- A - Healthcare Reform Explained
- B - J1 Visa Insurance Regulations
- C - The Affordable Care Act and J1 Participants in Non-Student Categories
- D - ACA Essential Health Benefits
- E - Dependent Health Insurance for J2 or F2 Visa Holders
A - Healthcare Reform
PPACA, or the Patient Protection and Affordable Care Act, was signed into law on March 23, 2010 by President Obama. Implementation was slowed by court challenge and state resistance, which came to a head on June 28, 2012 when the Supreme Court upheld the constitutionality of most of PPACA. With the decision followed by the re-election of President Obama in 2012, most state resistance turned to grudging acceptance.
Legislators were not thinking about international students when creating and negotiating this incredibly complex set of changes to US law. In addition, the majority of healthcare insurance in the US is delivered via an employee group plan, and PPACA was designed largely with this delivery model in mind. Therefore international students were far down the list of target groups for legislators and regulators to address and provide clarity.
Nevertheless, we do have clarity now on the main question - how will the individual mandate apply to international students? If you just want the answer, here it is: as Non-Resident Aliens, international students on F, J, M and Q visas are not subject to the individual mandate for their first 5 years in the US. All other J categories (teacher, trainee, work and travel, au pair, etc.) get a 2 year pass (out of the past six). For the full analysis, read on.
What is the Individual Mandate?
The individual mandate is the requirement built into the law that everyone must have qualifying health insurance (“minimum essential coverage”), or pay a penalty. The mandate is a core part of PPACA, because in order to provide more extensive coverage to more people, without pre-existing condition exclusions, the system needs to require everyone to have insurance, even healthy people. Otherwise, healthy people would wait until they got sick to buy insurance, and the plans would not be sustainable as they would pay out more than they take in, raising rates and killing the plans. But for international students, being subject to the mandate would be burdensome as PPACA-qualifying coverage will be more expensive and will not meet their specific needs as well as purpose-built international student insurance plans.
The individual mandate is also the main piece of the legislation that was attacked as unconstitutional based on the argument that we can’t force someone to buy something. In June of 2013, the Supreme Court upheld the constitutionality of the individual mandate; however, their ruling relied on treating the penalty for not having qualifying insurance as a tax. So enforcement of the individual mandate falls squarely on the IRS, and the IRS has provided very clear guidance relating to international students.
IRS on the Individual Mandate (“Individual Shared Responsibility Provision”)
The IRS provides a questions and answers page on the individual mandate, which they refer to as the “individual shared responsibility provision.” Question 11 asks whether all individuals living in the US are subject to the mandate. The answer makes clear that US citizens and permanent Residents are subject to the mandate, as well as “foreign nationals who are in the United States long enough during a calendar year to qualify as Resident Aliens for tax purposes.” The answer further clarifies that foreign nationals that don’t qualify as Resident Aliens, even if they have to file a tax return, are not subject to the mandate.
Determining Alien Tax Status (Resident or Non-Resident)
So how do you determine whether someone is a Resident Alien or Non-Resident Alien for tax purposes? The IRS gives very clear guidance on this point as well - you are a Non-Resident Alien unless you meet either the green card test or the substantial presence test.
IRS Publication 519, Tax Guide for Aliens, describes the two tests. The green card test is self-explanatory - green card holders are Resident Aliens for tax purposes. The substantial presence test is a bit more complicated. It uses a formula to count the number of days present in the US over the past 3 years, but in any event generally it makes you a Resident Alien after half a year of presence in the US - unless you are exempt.
International Student Exemption
Finally, we get to the heart of the matter - the international student exemption. Anyone “temporarily in the United States on an “F”, “J”, “M”, or “Q” visa for the primary purpose of studying at an academic institution or vocational school, and who substantially complies with the requirements of that visa,” is exempt from being treated as a Resident Alien, and is automatically a Non-Resident Alien.
That exemption holds for 5 years. After 5 years, a student is no longer exempt, and the substantial presence test can begin.
