This week, Keith Clausen, President of Envisage International Corporation, writes about the impact of the USA’s Affordable Care Act (ACA) on international students.


International Students and the Affordable Care Act

President Obama signed the Affordable Care Act into law in March of 2010, amid a tremendous political battle that continues to this day. The massive law created equally massive uncertainty around how it would be implemented and how it would actually impact insurers, employers and individual US citizens, residents and visitors. In the four years since its passage, most of the uncertainty has gradually dissipated, although it took a long while for lawmakers and regulators to focus on international students. Finally, though, in the fall of 2013, regulations issued by the IRS [Internal Revenue Service] clarified that the overwhelming majority of international students in the United States are entirely exempt from the ACA for their first five calendar years in the US.

ACA Background - Individual Mandate

First, a little background on the ACA. The individual mandate is the requirement built into the ACA that everyone must have qualifying health insurance (‘minimum essential coverage’), or pay a penalty. The mandate is a core part of the ACA, 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. So far, so good.

But ACA-qualifying coverage is designed as lifetime coverage for Americans, and it doesn’t really suit the needs of international students and others living in the US temporarily. ACA requirements include an unlimited lifetime maximum, preventative care with no cost-sharing and full immediate coverage for all pre-existing conditions. None of these provisions are typical of international policies, and they would drive the cost of coverage up dramatically. In addition, standard ACA coverage does not include international provisions like emergency evacuation, repatriation and language assistance, and generally the carriers issuing ACA policies would not be experienced with the unique needs of international students. Finally, international policies include very low out of pocket costs, while ACA coverage typically has high deductibles. If forced to buy ACA coverage, students would be paying more for coverage they didn’t need, and not getting some of the coverage they do need.

Treatment of Non-US Citizens under the ACA

Realizing that ACA coverage is not appropriate for non-immigrant visitors to the United States, the IRS issued guidance in September of 2013 to clarify exactly which visitors are subject to the individual mandate, and when. Their analysis relied on an existing distinction to determine what non-US citizens in the US need to carry ACA-qualifying coverage, based on the tax status of the person. Those classified as “non-resident aliens” are entirely exempt from the individual mandate and therefore do not need ACA coverage, while “resident aliens” are treated just like US citizens under the ACA. And international students get a special 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. This exemption for international students lasts for the first five calendar years they are in the United States. Most international students, of course, do not stay anywhere near that long.

After five calendar years, a student is no longer exempt, and the ‘substantial presence test’ will determine when the student becomes a resident alien. Generally, six months into their sixth calendar year in the US, an international student would become subject to the ACA, unless they qualify for an additional exemption like the ‘closer connection’ exception.

This straight-forward analysis only holds for students, and the IRS has described other treatment for other categories of visitors to the US, usually not quite as simple. For example, visitors with J1 visas in non-student categories (like teacher, trainee, intern, work and travel, au pair, etc.) generally get a two-year exemption from the substantial presence test, but the exemption looks back six years for earlier visits.

So in short, the vast majority of international students are exempt from the ACA, and therefore free to purchase a customised international student insurance plan that meets their needs and their school’s requirements. If you stay longer than five calendar years as an international student in the US, your situation gets a bit more complicated and you should carefully determine your residency status before choosing your insurance plan.

See Envisage International’s series of blog posts for more detailed information on the ACA:
http://www.envisageinternational.com/blog/category/international-student-insurance/affordable-care-act/

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