide resident of another country for at least an entire tax year or you meet the “Days Test,” as it’s referred to (being physically present in another country for at least 330 days of the year), then you don’t have to buy health insurance under the Affordable Care Act for the months you meet those criteria.
Here are the relevant clauses:
PATIENT PROTECTION AND AFFORDABLE CARE ACT
Section 1501/5000a
(f)(4) INDIVIDUALS RESIDING OUTSIDE UNITED STATES OR RESIDENTS OF TERRITORIES
Any applicable individual shall be treated as having minimum essential coverage for any month–
- if such month occurs during any period described in subparagraph (A) or (B) of section 911(d)(1) which is applicable to the individual, or
- if such individual is a bona fide resident of any possession of the United States (as determined under section 937(a)) for such month.
Citizens or residents of the United States living abroad.
Section 911
(d) Definitions and special rules
For purposes of this section–
(1) Qualified individual
The term “qualified individual” means an individual whose tax home is in a foreign country and who is–
- a citizen of the United States and establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
- a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period.
Of course, the whole mandated health insurance issue is mis-focused. Health insurance companies are one reason health care costs are so high in the United States. The litigious society that sues doctors for huge punitive damages doesn’t help.
But leave all that. There is an out. You can get out of the requirement to carry health insurance by moving overseas…where health care can be much cheaper than in the United States. Because health insurance isn’t mandated and patients don’t sue doctors at the drop of a scalpel.
Which brings me back to my starting point.
Lief Simon
Editor’s Note: Today’s essay is reprinted from Lief’s Offshore Living Letter, a free e-letter published Monday and Thursday each week. If you’re not yet on the list to receive it, sign yourself up here now.
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