Even after 5 years in the US, an international student can continue their status as a Non-Resident Alien for tax purposes under the “Closer Connection” exception that allows the student to prove that they still have a closer connection to their home country than to the US.
So in short:
- The individual mandate applies to US citizens, green card holders and Resident Aliens, but not to Non-Resident Aliens (regardless of their need to file a return).
- Alien tax status (Resident or Non-Resident) is determined by the green card test or substantial presence test.
- F, J, M and Q visas are exempt from the substantial presence test for 5 years, and therefore are Non-Resident Aliens for first 5 years in the US.
- After that, students can apply for an exception to continue their tax status as Non-Resident Alien.
- As Non-Resident Aliens, F, J, M and Q visa holders are not subject to the individual mandate.
- Since they are not subject to the mandate, international students are free to acquire insurance coverage more targeted to their specific needs, without concern as to whether their plan meets PPACA requirements.
Non-Student J Visa Categories
One thing to be mindful of are those who are traveling under a non-student J visa category, as they are treated slightly differently. This include Au Pairs, Work and Travel, Trainees/Interns, Teachers, Camp Counselors, etc… They have all been lumped into one main category called “Teachers and Trainees,” and the IRS makes clear that all J1 participants in non-student categories fall into this group. For these people, the exemption is for two years out of the past six.
So after a J1 participant in a non-student category has used up their two calendar year exemption, they must rely on other exemptions (like the Closer Connection exception) or apply the substantial presence test. Under the substantial presence test, you must count the number of days you are present in the US (as defined by the IRS) for the past three years. You add up the full number of days from the current year, 1/3 of the days from the last year, and 1/6 of the days from two years ago. If the resulting sum exceeds 183 days, you are a Resident Alien. The IRS provides a page of very instructive examples to help determine whether a foreign national is a Resident or Non-Resident Alien for tax purposes. For any period that you are exempt or not in the US, you do not count the days.
There will be a small number of J1 participants in non-student categories (for instance, au pairs on a second placement, after an earlier 2-year placement that used up their exemption) that will technically become “Resident Aliens” and therefore subject to the mandate to have ACA coverage. Since they will be leaving the US and returning to their home country soon, many understandably are not aware or just ignore the whole issue. For those people, the ACA will be one more obligation to ignore. For those foreign visitors that abide by the letter of the law, once they become a Resident Alien they will need to have “essential minimum coverage” under the ACA, or pay the extra fee on their 1040 tax return.
B - J1 Visa Insurance Regulations
62.14 J Visa Coverage Requirements
- Sponsors must require that all exchange visitors have insurance in effect that covers the exchange visitors for sickness or accidents during the period of time that they participate in the sponsor's exchange visitor program. In addition, sponsors must require that accompanying spouses and dependents of exchange visitors have insurance for sickness and accidents. Sponsors must inform all exchange visitors that they, and any accompanying spouse and dependent(s), also may be subject to the requirements of the Affordable Care Act.
- The period of required coverage is the actual duration of the exchange visitor's participation in the sponsor's
exchange visitor program as recorded in SEVIS in the “Program Begin Date,” and as applicable, the “Program End
Date,” “Effective Program End Date,” or “Effective Date of Termination” fields. Sponsors are not authorized to
charge fees to their sponsored exchange visitors for the provision of insurance coverage beyond any demonstrable
and justifiable staff time. Sponsors are not required to, but may, offer supplemental “entry to exit” coverage
(i.e., coverage from the time the exchange visitor departs his or her home country until he or she returns). If
the sponsor provides health insurance, or arranges for health insurance to be offered the exchange visitor, via
payroll deduction at the host organization, the exchange visitor must voluntarily authorize this action in
writing and also be given the opportunity to make other arrangements to obtain insurance. These authorizations
must be kept on file by the sponsor. Minimum coverage must provide:
- Medical benefits of at least $100,000 per accident or illness;
- Repatriation of remains in the amount of $25,000;
- Expenses associated with the medical evacuation of exchange visitors to his or her home country in the amount of $50,000; and
- Deductibles not to exceed $500 per accident or illness.
