Expatriots and Obamacare

Obamacare is being rolled out in two phases.  The first phase of the plan started in 2010.  Some of the changes that are already in place are allowing children to stay on their parents health insurance until the age of 26, closing of the Medicare prescription donut hole, preventing insurance companies from denying coverage for children with pre-existing conditions, removing lifetime payment limits on insurance coverage and banning insurance companies from the practice of denying or removing coverage after someone falls sick.   In 2013, the Medicare payroll tax is also set to be raised from 1.45% to 2.35% for individuals who earn $200,000 or more and joint filers earning more than US$250,000.

The second phase, which goes into effect by January 1st, 2014, is when the national health care plan goes into full force.   Some of the changes set to occur are prohibiting insurers from denying coverage to individuals with pre-existing conditions, getting rid of annual spending limits and expanding Medicaid to allow anyone earning 133% of the poverty line to qualify.  State health insurance exchanges for small companies and individuals that offer a pool of insurance companies to choose from should be in affect.  The exchanges will give any individual who gets their insurance through their employer an option 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.

These changes in health care all sound optimistic for individuals who are currently struggling to afford the insurance offered by their employer, the unemployed and the self employed.  However, with the economic conditions over the last 5 years, many adults are looking to move to other countries to start building a life where costs are lower, which begs the question:  Where does this leave the expatriot in regards to Obamacare?

In the new IRS tax code, expatriates are treated as if they have health insurance regardless of whether they do or not.  Although in order to be exempt from the insurance mandate, American expatriates must already be eligible for the IRS “Foreign Earned Income Exclusion”.  To qualify for the exclusion which allows expats to avoid paying U.S. taxes on their first $91,500.00, the expatriate must have a tax home 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.

Expats will not be penalized for not having American health insurance under Obamacare and the new IRS tax code regarding expatriates.