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How the American Rescue Plan Act will boost marketplace premium subsidies

If you buy an ACA-compliant health plan through your exchange, its premiums would likely be more affordable under the House Covid relief bill

If you’re among the 12 million people who purchase ACA-compliant coverage in the health insurance marketplaces, your coverage is likely to become more affordable under the American Rescue Plan Act. | Image: michaeljung / stock.adobe.com

Reviewed by our health policy panel.

Edit: The Senate passed H.R.1319 on March 6, and the House passed the bill again on March 10. President Biden signed it into law on March 11. CMS published some initial information for marketplace enrollees on March 12.

Last weekend, the House of Representatives passed the American Rescue Plan Act of 2021 (H.R. 1319), an economic stimulus package designed to provide relief from the impact of COVID-19 on Americans. The bill has the support of the majority of Americans – including those registered as Republicans and Independents.

H.R. 1319 is now under consideration in the Senate, so we don’t yet know exactly what will be included in the final legislation. But the health insurance provisions in the House version of the legislation are unchanged from what the House Ways and Means Committee had initially proposed, and have not been sticking points for the bill thus far.

Several provisions in H.R. 1319 are designed to make health coverage more accessible and affordable. Today we’re taking a look at how the legislation would change the ACA’s premium subsidy structure for 2021 and 2022, and the impact that would have on the premiums that Americans pay for individual and family health coverage.

Help for 12 million marketplace enrollees, plus more who will newly enroll

If you’re among the 12 million people who purchase ACA-compliant coverage in the health insurance marketplaces, your coverage is likely to become more affordable under H.R. 1319.

What’s more, the Congressional Budget Office estimates that an additional 1.7 million people – most of whom are currently uninsured – would enroll in health plans through the marketplaces in 2022 as a result of the enhanced premium subsidies.

No one would pay more than 8.5% of their income for the benchmark plan

Some opponents of the legislation have criticized its premium subsidy enhancements as a handout to wealthy Americans. But that’s only because the legislation is designed to remedy the subsidy cliff – which can result in some households paying as much as half of their annual income for health insurance premiums. It’s a situation that’s obviously neither realistic nor sustainable for policyholders.

The Affordable Care Act (ACA) only provides premium tax credits (aka premium subsidies) if a household’s ACA-specific modified adjusted gross income doesn’t exceed 400 percent of the federal poverty level. For 2021 coverage in the continental U.S., that’s about $51,000 for a single person and $104,800 for a family of four. Depending on where you live, that might be a comfortable income – but not if you have to spend 20, 30, 40 or even 50 percent of that income on health insurance.

H.R. 1319’s adjustment to the premium tax credit guidelines would temporarily – for this year and next year – eliminate the income cap for premium subsidies. That means that – regardless of income – no one would have to pay more than 8.5 percent of their household income for the benchmark plan (the second-lowest-cost Silver plan available in the exchange in a given area).

Under this approach, subsidies would phase out gradually as income increases. Plan buyers would not be eligible for a subsidy if the benchmark plan’s full price wouldn’t be more than 8.5 percent of the household’s income. But in some areas of the country – and particularly for older applicants, who can be charged as much as three times the premiums young adults pay – premium subsidy eligibility could end up extending well above 400 percent of the poverty level.

In addition to addressing the subsidy cliff, H.R. 1319 also enhances premium subsidies for marketplace buyers who are already subsidy-eligible. The subsidies would get larger across the board, making after-subsidy premiums more affordable for most enrollees. At every income level, the legislation would reduce the percentage of income that people are expected to pay for the benchmark plan, which would result in larger subsidies.

Larger subsidies? Here are a few examples.

How much larger? It would depend on location, income, and age. Let’s take a look at some examples.

We’ll consider applicants with various income levels and ages in three locations: Albuquerque, New Mexico – where premiums are among the nation’s lowest; Jackson, Mississippi – where premiums are close to the national average; and Cheyenne, Wyoming – where premiums are among the nation’s highest.

In each location, we’ll see how things would play out for a 25-year-old, a 60-year-old, and a family of four (45-year-old parents, and kids who are 13 and 10), all at varying income levels.