- Insurance policies secured to fulfill the requirements of this section:
- May require a waiting period for pre-existing conditions that is reasonable as determined by current industry standards;
- May include provisions for co-insurance under the terms of which the exchange visitor may be required to pay up to 25% of the covered benefits per accident or illness; and
- Must not unreasonably exclude coverage for perils inherent to the activities of the exchange program in which the exchange visitor participates.
- Any policy, plan, or contract secured to fill the above requirements must, at a minimum, be:
- Underwritten by an insurance corporation having an A.M. Best rating of “A−” or above; a McGraw Hill Financial/Standard & Poor's Claims-paying Ability rating of “A−” or above; a Weiss Research, Inc. rating of “B+” or above; a Fitch Ratings, Inc. rating of “A−” or above; a Moody's Investor Services rating of “A3” or above; or such other rating as the Department of State may from time to time specify; or
- Backed by the full faith and credit of the government of the exchange visitor's home country; or
- Part of a health benefits program offered on a group basis to employees or enrolled students by a designated sponsor; or
- Offered through or underwritten by a federally qualified Health Maintenance Organization or eligible Competitive Medical Plan as determined by the Centers for Medicare and Medicaid Services of the U.S. Department of Health and Human Services.
- Federal, state or local government agencies; state colleges and universities; and public community colleges may, if permitted by law, self-insure any or all of the above-required insurance coverage.
- At the request of a non-governmental sponsor of an exchange visitor program, and upon a showing that such sponsor has funds readily available and under its control sufficient to meet the requirements of this section, the Department of State may permit the sponsor to self-insure or to accept full financial responsibility for such requirements.
- The Department of State may, in its sole discretion, condition its approval of self-insurance or the acceptance of full financial responsibility by the non-governmental sponsor by requiring such sponsor to secure a payment bond in favor of the Department of State guaranteeing the sponsor's obligations hereunder.
- Accompanying spouses and dependents are required to be covered by insurance in the amounts set forth in paragraph (b) of this section. Sponsors must inform exchange visitors of this requirement, in writing, in advance of the exchange visitor's arrival in the United States.
- Exchange visitors who willfully fail to maintain the insurance coverage set forth above while a participant in an exchange visitor program or who make material misrepresentations to the sponsor concerning such coverage will be deemed to be in violation of these regulations and will be subject to termination as an exchange visitor.
- Sponsors must terminate an exchange visitor's participation in their program if the sponsor determines that the exchange visitor or any accompanying spouse or dependent willfully fails to remain in compliance with this section.
C - The Affordable Care Act and J1 Participants in Non-Student Categories
The quick answer to the question “Do J1 participants in the US need to have ACA qualifying coverage?” – is in almost all cases, no.
International students on J1 visas are exempt from the ACA for 5 years, and we covered that in our earlier blog post. J1 participants in the US in non-student categories (those that are not engaged in full-time study in the US) are exempt from the mandate to buy ACA-style coverage for their first 2 years in the US, as nonresident aliens for tax purposes. After their two-year exemption and any extensions end, they must apply the “substantial presence test” to determine whether they have become a resident alien. If a J1 participant becomes a “resident alien” based on the substantial presence test, they need to either have ACA qualifying coverage or else pay the fee on their tax return. Only very few J1 participants – those on repeat long-term placements, like an au pair on a second two-year placement, or a teacher on a 3-year program – will become resident aliens and thus technically be required to have ACA coverage. Short-term program participants, like Work and Travel and Camp Counselor, will never become resident aliens regardless of the number of programs they do. It’s also important to note that there are existing, other ramifications of becoming a resident alien, so none of this analysis is new. For instance, the obligation on an employer (like an Au Pair host family) to withhold Social Security and Medicare kicks in for resident aliens. The full explanation is below.
