The Affordable Care Act And Nonimmigrant Students and Scholars

February 20, 2014

 

The Patient Protection and Affordable Care Act (Affordable Care Act - ACA) requires individuals who do not maintain “minimum essential healthcare coverage” to make an additional payment to the Internal Revenue Service (IRS) when they pay their taxes, unless they are exempt. This is often called the “individual mandate.” The administration also refers to this as the “individual shared responsibility” provision. The Healthcare.gov website states that persons subject to the individual mandate can avoid the shared responsibility fee if they enroll in a compliant plan by the close of the open enrollment period, March 31, 2014.

This page provides some general information regarding the Affordable Care Act and individuals in nonimmigrant status, focusing on the following two questions:

  • To what extent are nonimmigrants subject to the ACA’s individual mandate?
  • Can a school’s student health plan meet the requirements of minimum essential coverage under the ACA?

The individual mandate and nonimmigrant students and scholars

A nonimmigrant alien's tax residency status under Internal Revenue Service (IRS) rules determines whether he or she is subject to the requirement to carry ACA-compliant insurance or to pay the tax penalty for not carrying it:

  • Nonresident aliens for tax purposes are not subject to the individual mandate
  • Resident aliens for tax purposes are subject to the individual mandate

Background

The ACA provides in general that aliens who are “lawfully present in the United States” will be subject to the individual mandate and the shared responsibility payment. IRS regulations at 26 CFR 26 CFR §1.5000A-1(a) provide that "For each month during the taxable year, a nonexempt individual must have minimum essential coverage or pay the shared responsibility payment." The question then becomes whether nonimmigrants are "exempt" or "nonexempt." If exempt, they do not need to carry minimum essential coverage or pay the shared responsibility payment under the ACA. Since the shared responsibility payment is connected to the tax process, the categories of individuals exempt from the individual mandate are listed in IRS regulations, at 26 CFR §1.5000A-3 [as amended by 78 Fed. Reg. 53646 (August 30, 2013)]. Paragraph (c) of that section defines defines "exempt noncitizens" to include individuals who are not U.S. citizens or U.S. nationals and are either:

  • A nonresident alien for tax purposes for the taxable year that includes the month being counted; or
  • An individual who is not lawfully present on any day in the month

Determining alien tax residency status

As stated, under IRS regulations a nonimmigrant's tax residency status determines whether he or she is subject to the individual mandate. The IRS rules for determining tax status for nonimmigrants are unchanged by the ACA, and remain as complex as they have always been. A detailed review of those rules is beyond the scope of this resource, but generally, nonimmigrants are considered nonresident aliens for tax purposes (and therefore exempt from the ACA individual mandate) if the amount of time they have spent in the United States does not exceed the time specified by the IRS substantial presence test. To meet this test, a person must be physically present in the United States on at least:

  1. 31 days during the current year, and
  2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
    • All the days you were present in the current year, and
    • 1/3 of the days you were present in the first year before the current year, and
    • 1/6 of the days you were present in the second year before the current year.
     

A student lawfully present in the United States in F, J, M, or Q status (and his or her dependents), however, is exempt from counting days of presence for five years after entering the United States. And so, most F-1, M-1, and J-1 students and their F-2, M-2, and J-2 dependents will be treated as nonresident aliens for tax purposes. Even after five years and meeting the substantial presence test, students may elect continued treatment as nonresident aliens, if they meet IRS conditions for students who maintain a closer connection to a foreign country than to the United States.

A teacher or trainee lawfully present in the United States in J or Q status (and his or her dependents) are exempt from counting days towards substantial presence only for their first two years in the United States. The IRS definition of "teachers or trainees" for purposes of this exemption also extends to any nonimmigrant in "J" or "Q" status who is not a student (remember that J students are included in the "student" exemption described above). This includes, for example, J research scholars, professors, short-term scholars, specialists, physicians, trainees, interns, au pairs, camp counselors, etc. These exchange visitors who eventually meet the substantial presence test can also elect continued treatment as a nonresident alien for tax purposes under a closer connection exception that is stricter than the closer connection exception for students.

