By: Jon Jablon, Esq. (The Phia Group, LLC)
A couple of months back, we received an inquiry from a client TPA asking whether a group located outside the United States will be obligated to comply with the employer mandate (affectionately known as “pay or play,” “play or pay,” or sometimes even vaguely “the tax” or just “that penalty”) and whether non-citizen employees working in the United States will be obligated to comply with the individual mandate (generally known only as the “individual mandate;” this term generally does not rise to the level of receiving disdainful nicknames because that penalty is more complicated than the individual mandate and noncompliance with that penalty is potentially more detrimental to our clients).
The group in question is present outside the United States, with employees lawfully present within the United States on H-1B visas. These visas permit temporary presence within the United States for workers in specialty occupations. The group offers healthcare to its employees but the group, located outside the United States, understandably has not accounted for health care reform. Accordingly, the group’s health coverage is not fully in compliance with PPACA.
The text of PPACA, literally read, applies to foreign plans and foreign employers as well as domestic ones, and it also applies to individuals.
Regarding the individual mandate, all individuals are required to maintain a minimum threshold of medical insurance coverage while present within the United States. The plain language of PPACA includes individuals present within the United States on H1-B visas. The penalty for a lack of individual coverage under PPACA is assessed as part of an individual’s income tax. All aliens, whether nonresident or resident, must pay income tax upon income earned while present within the United States, unless exempted by the IRS. Thus, if an employee is mandated to file an income tax return, that employee is mandated to have health insurance pursuant to the individual mandate, because that employee can be taxed. Therefore, PPACA does indeed apply to individuals, since they are taxed by the government and penalties are assessed thereby.
However, as it relates to foreign employers or foreign-based health plans, research yields a different result.
Though the terms of PPACA may literally apply to a foreign employer, the PPACA Police have no way to impose a penalty upon that foreign entity. As a result, PPACA can be said to attempt to influence an employer or plan to engage in certain actions, but not actually bind the entity to its terms. The ability of a law-enforcement body to impose penalties for noncompliance – indeed, the ability to punish wrongdoing – is the crux of whether an entity is bound to follow a given law. For instance, if the United States’ Alien Tort Statute made it a crime to be an extraterrestrial (which, anticlimactically, it does not) but imposed no criminal penalties for violation of the statute, then while the statute may literally apply to Chewbacca upon his arrival to the United States, all the government can tell him is that he is in violation of the statute; and when he says “Nnnargh hgraoo rrhaa! Hnaarr oorrawarr; arrawarrgh graa?” the government would be forced to tell him that no punishment can, in fact, be imposed. As a result, Chewbacca would be able to effectively ignore the statute.
Similarly, if the United States government identified a foreign employer – untaxable by the United States – as violating “pay or play,” the government would have no recourse against that employer, and the employer could effectively ignore that law. The statute can therefore be said to not apply to that employer, just as the supposed statute would not apply to Chewbacca.
IF YOU ARE A FOREIGN EMPLOYER, HOWEVER, YOU MUST KEEP THE FOLLOWING IN MIND… As described above, PPACA mandates that the employees themselves maintain a minimum level of coverage to avoid taxation penalties. Unlike foreign-based employers, individuals within the United States on H-1B visas earning wages within the United States are subject to taxation. Employers and their employees, assuming they don’t want their employees to be penalized, have three options: purchase healthcare through an Exchange; purchase healthcare privately and individually; or use the foreign employer’s existing plan. The last option would require the employer to amend the plan to afford the employee the minimum coverage that PPACA mandates of that employee.
Neither foreign employers nor foreign health benefit plans have responsibility under “pay or play,” though an employer may choose to conform its plan or policy to meet PPACA’s mandates to aid its United States-based employees. Though it is not the responsibility of the employer to ensure that its employees maintain coverage while in the United States, helping employees maintain coverage is purely a business decision.