Affordable Care Act for Foreign Nationals in the United States
The IRS has provided very clear guidance on how the individual mandate (the “shared responsibility provision”) under the Affordable Care Act (ACA) will be applied to foreign nationals living in the United States (see question 11 on the IRS ACA Q&A page). In all cases, the application of the individual mandate will be based on whether the foreign national is a resident alien or non-resident alien for tax purposes. The benefit of this approach is that it provides very clear guidance, under pre-existing concepts and law, as to what non-US citizens will be subject to the individual mandate and therefore required to have qualifying insurance coverage (or pay the additional tax). Foreign nationals “who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes” will be required to have coverage that qualifies under the ACA; those that do not qualify as resident aliens (and who are therefore non-resident aliens as far as the IRS is concerned) do not have to have ACA coverage, even if they have to file a tax return.
“Teacher and Trainee Exemption” – Two Years of the Past Six
So to determine whether a particular foreign national needs to have ACA-style coverage, we need only determine whether they would be considered a resident alien or non-resident alien by the IRS. Our earlier blog post describes the analysis for international students on F1 or J1 visas, who are all exempt for their first five years in the country. The IRS has also detailed treatment of all non-student J1 categories, which is a little more involved. Although all lumped into one category called “Teachers and Trainees,” the IRS makes clear that all J1 participants in non-student categories fall into this group (including Au Pairs, Work and Travel, Trainees/Interns, Teachers, Camp Counselors, etc.). For these people, the exemption is for two years out of the past six.
Substantial Presence Test
So after a J1 participant in a non-student category has used up their two calendar year exemption, they must rely on other exemptions (like the Closer Connection exemption) or apply the substantial presence test. substantial presence test, you must count the number of days you are present in the US (as defined by the IRS) for the past three years. You add up the full number of days from the current year, 1/3 of the days from the last year, and 1/6 of the days from two years ago. If the resulting sum exceeds 183 days, you are a resident alien. The IRS provides page of very instructive examples to help determine whether a foreign national is a resident or non-resident alien for tax purposes. For any period that you are exempt or not in the US, you do not count the days.
As mentioned above, no short-term, medium-term or single placement J1 participants will ever become “resident aliens” and therefore will never become obligated to have “essential minimum coverage” under the ACA. This is a positive outcome for the cultural exchange industry, as this leaves participants and sponsors free to meet State Department guidelines and to use custom-built, targeted international exchange plans. ACA plans, like those available on the exchanges, are built for domestic use by US citizens and do not include many important provisions commonly found in J1 plans.
There will be a small number of J1 participants in non-student categories (for instance, au pairs on a second placement, after an earlier 2-year placement that used up their exemption) that will technically become “resident aliens” and therefore subject to the mandate to have ACA coverage. My suspicion, based solely on a few conversations but not on any real evidence, is that many temporary visitors to the US, whether on J1 visas or otherwise, ignore the point at which they technically become a resident alien and the current ramifications of that status. These participants are not filing a Form 1040 (instead of the 1040NR), not withholding social security and medicare, etc. Since they will be leaving the US and returning to their home country soon, many understandably are not aware or just ignore the whole issue. For those people, the ACA will be one more obligation to ignore. For those foreign visitors that abide by the letter of the law, once they become a resident alien they will need to have “essential minimum coverage” under the ACA, or pay the extra fee on their 1040 tax return.
D - ACA Essential Health Benefits
A set of health care service categories that must be covered by certain plans, starting in 2014. The Affordable Care Act ensures health plans offered in the individual and small group markets, both inside and outside of the Health Insurance Marketplace, offer a comprehensive package of items and services, known as essential health benefits. Essential health benefits must include items and services within at least the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Insurance policies must cover these benefits in order to be certified and offered in the Health Insurance Marketplace. States expanding their Medicaid programs must provide these benefits to people newly eligible for Medicaid.
