Healthcare What to expect as an Expat

What’s on your mind

Looking to move overseas brings with it a great deal of uncertainty and one key area where this can mean sleepless nights is healthcare. What can you expect in your new home and how does it compare to your old one are important questions that are very important for your family and yourself. It may even have an impact on where you move if there is more than one option on the table.

We did think about writing a review of each region highlighting good and bad countries in each and regional quirks in legislation. We decided against this as it would be far too long winded and we wouldn’t really do it justice. If you are moving make sure that you research the countries that you are heading to and don’t take anything for granted. Instead we decided to write something that highlights general issues that expatriates can face in relation to healthcare.

We did think that we would start off with a summary of each region and the quality of healthcare JUST KIDDING!

The likelihood is that you will be moving overseas and your company will provide you with medical insurance that covers your family as well. If this isn’t you then don’t worry we will deal with you later so keep reading.

Company Plan

The amount of expatriates living overseas who have no idea what they are covered for by their company schemes and assume that everything will be taken care of is frankly ridiculous. Unfortunately the time when they become aware of any issues is when it is too late and they find themselves stuck with a walking great medical bill.

So before you do anything else check that your family are covered under the company policy (we have encountered situations in the past where only employees are covered and dependents are not) and they are covered at the same level as you the employee. If the answer is no then you need to do something about it and get them coverage (keep reading).

So the family are covered at the same level as you, good start, the next thing to establish is what exactly are you covered for and more importantly what does the plan not cover. Again just because you work for a large multinational don’t assume anything.

I once met someone who worked for an international cosmetics company in Singapore and assumed that everything was covered until he need angioplasty and a stent. Unfortunately because he wasn’t admitted his company scheme didn’t cover it as it was classed as an outpatient procedure and he was only covered for inpatient procedures which meant he had a $7,000 (US) medical bill to pay. why didn’t he just get admitted I here you ask? Well that would be insurance fraud and hospitals generally don’t like to play along. He came to me and asked if I could set him up a more comprehensive policy in case he needed any other procedures, unfortunately by this time it was too late as he had a pre-existing condition which meant that the whole cardiovascular system was excluded.

If you have had health issues in the past or procedures performed it is important to establish whether or not your company scheme allows or excludes pre-existing conditions. Corporate schemes tend to get better terms as insurance companies can capture a number of members all in one go, this means that for a relatively small cost pre-existing conditions for members can be excluded. Not all schemes will exercise this option and if you have had a procedure in the past it may mean that other conditions that could be deemed to be related are excluded. Check on whether the option has been exercised and if not get clarification on exactly what you are excluded for as it maybe that you can appeal and get any exclusion reduced.

You may be planning on starting a family or expanding it further whilst you are an expatriate well congratulations. A word to the wise though the last baby that we had overseas in Malaysia came with a medical bill of just over $11,000. That was for a routine pregnancy, no complications in a country that has very reasonable medical costs (we were covered) so it could have been more expensive. If kids or more kids are a part of your plans whilst living and working overseas then check that you are covered under the company plan as this is not always the case. If your company plan doesn’t provide for maternity costs then you need to get covered, we’ll deal with this later. Even if you are covered you will need to check the policy definitions and in particular focus on the complications of pregnancy. Again we will touch on this later when we deal with what to look out for when buying a policy.

Following on from our previous point about pregnancy what happens after the baby is born? There will be a period of time when the baby is covered for treatment without being registered own the scheme. Again know what your baby is covered for and what it isn’t before you head into hospital.

 

Is the company scheme that you are member of an international policy or is it a local one. Whilst we don’t want to disparage any local policies we would suggest that you are better off with an international policy as it means that you can get treatment elsewhere should you need to, sadly this isn’t an option with the local plan. An example of this was a friend who’s little girl was diagnosed with a brain tumour a devastating diagnosis, that would require a complex surgery, chemo & radiation therapy, specialist paediatric oncology aftercare and rehabilitation. They looked at a number of options, treatment where they were living at the time (whilst they were happy with the surgeon they did not feel that the specialist nursing that they needed was available), heading back to the UK so that they could have the support of their family around them (their daughter would have ended up on a general paediatric ward exposed to infections with no immune system or going for treatment in another country that had specialist nurses and a designated paediatric oncology ward. Obviously they chose the latter and were able to as they were a member of an international plan a local one would not have allowed them to explore all of these options.

