Does the IRS consider Foreign Insurance Coverage Minimum Essential Health Coverage?
Confusion around Healthcare ‘approval’ by the IRS
There has been some confusion around whether or not the IRS considers non-US plans approved in meeting the minimum essential healthcare coverage as required by the Affordable Care Act.
This confusion stems from the fact that the Center for Medicare and Medicaid services https://www.cms.gov has provided approval status for certain foreign plans. From the standpoint of a US taxpayer residing abroad, this is a red herring - we do not recommend pursuing this route on your tax returns.
Regardless of the approval status for certain foreign plans by CMC, we do not advise giving away the foreign exemption and insisting that you are covered through a qualified foreign plan. There is nothing for you to gain, yet the risk of problems with the IRS is material.
No mechanism to prove health coverage
The Center for Medicare and Medicaid services may have approved certain foreign plans, yet this was not fully coordinated with the IRS. They did not develop a mechanism of issuing the IRS-required form that proves health coverage.
- The only proof of health coverage for the IRS is form 1095 (A, B or C). If the taxpayer does not have Form 1095, their tax preparer cannot process it for them.
- All forms 1095 are completed either by the employer or by the health plan.
- See IRS - Form 1095-C - what you need to do with this form
- For qualifying taxpayers living abroad, tax preparers should process an exemption based on IRS - ACA & Individual Shared Responsibility Provision Exemptions.
If the taxpayer does not meet the physical presence or the bona fide residence requirements for the year, they may further try to prove their point and check the box "covered full year" - yet there will no proof to that whatsoever because you cannot provide form 1095, which is what the IRS looks for.
In that scenario, you would be in the unfortunate position of having to explain to the IRS that your (example) Swiss plan is considered approved, therefore you believe you are covered, although you do not have Form 1095 to substantiate it. We never recommend clients pursue an avenue, even if they feel it is correct, that would lead them towards having to explain their reasoning to the IRS.
Shortly, this will become irrelevant anyway as 2018 is the last year that has mandatory health coverage.