What the American Rescue Plan means for your health insurance

What the American Rescue Plan means for your health insurance

The American Rescue Plan (ARP) was signed into law by President Biden on March 11, 2021.[1] It includes the first significant expansion of the Affordable Care Act (or “Obamacare”) since 2010. You may be entitled to receive no-cost or reduced-cost health insurance. This article walks through how the American Rescue Plan changes the health insurance market and what those changes could mean to you and your family.[2]

The American Rescue Plan:

  1. Expands premium tax credits for people who buy their health insurance through the Marketplace
  2. Expands premium tax credits and cost-sharing reductions for the unemployed
  3. Suspends excess premium tax credit clawbacks for the 2020 tax year
  4. Covers the cost of COBRA continuation coverage for up to six months

If you find this article helpful or have suggestions on making it easier to understand, send me an email (rick@leguphealth.com) or message me on Twitter (@RickLindquist).

1. The American Rescue Plan expands premium tax credits for people who buy health insurance through the Marketplace

If you’re like most Americans, you’re probably not familiar with premium tax credits. These tax credits reduce the cost of your health insurance dollar-for-dollar. It’s a way for the government to pay for some or all of your private health insurance costs. Here's how it works. If you qualify for a premium tax credit of $1,000 per month and you pick a plan with a $1,250 monthly premium, you would only need to pay $250. That’s some serious savings. 

For 2021 and 2022, the American Rescue Plan expands premium tax credits in two ways:

  • It increases the amount of premium tax credit available.
  • It makes everyone eligible for premium tax credits regardless of income.

These changes are retroactive to January 1, 2021, and temporary through December 31, 2022. You will be able to take advantage of these changes on April 1, 2021. (Note: I expect President Biden and Congress to try to make these expansions permanent via future legislation.)

It increases the amount of premium tax credit available.

Premium tax credits work by capping your health insurance cost for a “benchmark plan” at a percentage of your household’s income. Your percent of income cap varies based on your household income. The lower your household income relative to the federal poverty level (FPL), the lower your percent of income cap. 

The American Rescue Plan increases the premium tax credits available by decreasing the percent of income caps across the board in 2021 and 2022. The new caps range from 0 percent to 8.5 percent.

A chart of the percent of income caps

The premium tax credit calculation won’t change, but the formula is now more generous. I expect these changes to increase premium tax credits by $50 per person per month on average.[3] That’s $600 per year per person. For specifics on how to calculate your premium tax credit, read our premium tax credit overview.

It makes everyone eligible for premium tax credits regardless of income.

Before 2021, premium tax credits were only available to households with annual income below 400 percent of the federal poverty level.[4] The 400 percent cutoff created something called the premium tax credit (or “subsidy”) cliff. If you made more than 400 percent of the poverty level, you fell off the cliff and received no premium tax credits. To put this in perspective, if your family was teetering on the subsidy cliff, one dollar more in income could cost you $10,000 or more premium tax credits. 

The American Rescue Plan eliminates the subsidy cliff by making all households eligible for the premium tax credits regardless of income. In 2021 and 2022, no American family will pay more than 8.5 percent of their household income for their “benchmark” plan.

2. The American Rescue Plan expands premium tax credits and cost-sharing reductions for the unemployed

The American Rescue Plan makes zero-premium health insurance available to anyone who receives unemployment benefits in 2021. Suppose you receive unemployment benefits at any point in 2021. In that case, regardless of your actual income, the Marketplace will treat you as if you have income at 133 percent of the FPL. That income level entitles you to a free silver plan with a deductible, out-of-pocket maximum, and copays like a platinum plan.

To be eligible, you must receive unemployment compensation for at least one week in 2021. You will need to attest and provide documentation to prove it. You must also meet the other eligibility requirements for premium tax credits, like not having access to affordable employer coverage.