To exclude days of presence in the United States because you fall into a special category like these, you must file Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition with IRS each year.

Nonimmigrants in other categories cannot exclude days of presence like students and exchange visitors, but may in some cases be allowed to make elections which override the substantial presence test, as follows:

Applying the rules for determining tax status requires great attention to detail, and a nonimmigrant's tax residency status (and therefore his or her liability under ACA) can change during the year. For additional general information on tax filing requirements for students and scholars, view the following IRS Web pages. For specific information, consult a tax expert.

Participation in the Insurance Marketplace and State Exchanges

It is also important to distinguish between being subject to the individual mandate and being eligible to participate in the insurance marketplace. In most cases, a lawfully present nonimmigrant who is exempt from the individual mandate would still qualify for marketplace coverage through the State exchanges, if he or she so desired. See www.healthcare.gov for a list of immigration statuses that qualify for marketplace coverage. It is still unclear whether an individual not subject to the individual mandate but eligible to participate in the insurance exchanges would also be eligible for subsidies and other cost-lowering benefits.

Short Gaps Under the ACA

Some other peculiarities of the ACA may also impact whether someone is covered by the law, and if so, whether the tax penalty must be paid:

  • The ACA specifies that a person is considered a "qualified individual" only if the person is and can reasonably expected to be lawfully present in the United States for the entire period of enrollment in a plan that offers required coverage [ACA 1301(f)(3)]. A Congressional Research Service report concluded that “Until the exchanges are operational, it is unknown what the shortest period of enrollment will be and whether certain nonimmigrants who are in the United States for limited periods of time, in many cases under six months, would be covered by the mandate (e.g., tourists (B-visas), cultural exchange (J-visas), performers and athletes (O- and P-visas)).”
  • The ACA statute and HHS and IRS regulations provide for a "short coverage gap" exemption if an individual is without minimum essential coverage for a continuous period of less than three full calendar months during a tax year. The Congressional Research Service report also noted that, “In addition, no penalty will be imposed on those without coverage for less than three months (with only one period of three months allowed in a year), so for aliens in the United States for less than three months (e.g., most tourists) there would be no consequences to not having health insurance.”

Student health plans under the ACA

An HHS Final Rule effective April 20, 2012 [77 Fed.Reg. 16453 (March 21, 2012)] defined “student health insurance coverage” as a type of “individual health insurance coverage” under the ACA. A student health plan that meets the requirements specified in the HHS rule will:

  1. Constitute “minimum essential health coverage” that satisfies the individual mandate
  2. Receive more favorable “phase-in” exceptions than other types of individual coverage. The supplementary information that precedes the 2012 final rule discusses the variety of student health plans currently offered, and identifies plans that qualify for the above purposes and those that do not.

Under a subsequent HHS final rule effective August 26, 2013 [78 Fed.Reg. 39493 (July 1, 2013)], self-funded college or university health plans or policy years that begin on or before Dec. 31, 2014 will be deemed to constitute “minimum essential coverage.” Sponsors of self-funded plans that begin after that date will be able to apply to HHS for recognition as minimum essential coverage, as described later in this practice resource. The following table explains which types of institutional health insurance will be considered “student health insurance coverage” constituting “individual health insurance coverage” under the ACA:

Institutional Insurance Type Definition Health Care Reform

Student Health Insurance

Student health insurance is a written agreement between an institution of higher education and a health insurance issuer, and provided to students enrolled in that institution and their dependents, that meet certain conditions.

A school insurance plan that makes health insurance coverage available other than in connection with enrollment as a student (or a dependent of a student) in the institution, e.g., to international scholars and employees, does not qualify as a student health plan under the ACA. Such a plan might still qualify as an individual plan, though, in which case the special phase-ins of a "student health plan" would not apply.

