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Five ways the American Rescue Plan might slash your health insurance costs

If you're uninsured – or already insured – it's worth checking now to see how marketplace subsidies could deliver better coverage and lower premiums

Thanks to the American Rescue Plan – signed last week by President Biden – premium subsidies are larger and available to more people in 2021 and 2022. | Image: leszekglasner / stock.adobe.com

Reviewed by our health policy panel.

If you’re among the millions of Americans who are uninsured or who buy their own health insurance in the individual market, the American Rescue Plan (ARP) has just significantly changed the rules – and changed them in a way that likely improve your access to affordable comprehensive health insurance.

Thanks to the legislation – signed last week by President Biden – premium subsidies are larger and available to more people in 2021 and 2022.

Many people who are receiving unemployment compensation in 2021 can now qualify for premium-free health insurance that provides robust benefits. And people who received excess premium subsidies in 2020 do not have to repay that money to the IRS when they file their 2020 tax return.

These improvements – although temporary and part of a massive bill designed to help the country recover from the COVID pandemic – will make it much easier for people to afford high-quality health insurance. But they’ve also generated a great deal of questions and confusion, especially among people who wonder whether they need to reconsider the plan choice they already made for 2021.

And the timing of these changes coincides neatly with a COVID-related enrollment period available nationwide. In most states, it continues through August 15, and in most states it’s an opportunity for people to newly enroll or switch from one plan to another, with coverage that takes effect the month after you enroll.

Should you use this window to enroll or make a plan change now that the ARP has been enacted? It depends, although you’ll definitely want to at least take another look at your coverage options. Here are some of the most common scenarios – and questions that people should be asking about them – right now:

1. You’re enrolled in an off-exchange ACA-compliant plan

Off-exchange plans are essentially the same as on-exchange plans, but people purchase them directly from the insurance company instead of going through the health insurance marketplace. If you know for sure that you’re not eligible for a premium subsidy, it’s fine to be enrolled off-exchange. But if you might be subsidy-eligible, the only way to get that subsidy – either upfront or claimed later on your tax return – is to enroll through the exchange.

Thanks to the American Rescue Plan, applicants with household incomes above 400% of the federal poverty level – who were previously ineligible for a subsidy – may find that they now qualify for a subsidy. And depending on where they live and how old they are, the subsidy could be substantial.

If you’re enrolled off-exchange, it’s definitely in your best interest to check out the on-exchange options and see if you’d qualify for a subsidy under the new rules.

If you’re in a state that uses HealthCare.gov, the new subsidies and premium amounts will be available for browsing as of April 1. (The 15 state-run marketplaces are working on this as well, and will display the new subsidy amounts as soon as possible.) But CMS has clarified that people should still enroll by the end of March in order to have coverage April 1, and then come back to the marketplace after the beginning of April to activate the new subsidies. (Applications submitted before April 1 will only have the current, pre-ARP subsidies built-in, although enrollees would then still be able to collect the full subsidy amount when they file their 2021 tax returns).

If you’re enrolled off-exchange and planning to switch to the on-exchange version of your current plan, your insurer might be willing to transition any accumulated out-of-pocket expenses you may have incurred thus-far this year. But this is not required; you’ll want to reach out to your insurer to see if this is something they’d allow.

Depending on where you live and the plan you’ve selected, the same plan (with the same medical provider network) may or may not be available on-exchange. And if you’re switching to a different policy on-exchange, your out-of-pocket spending will reset to $0 on the new plan.

So switching to an on-exchange plan is not necessarily the best option for everyone – it will depend on plan availability, provider networks, how much you’ve spent out-of-pocket already this year, and how much your premium subsidy will be if you enroll in a plan through the exchange.

2. You’re enrolled in a health plan that’s not ACA-compliant

Right now, you may have coverage through a short-term health insurance plan, a health care sharing ministry plan, a fixed indemnity plan, a direct primary care membership, a Farm Bureau plan, or a grandmothered or grandfathered health plan. Chances are, you’ve chosen this option because the monthly premiums fit into your budget, and ACA-compliant health coverage did not – at least as of the last time you checked. But it’s time to check again.