American Rescue Plan Act impact on health insurance subsidiesYou can see the full comparison in this spreadsheet. (Current premiums were obtained via HealthCare.gov’s browsing tool. Premiums under H.R. 1319 were calculated using the proposed applicable percentage table in Section 9661(a) and the methodology outlined here, which would be unchanged under the new legislation.)

In most cases, you’ll notice that the subsidy amount is larger under H.R. 1319, resulting in a lower benchmark premium and also a lower price for the lowest-cost plan available to that applicant (or more plans available with no premium at all). This is because the new legislation specifically reduces the percentage of income that people have to pay for the benchmark plan. That, in turn, drives up the subsidy amounts that are necessary to reduce the benchmark premium. And since premium subsidies can be applied to any metal-level plan, it also results in a lower cost for the other available plans (or more premium-free plans, depending on the circumstances).

As you consider these numbers, note that if the current subsidy amount is $0, either the benchmark plan is already considered affordable for that person, or their income is over 400 percent of the poverty level and subsidies are simply not available. If the subsidy amount is $0 under the H.R. 1319 scenario, it means that the benchmark plan would not cost more than 8.5 percent of the applicant’s income.

As you can see, the additional subsidies would be widely available, but would be more substantial for people who are currently paying the highest premiums. Under the current rules, it may not be realistic for our Wyoming family to pay more than $30,000 in annual premiums (enrolling in the benchmark plan, with premiums in excess of $2,500 per month). The American Rescue Plan Act would bring their annual premiums for the benchmark plan down to under $10,000, which is much more manageable.

The legislation is not, however, a giveaway to wealthy Americans. If that family earned $500,000, they still wouldn’t get a premium subsidy under H.R. 1319, because even at $2,528/month, the full-price cost of the benchmark plan would only amount to 6 percent of their income. Unlike Medicare and the tax breaks for employer-sponsored health insurance, financial assistance with individual market health insurance would not extend to the wealthiest applicants.

By capping premiums at 8.5 percent of income, H.R. 1319 provides targeted premium assistance only where it’s needed. And by enhancing the existing premium subsidies, the legislation makes it easier for people at all income levels to afford health coverage.

Premium enhancements would be retroactive but also temporary

Assuming these premium subsidy enhancements are approved by the Senate, they’ll be retroactive to the start of 2021. Current enrollees will be able to start claiming any applicable extra subsidy immediately, or they can wait and claim it on their 2021 tax return. The additional premium subsidies would also be available for 2022, but would no longer be available as of 2023 unless additional legislation is enacted to extend them.

And there’s currently a special enrollment period – which continues through August 15 in most states – during which people can sign up for coverage if they haven’t already. In most states, this window can also be used by people who already have coverage and wish to change their plan, so this is definitely a good time to reconsider your health insurance coverage and make sure you’re taking advantage of the benefits that are available to you.


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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Jane Robson
Jane Robson
2 months ago

Thanks for this great information! Could you explain how the bill will affect ACA premiums for the unemployed? I can’t find much detail on this.

Louise Norris
Editor
2 months ago
Reply to  Jane Robson

The legislation calls for full premium subsidies (ie, making the benchmark plan cost $0 in premiums) for anyone receiving unemployment benefits at any point in 2021. This is a good overview: https://www.healthaffairs.org/do/10.1377/hblog20210218.859560/full/

Jane Robson
Jane Robson
2 months ago
Reply to  Louise Norris

Thanks so much! That article was really helpful. I also read the text of the bill itself, but I couldn’t find an answer as to whether I would still qualify for full premium subsidy if I am married filing jointly and buying ACA coverage for both myself and my husband on the exchange? He is employed but his employer does not offer health insurance. Or should I wait for Healthcare.gov to issue guidance on how to claim this subsidy?

Louise Norris
Editor
2 months ago
Reply to  Jane Robson

I expect there to be more guidance on this in the coming days. But the text of the legislation does say that “there shall not be taken into account any household income of the taxpayer in excess of 133 percent of the poverty line for a family of the size involved.” That leads me to believe that the full subsidy will apply to the family’s coverage, although the IRS could certainly have a different interpretation.