Does your company run a single medical plan for all of their expat staff around the world or does it have separate regional or even local country health insurance plans. This may not seem important right now especially if you are becoming an expatriate for the first time., though you should be aware as expats tend to move from one assignment to another. If your company runs an international plan for all expats then that isn’t really an issue if you move with them somewhere else as you will have continuity of coverage. If they run regional or local schemes and you move from one to another then this can be an issue especially if you or one of your family have received treatment it may mean that you or they could be subject to coverage exclusions on your new company plan. If you try and get a private policy the result will be the same an excluded pre-existing condition.

If you are retiring or you have a pre-existing condition and you are leaving your company there may be an option to continue with your existing policy and pay the premiums yourself (or get a future employer to contribute) if your company has selected the option. It is worthwhile checking at some point.

Those are the main areas that you need to be aware of in relation to your company or future company health plan when moving overseas, if we have missed anything please let us know.

So you need a plan

So you don’t have access to a company plan for one reason or another and you need to get you and or your family covered with some health insurance, so what do you go for?

Well some of this depends on where you live and how long you intend to be there. If for example you have emigrated to say Australia and intend to stay there for the good then local insurance will be perfectly fine though in this case you’re not really an expat are you. If you are moving to somewhere in South East Asia, will be traveling frequently and intend to move somewhere else in a few years then you really need an international policy and avoid taking a local one. Our reason for saying this is that you will have continuity of coverage with an international policy if you have health issues you will still have coverage even after you move where with a local plan you will have to get a new policy which would mean that you have pre-existing conditions excluded.

 

As we mentioned earlier you may not always get the best treatment in the place that you live, so having the option to get treatment somewhere else that can give you the best care is pretty important and an international plan will give you this.

When you apply for a health insurance policies there are two ways in which the application can be made which is either underwritten or on a moratorium basis. In both cases you will complete the application and be required to give details of your medical.

With the underwritten policy you will be asked to provide more information if required and you will be informed of any exclusions on the policy and accept these before the policy becomes active. Otherwise the policy will be set up and when you make a claim it will be paid.

If the policy has been set up on a moratorium basis then all pre-existing conditions that have occurred (or possibly in the past 5 years) are excluded, if there are no further reoccurrences over the next two years then the condition may be included after that depending on the severity.

We prefer the underwritten basis as you are fully aware of what is covered and the moratorium basis can lead to confusion and disappointment with the policy.

We also mentioned maternity cover in the last section and if you are buying health insurance that covers these costs then there are several things that you need to take into account.

Firstly there is always, always, always a waiting period of at least 10 months between cover starting and claims being eligible. I know people who had a policy and wanted to save some money so they didn’t add the maternity cover from outset. They then decided that they wanted to have a baby. and added the maternity cover and understood that they had a waiting period of 12 months before they were eligible to make claims. Two months on they were pregnant, pissed off and paying maternity fees. Don’t make the same mistake.

Another thing that we touched on in the last section was the policy definitions in particular those relating to complications of pregnancy and here is where I deal with this in more detail. Not all policies are equal when it comes to how they deal with complications of pregnancy and this will be extremely important to most mums to be. So here is what you need to know, some insurance companies will not pay for treatments to save the unborn baby and class complications of pregnancy as a D&C procedure. Other companies will pay towards saving the unborn baby should complications occur. The two definitions are extremely different and can have significant impact on your family to be.

We mentioned earlier about that you should be aware of any what your baby is covered for when they are born and the same applies here. One thing that I didn’t mention and also applies in our last section is that most insurance companies will not cover any congenital condition that a child is born with. In some cases where the condition can lead to further health complications for example Down syndrome they won’t provide cover at all. There are some exceptions to this and as long as a parent has cover with them and the application is made within a certain timeframe after the birth they will provide full cover for all children, though these are few and far between. If you fall into a high risk category then it is worthwhile seeking one of these companies out.

On a final point you are French then we would recommend that you pay into the state system which will provide you and your family with excellent international medical coverage that covers all children with congenital conditions and maternity costs. If I only our own countries extended such a service to their citizens well all I can say is “vive la France!”.

When it’s best to do nothing!

Losing Hurts More Than Winning

No one likes to lose, in fact losing has a bigger impact on us than winning. Studies on “Loss Aversion” which show that incurring losses may be twice as powerful psychologically as the equivalent gain. From an investment perspective this makes us act in ways which can be contrary to our long term benefit. So lets look at what we do and how we do this.

Taking Our Medicine

When there is a market correction our gut instinct is to get out, sell our positions and move to cash. What does this actually do for us? Nothing! well really it does more than nothing it puts us back with no hope of moving forward. It makes losses real and takes us out of the market excluding us from the inevitable recovery that will come. Markets recover, sometimes this is a quick bounce, other times it can be a long slow protracted recovery.

