Considering a sailing adventure to Mexico? Just look at how engrossed that guy is in the book! Grab a copy of the Unauthorized Guide to Sailing in Mexico, and you too can find yourself sitting on a Mexican dock with an oversized (but very attractive) hat.

Unauthorized Guide to Sailing in Mexico

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Saturday
Sep282013

the affordable care act (obamacare) and cruising sailors

Lyra seeing the doctor in Loreto, Baja Sur, Mexico.If you're an American citizen the Patient Protection and Affordable Care Act (PPACA or Obamacare) affects you. If you're a sailor heading to far off locales or residing in foreign lands for prolonged periods of time, your interaction with the PPACA is going to get interesting.

As a full disclaimer, I work in the insurance space but am not acting as an agent or providing personal counsel. I'll source everything directly; you can read the details yourself. This legislation is also evolving so look for updates. In fact the law is changing so rapidly that I urge you to view the real Code of Federal Regulations (CFR) viewer on ECFR.gov. In researching this article I found several out of date CFR's from sources as reputable as Cornell Law and CFRRegsToday. Cornell at least notes that there are updates not reflected in their texts.

Q. I'm sailing outside the United States, do I need health care insurance even though I'm not in the USA? Come on bro, I don't need insurance, do I?

Basically, by January 1, 2014, almost every American citizen requires health insurance that meets certain standards ("minimum essential coverage"). The IRS has listed a few exemptions from the PPACA, criteria that if you match, you do not need to have insurance. Two of these exemptions are relevant to many long distance sailors: the 330 rule and the no-filing-requirement rule.

Q. What's the 330 rule?

The IRS has had the Foreign Earned Income Exclusion (FEIE) for a while, which basically lets you exclude up to ~$90K of income every year from federal taxation. To qualify, the IRS has a Physical Presence Test to verify that you spent 330 or more days of the year outside the United States.

Why this matters is that the IRS is using the same logic to determine if you are exempt from the PPACA's individual mandate

There are a lot of variables to the physical presence test, so consult IRS Pub 54 for more information. In short, if you qualify for the FEIE, you are excluded from the PPACA's individual mandate.

Charlotte getting a checkup and sonogram in Ensenada, Baja, Mexico.

Q. But bro, the requirements and realities of medical coverage are completely disjointed. In some places there aren't even medical services, and even just the definition of preventive coverage is different.

The Departments of Labor, Health and Human Services, and Treasury (noted as "The Departments") have joined together to address problems with the PPACA, including its enforcement to expatriates. To that end, there is a smidgen of wiggle room because they are still working on it. New legislation will come into play by January 1, 2015, and until then you'll see the 2014 year marked as the "temporary transitional period."

Q. I'm on Medicare Part A, Medicare Advantage, or a Medicade plan. Do I need to buy coverage?

No. Medicare Part A and Medicare Advantage provide "minimum essential coverage", and most Medicade plans do but you'll need to check specifically on your plan provider's website.

Q. Well I still need insurance, what kind of insurance do I need to have then?

If you're covered under Medicare Part A, Medicare Advantage, or most Medicaid plans you don't need to do anything. All of those, and typical employee (or self) provided health insurance plans provide"minimum essential coverage". These coverages are sufficient through the 2014 temporary transitional period and onward through 2015.

Note: this does not include "self insured plans" where you just squirrel away money in an account and call that a medical insurance plan.

This however is of little help to people who meet the following conditions:

If that's you, starting in January 1, 2015 you'll need to have a PPACA compliant health care plan. Starting in January 1, 2014, you'll either need a USA plan that covers you when you travel internationally or you'll need an expatriate plan. The definition of an expatriate plan is as follows:

For purposes of this temporary transitional relief, an expatriate health plan is an insured group health plan with respect to which enrollment is limited to primary insureds who reside outside of their home country for at least six months of the plan year and any covered dependents, and its associated group health insurance coverage. 

So you'll need to read the specific plan details to see if your expatriate policy has the exclusion of it only being available to people outside their home country for six months.

Lyra's birth, Puerto Vallarta, Jalisco, Mexico.

Q. So wait, we saved up for a couple of years of cruising. We're not planning on working and if we do it will probably be under the table or just random non-reported income. Do we need to buy insurance?

Probably not. You can be exempt from the PPACA individual mandate for several reasons, one of which is if you don't make enough money that you need to file a tax return. Use the IRS's calculator to determine if you need to file a tax return, and if you don't, the PPACA individual mandate does not apply to you.

Working on a guy's boat or in a local bar for cash on the barrelhead is one thing, but take note of FATCA which now has many foreign governments reporting the transactions of US account holders directly to the IRS. 

Additionally, if you spend at least 330 days or more every year outside the USA, you meet the physical presence test, exempting you from the individual mandate via that mechanism.

Q. What is an expatriate health insurance plan?

Most "expatriate plans" (a.k.a. international plans) do not include coverage inside the USA, however most USA plans do include coverage abroad. The reason is simple: health costs in the USA are astronomical, usually to the tune of 7x the international average. A regular check up in San Diego might cost $100, as where in Mexico it can be $10.

Also note that nearly all expat plans, and USA plans rendered abroad, are reimbursement plans. You pay out of pocket and file a claim, to which you'll get paid back by the insurance company upon their review. Check the terms and notes in your policy as it will generally be quite different than what you may have experienced in an employee sponsored stateside plan. 

Whether you travel with a stateside or expat plan you'll need to keep your receipts, file claims, and take an active role in your insurance. 