E - Dependent Health Insurance for J2 or F2 Visa Holders
Many colleges and universities offer group health insurance plans for their international students and visiting scholars. In the past, many students and scholars were able to include their children and spouses (holders of J2 or F2 visas) on their school’s group plan as well. Now, with many schools offering Affordable Care Act compliant group plans, we are seeing a trend where schools are no longer extending coverage to spouses and children, and if they are, they are offering coverage at sometimes double or triple the price.
The Affordable Care Act (ACA) requires all compliant insurance plans to have an unlimited policy maximum, along with coverage for maternity, preventative care, pre-existing conditions with no waiting period, among other benefits. As many schools adopt this type of coverage for their students, they are seeing their rates climb to unprecedented levels to accommodate these new benefits. Carriers are also slowly getting more claims experience as we are now in the second year on these ACA compliant plans, and this experience is showing them that dependents are a leading cause of increased claims. Many dependents do not have authorization to work, and are of the age to start a family – which leads to increased maternity claims, amongst other things, that are expensive in the USA.
As dependents appear to be a leading cause of increased claims in many cases, schools are choosing to make two primary changes to their group insurance plans:
- Remove dependents – Many schools have decided to remove dependent coverage from their plans, forcing spouses and dependents to look elsewhere for coverage. These spouses and children may still need to meet certain insurance minimums set forth by their school, or if they are on a J2 visa, they must also have a plan that meets the Department of State Insurance Requirements.
- Increased premiums – Some schools have decided to keep dependents on their insurance plan, however they have increased the rates, sometimes 2-3 times more than the insurance plan for a regular international student or scholar.
If you are a dependent facing one of these options, you are not alone. There are many dependents that are looking for insurance coverage while they are in the US, looking to stay compliant with their visa and with their school’s health insurance minimums.
If your school is not offering an insurance plan for dependents, or if the plan is out of your price range, then you can purchase an individual insurance plan for your family instead. You’ll need to be aware that many international student specific plans do not allow you to add dependents, because of the high usage rate. To avoid any problems, check the plan’s eligibility to make sure that dependents are eligible first.
There are many plans out there that work great for dependents (with or without the student or scholar), meet the J visa requirements, and are typically more affordable than your school’s group insurance plan. Here are three popular individual plans that work well for dependents depending on how long you need coverage and the type of coverage your family needs:
Travel Medical (Less than one year)
The Travel Medical plan is an excellent options for children and spouses needing coverage for less than one year, and children under 9 are free for each parent that is insured on the plan. This Travel Medical policy covers accidents and illnesses that occur on the plan, including coverage for doctor visits, hospitalization, prescription medication, medical evacuation, repatriation of remains, and more. This plan provides families with flexibility, allowing them to choose the duration of coverage, from as little as 5 days up to 364 days. This plan does not cover wellness, maternity, organized sports, pre-existing conditions or mental health – and will only cover families outside their home country.
Patriot Travel (Less than two years)
The Patriot Travel plan is another excellent option for families needing up to two years of coverage. Like the Travel Medical, it is designed to cover new accidents and illnesses that happen on the plan, and will cover doctor visits, hospitalization, prescriptions, medical evacuation and repatriation of remains. Similarly, it will not cover wellness, maternity, organized sports, pre-existing conditions or mental health, and will only cover families outside their home country. This is an excellent option for families wanting to cover those “just in case” situations, such as colds, injuries, or emergencies, allowing you to purchase one year and renew for a second year.
Global Medical (One year or more)
The Global Medical plan is a great plan for those families either looking for comprehensive coverage, or are needing long-term coverage. This plan provides worldwide coverage, including in your home country, covering accidents and illnesses no matter where they happen. This plan is annually renewable and available in four levels, allowing you to choose the most appropriate coverage. Depending on the plan level, your insurance plan will cover you for maternity, vision, dental, wellness and you can also get coverage for preexisting conditions. This insurance plan is medical underwritten, so you will need to disclose your medical health history, which will then be evaluated by an underwriter within 5 days of submission. This plan also allow payment flexibility, where you can choose to pay annually, semi-annually, quarterly, or monthly.