Healthy people with income above 400% of the poverty level have long been drawn to these alternative types of coverage, as have some people with incomes a little under 400% of the poverty level who only qualified for fairly small premium subsidies. But for 2021 and 2022, as a result of the ARP, the subsidies are much larger and there’s no longer a subsidy cliff.

So before the current COVID-related enrollment window ends (August 15 in most states, although this varies in states that run their own exchanges), you’ll want to check out your marketplace options. You might be pleasantly surprised to see that you can get comprehensive ACA-compliant health insurance – at least for this year and next year – at a much lower premium than you might have seen the last time you checked. (Again, note that if you’re browsing plan options before April 1 in most states, you won’t yet be able to see the more robust premium subsidies. But you’ll still be able to claim them on your 2021 tax return for any months in 2021 that you were enrolled.)

3. You’re enrolled in a Bronze plan through the exchange

If you’re currently enrolled in a Bronze plan through the exchange, you may have picked it because the premiums were lower than Silver, Gold or Platinum coverage options. Your Bronze plan may have been entirely free after your subsidy was applied.

You’ll still have a low (or free) premium under the ARP, but it’s in your best interest to actively compare it to the other available options during the current COVID-related enrollment period. You may find that you can now qualify for a very low-cost – or maybe free – Silver plan, which would have more robust benefits than your Bronze plan. This is especially true if you’re eligible for cost-sharing reductions (CSR), as these are essentially a free upgrade on your health coverage benefits. (CSR benefits are available in 2021 to a single individual earning up to $31,900, and to a family of four earning up to $65,500. These amounts are higher in Alaska and Hawaii.)

Before you make a plan switch, however, you’ll want to pay attention to the maximum out-of-pocket limits for the plans at a higher metal level. If you’re not eligible for CSR (ie, your income is above 250% of the poverty level), you might find that the available Silver plans have out-of-pocket limits that are similar to what you have with your Bronze plan. Depending on how you anticipate using your plan during the year, it may or may not make sense to pay a higher premium to upgrade your coverage.

If you anticipate high claims costs that will result in hitting the out-of-pocket maximum regardless of what plan you have, you might not come out ahead with an upgraded plan, once you account for your total out-of-pocket costs and premiums. But if you rarely have medical needs, the upgraded plan might save you money via a lower deductible and lower copays for things like office visits and prescription drugs.

As always, take all of the factors into consideration: Total premiums, out-of-pocket maximum, and how the plan might cover your medical costs if you don’t expect to meet that out-of-pocket maximum during the year.

If you picked a Bronze plan because you wanted to contribute to a health savings account (HSA) and needed to enroll in an HSA-qualified high-deductible health plan (HDHP), it’s worth checking to see if there are any HDHPs available in your area at a higher metal level. While it’s common to see Bronze HDHPs, there are also Silver and even Gold HDHPs in many areas. With the new subsidies created by the ARP, you might find that you can still maintain your HSA eligibility while also having a health plan with lower out-of-pocket costs that doesn’t cost you too much more in monthly premiums.

4. You’ve lost, or will soon lose, your job — and your health coverage

If you recently lost or will soon lose your job – and your health insurance – you’ve got some decisions to make. You might have access to COBRA or state continuation coverage (mini-COBRA), and you’ll also have access to a special enrollment period during which you can sign up for an individual/family health plan.

Under ARP Section 9501, the government will cover the full premium costs for COBRA or mini-COBRA from April 1 through September 30, 2021. (Note that this is not available if you voluntarily left your job.)

