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My friend, who is a Fulbright Scholar conducting research in Taiwan, informed me today that as currently written, the individual mandates in HR 3962 apply to American citizens living abroad. For my friend, this means that although he is covered by Taiwan's national health insurance, he will be forced to purchase an American "qualified" plan or pay the 2.5% tax. This is yet another disturbing element of the totally delusional Nancy Pelosi and her kamikazi-like "leadership." God help us all.
My friend's letter is below.
I read through H.R. 3962, looking for an answer to this question, and I go into all the details about the text of the legislation at the end of this email. But here's the executive summary:
1. In the process of reading this legislation, I noticed references to additional legislation in section 501 (d)(2)(A) and 501 (d)(2)(B) that were incomplete (currently located around page 301 of the bill). I've only looked at a few pages of the bill. My concern is that this bill is still incomplete, and it would be extremely prudent for voting to be delayed until after everyone has had time to finish writing it, not to mention allowing time for you and your colleagues to read through the whole piece of legislation on Rep. McDermott's behalf.
2. There are currently about 50,000 Americans living in Taiwan alone, and hundreds of thousands of Americans study abroad every year. I'm concerned that under H.R. 3962, a substantial number of American citizens living abroad are going to find themselves forced to pay for medical coverage that they neither need nor want. While the legislation allows the Health Secretary to consider individual cases, in practice this won't happen giving such a high volume of potential petitions. My concern, therefore, is that a substantial number of middle-class Americans who may temporarily go abroad to work would have an incentive not to return to the United States under this legislation, in order to avoid the tax (see the specific sections of the bill and tax code below for why I think this is so.)
It might therefore make sense to either lower the required amount of time to live abroad before an American is considered having "acceptable coverage", or lower the tax for Americans living abroad. My concern is that anything else is going to create economic incentives for some of our best people to take their talent abroad, and that's not good for our economy, especially now.
So if I could make a specific suggestion for an amendment to H.R. 3962, I would ask that the tax for lack of "acceptable coverage" be waived for Americans living abroad for more than 60 days. This would eliminate those perverse economic incentives, while still making it unlikely that people would try to evade the tax by leaving the country (traveling for two months is costly!). I say "60 days" because I recall that many study-abroad programs are for one semester or for ten to twelve weeks during the summer. The bottom line: We don't want to force talent away from our shores.
I sincerely hope that Rep. McDermott could raise some of these issues during the debate this week.
Here's my reading of H.R. 3962 and the law it references:
Division A, Subtitle IV, Subtitle A, section 401 covers "Individual Responsibility," and related to this is Title V, Part I, Subpart A, section 501 which covers a "Tax on individuals without acceptable health care coverage."
(Section 401 simply says to look to Section 501 for language for an amendment to Section 59B of the Internal Revenue Code of 1986.)
Section 501 introduces language for that amendment, and I think that's where we have to look to answer the question about Americans living abroad. Part (c)(3) of that section covers "Americans Living Abroad," and refers me to section 911(D) of the Internal Revenue Code of 1986 and says that I'm considered having "acceptable coverage" if I qualify under either of the two definitions in subparagraphs (A) and (B) of section 1.
So far, so good. Here's the text from that tax code which I pulled off Cornell University's Web site:
"(d) Definitions and special rules
For purposes of this section—
(1) Qualified individual
The term “qualified individual” means an individual whose tax home is in a foreign country and who is—
(A) a citizen of the United States and establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
(B) a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period."
The IRS definition of "tax home" is pretty clear (IRS Publication 17). Basically just about anyone who goes abroad to live or work has their tax home abroad.
So the answer to my question is now clear: as a Fulbright researcher in Taiwan for nine months and covered under Taiwan's National Health Insurance plan, under H.R. 3962 I would be required to have "acceptable coverage" in the United States or pay a tax of 2.5% of my income, because my tax home is in Taiwan but I am not living there for more than 330 consecutive days. There's therefore an incentive for me to extend my stay for a few more months.
There's one possibility, however: subpart (d) of section 501 of H.R. 3962 defines "acceptable coverage" and gives an option for "other coverage" in subparagraph (H): "Such other health benefits coverage as the Health Secretary, in coordination with the Health Choices Commissioner, recognizes for purposes of this subsection." I can't imagine that getting forced for very many special cases, however -- it would require too much overhead.
Update: Another blogger - an American citizen living abroad - has posted on this issue as well, here and here.