Defined as an individual health insurance coverage under ACA. Student health insurance plans that are considered individual plans under ACA are subject to certain provisions with few exceptions. ACA will impose the following requirements starting in 2014:

  • No lifetime limits on coverage
  • No annual coverage limits
  • No discrimination based on pre-existing conditions and rescissions allowed
  • Preventative care offered with no cost sharing to students
  • 80% medical loss ratio (MLR) minimum
 

Self-Funded plans

Coverage offered to students by an institution of higher education, where the institution assumes the risk for payment of claims.

Regulated by the ACA - see HHS final rule at 78 Fed.Reg. 39493 (July 1, 2013). Under the final rule, self-funded plans or policy years that begin on or before Dec. 31, 2014 constitute “minimum essential coverage;’ sponsors of self-funded plans that begin after that date may apply to HHS for recognition as minimum essential coverage. Self-funded plans may also be regulated by the States.

Student health insurance coverage offered through student associations is not considered a "student health plan" because the student associations that sponsor the plans are not themselves institutions of higher education.

According to healthcare.gov, the student health insurance rule extends all of the protections provided to enrollees in individual market plans with several adjustments in light of the unique nature of these plans. Here are the main differences in how student health plans can transition into ACA compliance in ways that differ from other plans in the individual market:

  • Annual limits. To ensure the continued availability of coverage for students, the final rule modifies the phase in schedule so that student health plans cannot have annual limits of less than $100,000 on essential health benefits for policy years beginning on or after July 1, 2012 but before September 23, 2012, and $500,000 for policy years beginning on or after September 23, 2012, but before January 1, 2014. For policy years beginning on or after January 1, 2014, annual limits on essential benefits are prohibited.
  • Medical Loss Ratio (MLR). To address the special circumstances of Student Health Plans, HHS will apply a methodological adjustment to the way the medical loss ratio is calculated for those plans. Similar to mini-med and expatriate plans, the adjustment will address the unusual expense and premium structures of student health plans. These changes to the methodology for reporting and rebates apply only in calendar year 2013, after which time no adjustment is provided.
  • Student coverage is to be aggregated nationally as its own pool rather than on a State by State basis.
  • Notice Requirement. The regulation requires a health insurance issuer to disclose to the student in the insurance policy and other plan materials that the policy being issued does not meet the minimum annual limits requirements of other plans in the individual market. Students must also be notified that they may be eligible for health coverage as a dependent under their parents’ employer plan or individual market coverage if they are under the age of 26. The regulation contains model language to satisfy this requirement, using terms easily understood by students and their dependents. HHS will require insurers that sell student health plans to provide this notice prominently in order to improve transparency and ensure consumers are aware of the product they are purchasing. The notice requirement sunsets in 2014 when annual limits are prohibited.
  • The final rule clarifies that the student health plans of non-profit religious institutions of higher education qualify for a one-year transition from the new contraceptive coverage requirement, similar to non-profit employers.

Also see the College Student Health Association’s Frequently Asked Questions for more information on student health plans and the ACA.

Other Insurance Options and Rules

Even if a nonimmigrant is not subject to the ACA's individual mandate, and not subject to a school's institutional requirement to enroll in the school's student health plan, it is still wise to maintain insurance coverage. Options for such individuals include:

  • Voluntarily enrolling in a school's student health plan, if eligible
  • ACA-compliant plans purchased through the State exchanges
  • ACA-compliant plans purchased outside the State exchanges
  • Short-term limited duration plans
  • Foreign health plans

Short-Term Limited Duration Plans

"Short-term limited duration" plans are not regulated by the ACA, and are not required to meet the ACA "minimum essential coverage" levels or to cover preexisting conditions. Since short-term limited duration insurance plans are not bound by the ACA minimum essential coverage requirements, insurers may be able to offer less expensive or tailored plans that may meet the insurance needs of individuals not subject to the individual mandate, provided the purchaser understands how the plan works and what it covers and does not cover. States generally regulate these plans, and the availability and terms of the plans may differ depending on the state in which the plan is offered. A short-term limited duration plan should notify the customer that it does not meet ACA minimum essential coverage requirements.