If you were laid off (or experienced an involuntary reduction in hours that resulted in a loss of health coverage) any time in the last 18 months and were COBRA-eligible but either declined it or later terminated it, you can opt back into COBRA in order to take advantage of the new subsidy. However, the subsidy does not extend your initial COBRA termination date, which is still, in most cases, 18 months after your COBRA would have begun if you had opted in from the start. So if you were first eligible for COBRA on October 1, 2019, your COBRA and your COBRA subsidy will end on April 30, 2021 (ie, 18 months later). This also applies to state continuation plans, which are often shorter in length than COBRA

If you’re receiving unemployment compensation at any point this year, you’ll also be eligible for a $0 premium Silver plan in the marketplace, with the most robust level of cost-sharing reductions. (CMS has clarified that it might take a while to get the details of this programmed into HealthCare.gov, but enrollees will be able to log back into their accounts later in the year to activate the larger subsidies, and there’s always the option to just claim them on your tax return after the end of the year.)

So should you take the fully subsidized COBRA coverage or the fully subsidized marketplace plan? It depends, but there are several factors to consider:

  • If you elect COBRA, what’s your plan for the final quarter of the year? Would you be able to pay full price once the government subsidy ends?
  • We don’t yet have federal guidance on whether the end of the government-funded COBRA subsidies will trigger a special enrollment period for marketplace plans, although we assume that it will. (The end of employer subsidies for COBRA does trigger a special enrollment period.) But assuming it does, would you want to switch to a marketplace plan at that point?
  • If you’ve incurred out-of-pocket costs under your employer’s plan thus far in 2021, COBRA might be the better choice, as you won’t have to start over on the out-of-pocket costs for a new plan. But you’ll still want to consider what you’ll do after September, and whether it will be more cost-effective to pay full price for COBRA for the final months of the year, or start over with a new plan at that point.
  • If you opt to switch to a marketplace plan, pay close attention to the provider networks and covered drug lists. Even if the marketplace plan is issued by the same insurance company that provides or administers your employer’s plan, the benefits and provider network might be quite different on the individual/family plan.

If you’re already enrolled in a marketplace plan and you’re receiving or have received unemployment compensation this year, you’ll want to take a close look at your coverage options. If you’re currently enrolled in a Bronze plan, be sure to check out the $0 premium Silver plan with robust cost-sharing reductions that may be available to you under the ARP, due to your unemployment compensation in 2021.

5. You’re already enrolled in the marketplace and happy with your plan

About 15% of current marketplace enrollees pay full price for their coverage, usually because they earn more than 400% of the poverty level and thus aren’t subsidy-eligible. But if you’re in this group, you may be eligible for a subsidy under the ARP.

Millions of other marketplace enrollees are receiving premium subsidies, and although their available subsidy amounts are likely to be larger under the ARP, they may not want to make any changes to their coverage.

If you’re already enrolled in a marketplace plan and certain that your current plan is the best option for your circumstances, you don’t need to do anything at all. If you qualify for an additional premium subsidy amount, it will be retroactive to January 2021 and you’ll be able to claim it when you file your 2021 taxes.

But you may want to log back into your marketplace account and claim your new or additional subsidy amount, so that it can be paid to your insurer on your behalf each month for the rest of 2021.

If you’re in a state that uses HealthCare.gov, CMS has confirmed that the premium subsidy amounts will not automatically update (the 15 state-run marketplaces will have their own protocols for how this is handled). So you’ll need to return to the marketplace to provide proof of your income (if you’re currently enrolled in a full-price plan and never gave your income details to the marketplace) or reselect your current plan and trigger the new subsidies.


Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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Jennifer Levinson
Jennifer Levinson
3 months ago

Greetings Louise.
RE: COBRA subsidy for Apr 1 to Apr 30, 2021

I was laid off on Sep 9, 2019. I signed up for COBRA. The severance package from my former employer (which I accepted) included extending my existing group plan coverage through Oct 31, 2019. Therefore my COBRA coverage started Nov 1, 2019 and ended Apr 30, 2021.

My former employer says I am not eligible for the Apr 2021 subsidy since COBRA coverage would have started October 1, 2019, technically.

I disagree and I feel they should reimburse me for the April 2021 COBRA premium.

