The final US health reform package; what you need to know
By Ben | Published March 24, 2010
On the 23rd of March, 2010, the President of the United States Barack Obama signed the Patient Protection and Affordable Care Act (H.R. 3590) into law. As part of the President’s efforts to reform healthcare in the United States, this bill marks the biggest change to federal healthcare laws in decades. But what does the bill contain and what effects will the new law have on people?
The bill has a number of provisions, most of which are rolled out in two stages. The first stage is to take fairly immediate effect, with the provisions in the bill to start being actioned by September 21, 2010, while the second set of provisions are to come into effect by 2014.
The first phase is mostly comprised of short term fixes in preparation for the second phase. It includes provisions for: closing the ‘donut hole’ in Medicare by providing rebates for prescription drugs; preventing insurance companies from denying coverage or raising premiums for children with pre-existing conditions; removing lifetime payment limits on insurance coverage and restricting annual limits; allowing young adults to stay on their parents plans until the age of 26; and banning insurance companies from the practice of rescission, whereby coverage is denied or removed after you fall sick, except in case of fraud.
Also included in the first batch of provisions are tax credits for small businesses when purchasing cover, as well as the creation of high-risk pools where uninsured adults with pre-existing conditions will be able to find coverage. The provision for high-risk insurance pools is a temporary measure before state insurance exchanges for individuals and small businesses are set up under the second stage of reform. On a lighter note, indoor tanning services using ultraviolet light are subjected to a 10% tax.
The second phase, whose provisions are slated to be in effect by January 1st, 2014, provides a more robust reformation of rules and systems related to insurance and healthcare in the United States. Some of the provisions include: fully prohibiting insurers from discriminating against individual adults with pre-existing conditions; abolishing annual spending limits on insurance plans; and expanding Medicaid to allow anyone earning 133% of the poverty line to qualify. The Medicare payroll tax is also set to be raised in 2013 for individuals earning US$200,000 or joint-filers earning more than US$250,000, from 1.45% to 2.35%.
By this point in time, state health insurance exchanges for small companies and individuals should be set to start business, offering a larger pool to disperse risk and lower costs. Also, any individual who gets their insurance through their employer will be able to purchase a state-run health insurance option if their premiums are more than 9.5% of their income or if their plan does not cover 60% of the cost of their benefits.
One of the most contentious portions of the bill relates to the mandate to get insurance and the penalties for not doing so. In order to effectively widen risk pools and spread out costs, the bill mandates that everyone with the means must obtain health insurance. Financial penalties will be incurred by companies with 50 or more employees that do not offer their workers health insurance, while individuals will have an annual fine imposed on them for not obtaining insurance. However, there are various financial incentives to promote compliance, such as subsidies for people earning up to 400% of the poverty line and other exemptions for financial hardships and religious views.
But what does this all mean for American expatriates living abroad? While some of the healthcare reform bill, such as the increased Medicare payroll taxes, may affect expatriates, in general the mandate for health insurance and the penalties for not obtaining it will not affect them. In the new Internal Revenue Service (IRS) tax code, expatriates are treated as if they have health insurance regardless of whether they do or not. Although in order to be exempted from the insurance mandate, American expatriates must already be eligible for the IRS’ foreign earned income exclusion.
In order to meet the criteria for the exclusion that allows U.S. expats to avoid paying U.S. taxes on their first US$91,500 worth of income, the expatriate must have a tax home (the general area of your main place of business or employment where you happen to be permanently or indefinitely engaged) in a foreign country, as well as be either a legitimate resident in that country, or spend at least 330 days a year outside the United States.