The definition of short-term limited duration health insurance actually pre-dates the ACA, and remains unchanged by the ACA implementing regulations:

“Short-term, limited-duration insurance means health insurance coverage provided pursuant to a contract with an issuer that has an expiration date specified in the contract (taking into account any extensions that may be elected by the policyholder without the issuer's consent) that is less than 12 months after the original effective date of the contract.”

Under this definition, a plan offered as "short-term, limited-duration" insurance must be for a term of "less than 12 months." Some states restrict the duration of short-term plans to shorter periods of time. Plans might be available, then, to cover anywhere up to "364 days." Since the definition does not allow terms to be automatically extended beyond 12 months solely at the election of the policyholder, individuals who wish to continue coverage beyond the maximum term will usually be asked by the insurer to reapply for coverage, rather than to renew coverage. This may impact how preexisting conditions are covered, including conditions for which the policyholder had sought treatment under their prior plan. Advisers may be able to help students understand how those plans work and what they cover and do not cover.

Foreign health plans

Many international visitors are covered by health insurance plans issued in their home country. Under 45 CFR 156.604 [added by HHS final rule effective August 26, 2013 [78 Fed.Reg. 39493 (July 1, 2013)], sponsors of any health coverage that is not otherwise recognized as “minimum essential coverage” under the ACA or ACA implementing regulations can apply to HHS for recognition as minimum essential coverage. The supplemental information preceding the final rule gives several examples of types of coverage that might take advantage of this recognition process, including “foreign health coverage.” The same process would be used by self-funded student plans that are not covered by the grandfather provision.

A nonimmigrant not subject to the ACA individual mandate would of course be able to continue in his or her foreign health plan, even if it the plan did not apply for recognition as minimum essential coverage under the ACA.

Insurance plans sponsored by student associations

Student health insurance coverage offered through is not considered a "student health plan" because the student associations that sponsor the plans are not considered institutions of higher education.

Insurance requirements for J exchange visitors

Exchange visitors in J-1 nonimmigrant status and their dependents in J-2 status have for many years been subject to a separate requirement to obtain and maintain health insurance as a condition of their participation in a J exchange visitor program. This requirement predates the ACA, and the minimum levels set forth at 22 CFR 62.14 continue to be required as a condition of J-1 or J-2 status even if those nonimmigrants eventually become subject to the ACA's individual mandate after becoming "resident aliens" for tax purposes. In the supplemental information preceding the HHS final rule effective April 20, 2012 [77 Fed.Reg. 16453, 16458 (March 21, 2012)] HHS responded to comments regarding the different minimum requirements of the exchange visitor regulations and the ACA as follows:

"Comment: Issuers noted that the State Department’s Bureau of Educational and Cultural Affairs requires students on J– 1 Exchange Visitor visas to maintain health insurance coverage that includes medical benefits of at least $50,000 per accident or illness, includes a deductible of not more than $500 per accident or illness, and meets other requirements (22 CFR 62.14). One commenter requested that we ensure that our final rule and 22 CFR 62.14 do not conflict. Response: We reviewed the requirements under 22 CFR 62.14 and believe that issuers will be able to comply both with those rules and this final rule."

J nonimmigrants subject to the individual mandate would have to purchase separately any coverages required by the J exchange visitor regulations that are not typically included in a standard ACA-compliant health plan (such as such medical evacuation and repatriation coverage).

ACA compliance as a factor in developing institutional approaches to addressing health needs of international students and scholars

The ACA does not compel a school to offer or require a student to enroll in a student health plan. A school can still determine whether to offer a student health plan that constitutes minimum essential coverage under the ACA, to offer no plan, or to make available insurance coverages that are not regulated by the ACA. Nevertheless, schools should consider ACA compliance as a factor in the context of their institutional approach to addressing the health needs of their international student and scholar communities.

Even if your school does not offer a student health plan, as an adviser to international students and scholars you should be aware of how health insurance works in the United States, and be able to help students and scholars address their health care needs. For example: how to inform students about the individual mandate; how to help students understand the relative merits of ACA compliant plans; how to understand and compare short-term limited duration policies, etc.

Some ACA resources