Can you provide any insight on this ?

Thanks in advance
Jennifer Levinson
Redondo Beach, CA

Louise Norris
Editor
3 months ago

Jennifer,

If your COBRA coverage actually continued through the month of April, you should be eligible for the subsidy. If your employer had opted to pay the first month of your COBRA premiums (as opposed to just continuing your active-employee coverage for a month), your COBRA would have started in October 2019 and ended on March 31, 2021. But it sounds like that’s not what they did. They kept you covered on the group plan for the month of October 2019, and then started your 18-month COBRA window in November 2019.

The ARP’s COBRA subsidy doesn’t change anything about the termination date for COBRA, but yours was always scheduled to end on April 30, 2021. Your employer should be eligible to recoup the April premium via their quarterly FICA tax return.

I am not an attorney, but that’s my understanding of the situation. Best of luck!

Last edited 3 months ago by Louise Norris
Diane Elias
Diane Elias
1 month ago

I was laid off due to Covid on Oct. 1, 2020 and am receiving unemployment. I turned 65 on Oct. 2, 2020. I am currently paying Medicare premium as as I do not yet want to start my social security benefits. I’d like to continue working if I can find a job. Can I get my Medicare premiums subsidized through the Rescue Act?
Thank you so much,
Diane Elias
Camarillo, CA

Louise Norris
Editor
1 month ago
Reply to  Diane Elias

Diane,
No, there is no provision in the ARP to subsidize Medicare premiums for people who have received unemployment. Just to clarify, you’ll continue to have to pay Medicare Part B premiums even after you start receiving Social Security, but they’ll deduct it from your Social Security check rather than having you pay it directly.
I hope the job hunt goes well, and that you’re back to work soon. If you start working for an employer that has 20+ employees and offers you group health insurance benefits, you may find that you can drop Part B at that point, and then re-enroll when you eventually retire. Here’s more about Part B when you’re working past age 65: https://www.medicareresources.org/medicare-eligibility-and-enrollment/why-you-cant-afford-to-get-medicare-part-b-wrong/
If that ends up being the case, you have to have an interview with the Social Security Administration in order to terminate your Part B coverage for the time you’ll be covered under the group plan: https://faq.ssa.gov/en-us/Topic/article/KA-02713

janet hoerner
janet hoerner
23 days ago

Can someone please explain how to handle this. Our 23 year old daughter just finished grad school in August 2021 and has been covered under our family health plan from Jan. thru Aug. and we received subsidy credits. Now, Sept. 1st she got a job and will have her own coverage. We are dropping her Aug. 31st. We can not claim her as a dependent b/c she has not lived in our home. Do we have to claim her income from Sept. thru Dec. in our AGI or do we have to pay back the credit we got for her Jan. thru Aug.? I ask 5 people and get 5 diff. answers!!! HELP

Louise Norris
Editor
21 days ago
Reply to  janet hoerner

This FAQ might help a bit: https://www.healthinsurance.org/faqs/we-claim-our-son-but-not-our-daughter-on-our-taxes-how-are-premium-subsidies-calculated-for-families-like-ours/
We recommend that you reach out to a tax professional for specific questions like this. But as far as general background information: Your daughter will file her own tax return, and you’ll file your own return for your own tax household. The instructions for how to handle this are in the instructions for Form 8962, starting on page 18: https://www.irs.gov/pub/irs-prior/i8962–2020.pdf (see the section titled “Allocation Situation 4. Other situations where a policy is shared between two tax families”)
Your daughter can indicate on her tax return that she wants to allocate her subsidy to you, and you can claim the whole thing, assuming that the combined household incomes would still make the whole family eligible for subsidies. Her income for the final months of the year will be taken into consideration, since subsidy eligibility always depends on total annual income. But subsidy eligibility doesn’t end abruptly at 400% of the poverty level the way it did in prior years, so the amount that has to be repaid (if any) might be less than you expected.

janet hoerner
janet hoerner
21 days ago
Reply to  Louise Norris

Thank you for this answer. Since we are dropping her Aug. 31st; why would we claim her income Sept. thru Dec.? That doesn’t seem right because she will have her own plan and she is not in our household. I do NOT want to claim her income because she is getting a big sign on bonus. My cpa told me that b/c she will NOT be a dependent; we will not claim her income. This is very confusing.