This is the situation that we seem to struggle with preferring instead the safety of cash. The key here is that markets do recover and our investment in them should be money that we don’t need in the near future. So why not just leave it alone?

The Best Medicine

Actually the best thing that we can do in these situations is to add more money. During these twitchy uncomfortable market maladies when the last thing we feel like doing is investing is when we should.  Adding additional capital when markets are down does a couple of things. Firstly it means markets don’t have to come back to pre-crash levels before we’re back in the black. Second   the losses don’t look as bad thus abating our internal angst. This is one of the reasons that regular contribution investment are so effective for long term savings goals.

Next Best Thing

If making an additional investment isn’t an option then don’t do anything except rebalance your portfolio. Sell what has made money and buy what has lost money. We don’t mean sell everything we hold in the money making assets, only the amount over and above the original allocation percentage. If an asset should make up 5% of our overall portfolio and it has grown over the past year and now makes up 7% of the portfolio, then we sell the additional 2%. Reallocate this surplus to holdings that have fallen below their original allocation rates. This has a similar effect to adding more money into the assets that have fallen in value during market corrections.

As a side note even if you are adding more money into your portfolio when markets fall you should also rebalance your portfolio once a year. This will only enhance your long term performance further.

Everything Is Not The Same

Just because there is an asset in your portfolio that is losing money right now doesn’t mean that you need to sell it. There is a common reaction from investors to want to sell assets that they see as being “underperforming ”. Sometimes this may well be very true (though proper asset selection prevents this), if it is then the asset should be sold. Though more often than not the issue is that the asset is in a down cycle.

So why isn’t this an underperforming asset? Every asset is cyclical whether it be bonds, equities (shares), property or commodities. This cycle can be influenced by external factors such as interest rates, government policy, climatic or conflict. They influence each asset type in different ways and a positive outcome for one may be negative for another.

Too Much Of A Good Thing

If everything in your portfolio does the same thing at the same time, you could make some great returns, well, if you have the balls for it! If you don’t have a strong constitution then you have a problem because you will be in for a rocky ride.

A Bit Of Variety

So if you are of the more conservative persuasion and prefer a smoother ride you are going to need diversity in your portfolio. This will mean that you have assets that do different things at different times. Whilst some holdings are going up in value others will go down and vice versa. The ones that are going down will do the job that you need them to do at some point in the future.

Beware Of Fortune Tellers

I here you say “well why don’t we buy these assets when we need them?” Well the reason for this is that market timing is a mugs game. Even if they know what is going to happen the most advanced predictive modelling systems can’t tell us when it will happen.  Market timers generally buy high and sell low. This is because they get in after an asset has gathered upward momentum and sell as markets are on the way down. Plus how do you know we’re not experiencing a short term consolidation rather than a full blown downturn? The answer to that is, you don’t know and neither does anyone else irrespective of their personal opinions.

This is essentially why we should allocate in this way and accept that not all assets are going to go up in value at the same time. So if you think an asset is underperforming, before you do anything else check what it is doing against its peers and you may find that you have an asset that is outperforming in a downward market which is a very different thing. If it is underperforming then replace it like for like.

The conclusion to all of this is that if you have allocated correctly in the first place. Made investment decisions based on your investment timeframe and good asset selection.  Then market corrections and cycles shouldn’t cause you enormous concern. Put the little voice in it’s place and do nothing.

What is safe?

No Risk Maximum Returns

Investors have an enormous appetite for assets that present them with minimal risk and yet produce the highest possible returns. This is the investment holy grail which many investors believe is possible and many investment providers cater to this belief. The question is does this investment utopia really exist?

 

Can we get 8% per annum returns whilst having a performance chart that looks like a a door wedge? The answer to this is, its just not that simple and whilst on the surface of things there are investments that seem to meet this criteria they do so at a price. That price is liquidity, most investments which produce the types of returns that we crave with a complete lack of volatility come with an enormous amount of liquidity risk.

Liquidity & Why is it important?

So what is liquidity risk and why should we care? Liquidity risk is when it is not possible to dispose of assets quickly enough to meet redemption requests. This means that if you want to withdraw capital from an investment and a number of other people want to do so at the same time then it may not be possible to do so, definitely not when the amount of redemptions exceed the cash available at the time. Liquidity is something that investors take for granted and pay little regard to when considering the risk of an asset however, it becomes extremely important when it is taken away after all, we all want what we can’t have.