3. The American Rescue Plan suspends excess premium tax credit clawbacks for the 2020 tax year

Suppose your income for 2020 was higher than you estimated when you enrolled in Marketplace coverage. In that case, you may have received a bigger premium tax credit than you should have. Usually, you would be required to pay back some or all of the excess credit at tax time. This year, you won’t have to.

The American Rescue Plan has eliminated the “premium tax credit clawback” for the 2020 tax year.

4. The American Rescue Plan covers the cost of COBRA continuation coverage for up to six months.

The American Rescue Plan will subsidize 100 percent of the cost of premiums for COBRA coverage for eligible workers from April 1 to September 1 in 2021. You’re only eligible for the COBRA subsidy if your previous employer terminated you involuntarily and if you’re not eligible for affordable coverage through another employer or the government.

Conclusion and next steps

In combination with the Special Open Enrollment Period that runs through August 15, the American Rescue Plan allows you to reduce your health insurance costs starting April 1. 

It will take some time for the Marketplace to implement these changes, but we’ll make sure our platform is ready to act on these changes when they go live in April. We expect additional guidance from the federal government and the Marketplace in the coming weeks. 

If you answer yes to any of the following questions, you could benefit from these changes. In that case, you may want to take action in April to update your coverage.

  • Do you currently receive a premium tax credit? If so, you will probably qualify for a more significant premium tax credit, and you may want to explore plans with lower cost-sharing.
  • Do you currently buy Marketplace coverage without premium tax credits? You may now qualify for premium tax credits.
  • Did you decide against Marketplace coverage because it was too expensive? You may now qualify for premium tax credits that make coverage affordable for you.
  • Are you enrolled in coverage directly with an insurance company instead of through the Marketplace? You may now qualify for a premium tax credit. If you do, you will need to transition to the Marketplace to become eligible for it.
  • Have you or do you plan to receive unemployment compensation at any point in 2021? If so, you may qualify for zero-premium coverage with reduced deductibles and copays.
  • Were you involuntarily terminated and offered COBRA? You may have your COBRA premiums covered for free from April 2021 until September 30, 2021.

Have questions about the American Rescue Plan? Contact us or email me at rick@legupheath.com.

Frequently Asked Questions (FAQs)

If I have Marketplace coverage, how do I receive the additional premium tax credits?

Starting April 1, you’ll be able to update your Marketplace application to calculate your new premium tax credit. You’ll be able to reselect your current plan or switch to an alternative. Before switching plans, you should consider how much you’ve already paid toward your current deductible. When you change plans, your deductible and out-of-pocket maximum may reset.

If I have Marketplace coverage, what will happen if I don’t take action?

If you don’t take action, the IRS will reconcile your premium tax credit when you file your 2021 taxes in 2022. However, it may be worth taking a minute to update your application before August 15th. The new premium tax credit may allow you to upgrade your current coverage at no extra cost.

Will the Marketplace automatically update premium tax credits on my behalf?

The Marketplace will not update the premium tax credit you are receiving in advance unless you take action and update your Marketplace application and enrollment. If you don’t take action,  the IRS will reconcile your premium tax credit when you file your 2021 taxes in 2022. So, you will still receive an increased premium tax credit if you are entitled to one. However, it may be worth taking a minute to update your application before August 15th. The new premium tax credit may allow you to upgrade your current coverage at no extra cost.

Notes

[1] The text of the American Rescue Plan is available here.

[2] The American Rescue Plan also makes some enhancements to Medicaid and CHIP. For example, it includes additional incentives for the 12 “hold-out” states to expand Medicaid. It also provides funding to help states to start offering 12 months of postpartum coverage for new mothers. The Georgetown University Health Policy Institute put out an excellent write-up on the Medicaid and CHIP enhancements. It’s available here.

[3] The source for this estimate is the CMS Factsheet: American Rescue Plan and the Marketplace. The Center on Budget and Policy Priorities (CBPP) also put together a helpful summary here

[4] When determining your premium tax credit, the IRS and the Marketplace use modified adjusted gross income (MAGI). When I write “income,” I’m referring to MAGI.

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