Louise Norris
Editor
20 days ago
Reply to  janet hoerner

Premium subsidy eligibility is always based on full-year income, regardless of when the income is earned. So a person who has very little income for the first 10 months of the year might qualify for subsidies for that whole time, but then have to pay them all back on their tax return if they get a great job in November that provides a substantial amount of income in the final months of the year.

The example of Gary and Jim on page 17 of the Form 8962 instructions is somewhat similar to your situation, except the family in that case didn’t receive advance premium tax credits: https://www.irs.gov/pub/irs-prior/i8962–2020.pdf But the general idea is the same: All four people were on one health insurance policy, but Gary files his taxes as a household of three, and Jim files his as a household of one, since he’s not a dependent.

That’s how you’ll have to file because your daughter is not your tax dependent. You’ll be filing with the rest of your tax household, and reconciling subsidies based on the income for your tax household and the number of people in your tax household. Your daughter will be filing on her own, with her own income.

So it’s possible that your household (not including her income, but also not including her as a member of the family) will have to pay back some subsidies, since you’ll be filing taxes with a smaller household (ie, minus your daughter) and the poverty level is higher for larger households.

You’ll be following the allocation procedures outlined in the instructions for Form 8962, but it sounds like your daughter’s tax return might show that she’s not eligible for any subsidies, based on her total 2021 income? If so, she wouldn’t have anything to allocate to you.

Last edited 20 days ago by Louise Norris
Louie S
Louie S
14 days ago

I was laid off work starting July 2021. I signed up for our company cobra for my wife and I. Our cobra medical is handled by a different administrator and our cobra Rx Prescription and Dental is handled my Ameriflex. With Ameriflex, we registered for the American Rescue Plan of 2021. Initially , an Ameriflex agent informed us that ARP 2021 does cover our Rx Presciption premium and Dental up to September. But by Aug 17, 2021 we received a letter stating only the dental premium is covered by ARP 2021 NOT Rx Prescription. We get different answers with different Ameriflex agents.

Should Rx prescription also be covered by ARP 2021 up to September?

Louise Norris
Editor
14 days ago
Reply to  Louie S

Yes, the group Rx coverage should be eligible for the COBRA subsidy. See question 35 in this series of FAQs from the IRS: https://www.irs.gov/pub/irs-drop/n-21-31.pdf
Basically, any benefit that is subject to COBRA extension is eligible for the ARP’s COBRA subsidy. Life and disability benefits aren’t considered health benefits, so they’re not subject to COBRA continuation rules (but prescription drug coverage, dental, vision, and any other medical care would be considered a group health plan): https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/an-employees-guide-to-health-benefits-under-cobra.pdf

Eileen Conklin
Eileen Conklin
10 days ago

Normally we pay $439.92 for our BCBS cuz of the subsidy we receive. All of the sudden this month the automatic withdrawal was $293.93. Did the American Rescue Plan change our premium???

Louise Norris
Editor
7 days ago
Reply to  Eileen Conklin

Most likely, yes. CMS announced this summer that they would automatically update subsidies as of September, for people who hadn’t manually updated their accounts earlier in the year to start claiming the extra subsidy amounts: https://www.hhs.gov/about/news/2021/07/15/biden-harris-administration-launches-summer-sprint-to-coverage-campaign.html
You can double-check with your insurer to be certain, but that’s the most likely explanation for the lower premium this month. It appears that you’re now eligible for an extra $146/month in subsidies, thanks to the ARP. You’ll be able to claim that extra amount for January through August when you file your 2021 tax return, but the marketplace has automatically applied it for September through December.

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