Q. This all seems expensive, I'll just pay the ~$100/year per person penalty.

I'm sure many will but by 2016 it will be roughly ~$700/year per person getting pretty close to the cost of most health care plans. At that point you're spending a decent amount of money without getting anything from it.

Also note that for some countries, like France, if you want a long-term visitor visa you'll need proof of medical insurance (which has nothing to do with PPACA). So ignoring the law in the short term, forgetting about the value of medical insurance itself, is feasible, but as the years tick by you'll probably feel the squeeze. 

Q. What are my options and where can I get a policy that satisfies the 2014 year and then the 2015 year?

This is already a pretty dry blog post, but in a future one (soon) I'll review some some health care plans and discuss their details. 

If anyone has any comments, questions, or thinks there's a different interpretation of the laws please let me know.

Reader Comments (10)

Total BS that CF killed the post. I'm Paul L on CF.
Your info on ACA as it relates to US cruisers is missing the info about exchanges and subsidies. If you , as a family, make reportable IRS income that is typical for cruisers, i.e darn low, then you are eligible for the subsidized exchanges. Looks like for us the numbers will work out something like this: keeping my ├žurrent policy with the same insurance company the rate goes up about 50%. This is due partially to added benefits, reduced deductible. A policy on the Exchange will cost us about 50% less than we are paying for our current policy and have lower deductibles. So in our case, as a full time cruiser, medical insurance costs will go down significantly with Obamacare.

Regards
Paul

September 28, 2013 | Unregistered CommenterPaul L

Paul;

The cruisersforum delete was... weird... to say the least.

I intentionally left out anything about plans because honestly I didn't get far enough in my research to really speak to that. The international coverage will be interesting though. It's possible, and I'm just conjecturing here, that with the exchanges a "bronze" plan for example will be roughly the same cost (or lower) than a typical plan that excludes US coverage.

Until I can really discuss that clearly I wanted to stay away from it because the exchanges are still forming and in a lot of states aren't even online yet, or just got there this week.

September 28, 2013 | Registered CommenterEric

Hi Eric - your post is really timely as I have been wondering how Obama Care impacts us as Americans living in New Zealand. I checked the IRS site and it says that if you "live abroad for a calendar year (or at least 330 days within a 12 month period) are treated as having minimum essential coverage for the year." Would that not mean that we would be exempt if we're permanent residents of New Zealand? It all seems so complicated - almost makes me not want to come back to the States. Much better health care system in NZ.

Thanks - Ellen

September 28, 2013 | Unregistered CommenterEllen

Ellen:

You're completely right; I updated what I wrote to include that working. It wasn't a part of any of the wording I saw in the CFR's, but it's spelled out clearly in the IRS's website. They're using the same physical presence test for the FEIE as they are for the individual mandate exemption.

So it doesn't matter that you're residents of New Zealand, but it does matter that you're out of the USA for the 330 day rule and satisfy the physical presence test.

I don't know if you've ever filed for the FEIE. If you have, I imagine you're used to this.

Eric

September 28, 2013 | Registered CommenterEric

Just wanted to say THANK YOU for doing this research and presenting it in an easily digestible format. I know how time consuming this kind of research can be and I'm grateful that you're willing to share this information. I look forward to the future post(s),

October 1, 2013 | Unregistered CommenterHarmony (SV Serenity)

Thanks for the great, easily read post. If only the Gov't stuff was this clear.

We will be retiring, between 60 & 63 and living on investment income. We intend to be outside the country except for family visits. Do I understand you corectly that we will also be able to exclude much of our income as well as avoid the exchanges? Also, will participating in an exchange require that we seek treatment in the US to be covered?

October 5, 2013 | Unregistered CommenterMark (Nicholson58)

See no reason why this post could be considered "troublesome" by CF....

We are Canadians currently cruising south on our way to Mexico. The affordable care act obviously doesn't affect us. My only comment is that most Canadians just scratch their heads in wonder at how so many US citizens get so upset at any inkling of government-mandated (or heaven forbid, govt-run) health care. and yet the USA has the most-expensive health-care system in the world.

[FYI, years ago, I lived in the USA (for 12 years) and worked within the health-care system. It was a relief to return to the Canadian health-care system.]

October 9, 2013 | Unregistered CommenterDavid

Mark,

My understanding, and this is currently being verified by the IRS, is a mixed answer.

The first is what the IRS terms as "income" which unfortunately probably doesn't cover the money you're getting from investments. You can read the IRS's definition of "Earned Income" here.

Secondly, the physical presence test of 330 days only allows you to be in the US for 35 (or 36 in a leap year) days per year. The clock starts the minute your plane lands; the IRS is pretty anal about the whole thing (go figure), you can read their full rules here.

So in your scenario, as best I understand it (and again this being reviewed by the IRS), you would probably not qualify for the FEIE but you would satisfy the physical presence test thereby meeting the minimum effective care guidelines. In other words you're going to pay your full income tax but you won't need to carry health insurance.

October 11, 2013 | Registered CommenterEric

We will be leaving in less than a year with three kids. I have been wondering how Obama Care would affect us and our cruising. Thanks for all your information. I look forward to hearing more about the subsidies. With a family of 5, I'm too nervous to go without any insurance. I would like to be able to fly home in the event of a big medical illness. The subsidies may just make it affordable. Thanks!

October 18, 2013 | Unregistered CommenterAmy

Excellent summary of the upcoming changes, thanks.

I believe expats should ensure they have some sort of healthcare coverage, wherever they are period. I use an adventure travel insurance provider which is a good value (if you're under age 70). It covers medevac and treatment for major illnesses, etc. to the tune of $50/month.

October 21, 2013 | Unregistered CommenterElizabeth

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