If we are talking about funds then the issue is that the underlying assets do not have a a readily available secondary market or it is a very limited market. The reason that we are attracted to these funds is the very reason why we should be wary of them. The steady returns come because there is no easy way to price the assets and this is done using an accounting exercise known as “Mark to Market”. As I am sure you are aware when it comes to accountants there is more than one way to skin a cat and each one comes up with a very different result. Hence the perfect upward trending linear performance chart that we desire so much and all this is great while it lasts, though just wait until assets need to be sold to meet redemptions then the story can and quite often is very different.

 

If the underlying asset is illiquid or there is no immediate way to provide liquidity then assets will need to be sold to what is a limited number of buyers. At this point funds will do a number of different things.

They could suspend trading on the fund (this will be the most common course of action) which means that no-one can by in or sell out of the fund until a sufficient number of assets have been sold to produce the liquidity required to satisfy the redemption requests. This course of action will invariably mean that at some point the fund will be liquidated if the suspension continues for more than 12 months. Investors tend not to like being told that they can’t have their money even if they didn’t want it at the time. Even if the fund does open up again people who hadn’t made redemption requests will now ask for their money back and new investors into the fund will have completely dried up. The issue is when the assets are actually sold the price may not come close to the mark to market price that the fund valuation is based on. This can be a big problem if the fund has a significant amount of debt as it will result in a downward spiral in the fund price as assets are sold. This is because a lower sale price for the assets will be amplified by the borrowing and these losses will be shouldered by the investors rather than the lenders.

Another option that could be applied is a “Market Value Adjuster (MVA) which is essentially an exit charge on the fund this could be a significant percentage of the fund value. This has historically been the domain of with profits funds that have some assets that are more liquid than others. Again if there is borrowing on the fund then this will amplify losses further.

Where is liquidity risk a problem and where it isn’t?

Invariably property funds both commercial, residential and specialist are at risk as they are priced on a mark to market basis, this can mean that the price an asset is given for fund pricing purposes can be dramatically different to the price that someone is prepared to pay for the asset.. When it comes to property, buyers are less common and the sale process is far slower, this is especially true when it comes to commercial or specialist property. The fact that the only way that these funds can meet liquidity is through the sale of assets mean that they will always have these issues when redemptions increase, this is something that we have seen after the Brexit vote with some of the UK’s biggest property funds (7 funds in all with over £18 billion invested) have suspended trading. Interestingly Real Estate Investment Trusts (REIT) are a form of property investment that generate liquidity via the stock market, this means that assets do not have to be sold to meet liquidity. The issue with REITs for many investors is that because the share price can be too volatile because it is determined by the market, yet a REIT will not suspend trading and stop you accessing your capital.

It isn’t just property funds that create an issue anything that is not easily sold yet has to be to meet investors redemptions presents a similar issue. This could be private equity (shares in private companies), traded life insurance policies, mezzanine financing, wine, art, chickens, trees or even football players then these assets will be price on a mark to market basis and will suffer the same issues when investors decide they need capital returned.

The real issue here is our perception of risk, unfortunately volatility is all too often seen as the main measure of risk. Whilst volatility does provide some indication it is a very short term measure, it makes no measure of liquidity risk and makes no consideration of investment timeframe. If we are investing over the longer term (property, equities commodities, corporate bonds & alternative investment should be long term) then we should view risk over this term. People will say “ohhh I don’t invest in shares, that is just too risky for me” and this may be true for short term money, though if you buy an index tracker such as S&P 500 or FTSE All Share how risky is this over the long term. Answer this when was the last time an index went bust? The answer is never, yes we accept that they have had major corrections at times, they have also had major recoveries. plus there are dividends to be reinvested. If we take returns from the S&P500 for the past 30 years we get over 10% per annum (including dividend reinvestment), over 20 years 8% per annum (including dividend reinvestment), over 10 years 7% per annum (including dividend reinvestment), this is with some major stock market crashes. The same people who say that shares are too risky for them will have leveraged commercial property funds in their portfolio, something that is substantially more risky than a major market index tracker yet makes them comfortable because the pricing method eliminates volatility.

So let’s ask the question again. What is safe?

How BREXIT Could impact your pension or QROPS

How could brexit effect your state pension?

UK resident pensioners receive annual inflationary increases to their state pension benefits in line with the triple lock – whichever is the highest of inflation, average earnings or 2.5 per cent. At present the 472,000 people who have retired to other EU countries are protected by EU law and continue to receive these increases. This however isn’t the case for everyone living overseas, pensioners in countries like Australia, New Zealand and Canada do not. That means payouts are stuck at the same level they were when a retiree moved abroad, or first began drawing their state pension if they were already overseas.

To be entitled to the annual increase you need to be resident in an EU or EEA country, or a country with which the UK has a social security agreement which includes a clause entitling recipients to an annual increase.

The UK does not currently have any bilateral agreements in place with EU countries, other than at a general EU level, so what will happen after Brexit? The most favourable outcome for EU expats would be if the UK could negotiate a reciprocal agreement with the EU as a whole. This may not be possible and the UK may be forced to negotiating with individual countries, with some unwilling to play ball. It is worth noting that the UK has not negotiated this type of agreement since 1981 due to the complexity and costs involved.

The legal framework and administrative processes are already in place to give the state pension annual increase to retirees living in an EU country. The Government has also adopted a positive approach to the entitlement of increases in times of change during the breaking up of Yugoslavia.

If however the government was under pressure to raise money following Brexit, it could potentially take steps to prevent those not contributing to the UK economy from receiving benefits like the annual rise in the state pension. Though this would have to be weighed against the estimated saving the Government considers it makes (i.e.£4,300 per annum) from pensioners living overseas not using the NHS and care services. If expats start moving back to the UK then increased health and benefit costs might outweigh any savings, but on the other hand anybody here would be paying taxes again.

Only time will tell, though comfort can be taken by the fact that recent history, coupled with an existing framework and the fact that the UK has six social security agreements in place which predate the EU (Republic of Ireland, France, Italy, Netherlands, Belgium & Luxembourg) suggests that the annual increase may well continue for those living in these countries if not the rest of the EU.

How Could Brexit affect your registered pension scheme?

Based on current law and practice, Brexit will have no impact on your pension schemes.

The UK pension freedom is solely a matter of UK law and so whether the UK is an EU member state or not is irrelevant.

Expats and overseas residents have been allowed to move their pension savings offshore under the ‘QROPS’ system since April 2006, but the Government could be free to severely restrict how offshore pensions are used following the Brexit vote. Although the core of the legislation can be traced back to an EU directive, the UK has a long history of permitting transfers to bona fide overseas pension schemes. QROPS are a function of UK law and can be based in both EU and non-EU countries.

Many people move to one European Union country but transfer their pension assets to another in order to minimise their tax bill. the Government might require that pensions can only be transferred to a country where an individual is resident following Brexit.

Restricting transfers would mean that more savers would leave their pensions in the UK leaving them potentially subject to income tax and possible lifetime allowance charges. There is also some speculation, that the UK could introduce a new ‘exit tax’ for pension transfers.

QROPS may be an option to protect your pension from any possible upheaval following Brexit. Another significant benefit of QROPS is that you are able to choose the currency.,meaning that you can invest your pension fund in the currency that you will ultimately spend. This could be particularly useful if Brexit negotiations result in a weaker Sterling and QROPS. Uncertainty in the UK economy and the possible impacts that this could have on markets would suggest that it is wise to have a more diversified portfolio. We have seen a raft of UK property funds suspending trading due to increased redemption requests demonstrating a lack of confidence in the longer term outlook.

QROPS are certainly going to feel the economic impacts of the UK’s decision to leave the European Union.

Transitional period

It is unlikely that there will be any significant changes until after Brexit has occurred. After Article 50 has been activated there will be an interim period of up to two years, whilst the exit is negotiated.This period is likely to result in an increase in demand for international pensions solutions such as QROPS, while people have some certainty over the rules and the treatment of their pensions.

As has always been the case the most suitable solution depends upon client circumstances and the regulatory climate at the time. The world changes as do the best solutions for an individuals circumstances, resist the “buy now or miss out” hysteria and make sure that you do what is best for you.

Update

Since we wrote this there have been some significant developments mainly the chancellor announced a 25% tax charge on all QROPS transfers which essentially puts an end to them and with BREXIT looming this situation definitely won’t change (QROPS is an EU initiative and will likely be abandoned when the UK leaves). 

From what we’ve seen so far the industry has lurched from QROPS back to Self Invested Personal Pensions (SIPP) in an attempt to keep the pension transfer gravy train moving. We’ve noticed companies start to promote International SIPPs though we’re not completely clear how they differ from QROPS if at all. It may be that consolidating your pensions is the best option for you and it is important that you do your research and make sure that you’re not going to be over burdened by fees.