May Manalo
May Manalo
2 months ago

Thanks so much for the information! I was wondering about the subsidies we received in 2020. I went over the 400% income limit and will have to pay back the entire amount I received. Will they forgive that through this bill? I was unemployed for a majority of 2020 as well if that plays a factor.

Louise Norris
Editor
2 months ago
Reply to  May Manalo

Yes, that’s one of the provisions in this bill. See section 9662: https://www.congress.gov/bill/117th-congress/house-bill/1319/text#toc-H43439D12D8DE48B4A7B8D83031FDFC2E

Beth
Beth
2 months ago

Hi, I have been trying to find this info everywhere online for past few days and I cannot find anything. Does this bill close the Health exchange’s ‘family glitch’ where even if your health insurance is affordable for just yourself but not your entire family, you do not qualify for a subsidy? Which leaves your children and spouse out?

Louise Norris
Editor
2 months ago
Reply to  Beth

Unfortunately, no. The three main changes that the law (thus far, not yet fully passed) would make regarding premium tax credits are the changes mentioned in the article above, additional premium tax credits for people receiving unemployment benefits, and changing the rules so that just for 2020, people who received excess premium tax credits would no longer have to repay them. This article from KFF is a good summary: https://www.kff.org/health-reform/issue-brief/impact-of-key-provisions-of-the-house-covid-19-relief-proposal-on-marketplace-premiums/

Lauren
Lauren
2 months ago
Reply to  Louise Norris

So the 8.5% of income premium cap is only achieved through subsidies? I had really hoped this might finally save me from the family glitch

Louise Norris
Editor
2 months ago
Reply to  Lauren

Unfortunately, the family glitch is not addressed in the American Rescue Plan Act. This is high on Democrats’ wish list in terms of ways the ACA could be improved, so it might be part of future legislation.

Michael Sinder
Michael Sinder
2 months ago

Thank you for this informative article. If I currently have health insurance outside the ACA marketplace, can I switch to a marketplace plan in order to get the benefit of the cap on premiums (8.5% of income)?

Louise Norris
Editor
2 months ago
Reply to  Michael Sinder

Yes, you can. There is currently a COVID-related special enrollment period in the marketplaces in every state: https://www.healthinsurance.org/blog/2021/01/28/biden-administration-announces-three-month-special-enrollment-period/ In most states, this window continues through May 15. And in most states, it’s available to people who want to change their existing coverage.
But even if you’re in a state that’s limiting its COVID-related enrollment period to people who are currently uninsured, you would also qualify for a special enrollment period triggered by your new eligibility for premium subsidies, once the legislation is finalized: https://www.healthinsurance.org/special-enrollment-guide/a-change-in-subsidy-eligibility-changes-your-options/#offexch

Michael Sinder
Michael Sinder
2 months ago
Reply to  Louise Norris

Thank you! Once again, this is very helpful. Another question: If choosing between (1) an ACA marketplace plan (with the cap on premiums at 8.5% of income – once Biden signs it into law) vs (2) a non-marketplace PHCS PPO using the “multi plan” network (assume the premium would be about the same as the marketplace plan with the cap) – which would you choose?

Mike
Mike
2 months ago

Does this count for tax year 2020? I ended up over the 400% for the first time in a long time, and lost the entire credit. Will this allow me to wait and file post signing of the bill

Louise Norris
Editor
2 months ago
Reply to  Mike

We’ll be posting another article soon about this. For the 2020 plan year, the American Rescue Plan (see Section 9662) eliminates the repayment of excess premium tax credits. We don’t yet know how soon tax software will be able to pivot on this, but the legislation does mean that people who would otherwise have to pay back premium subsidies for 2020 will not have to do so.

Mary Anne Paoletti
Mary Anne Paoletti
2 months ago

Pennsylvanians who were in ACA had to use Pennie.com this year but still got the tax credit. Will the tax credit be adjusted for these policyholders as well. Does it adjust automatically?

Louise Norris
Editor
2 months ago

Pennsylvania is now one of 15 fully state-run marketplaces (36 states use HealthCare.gov instead). The enhanced premium subsidies will be available nationwide, so Pennie and the other 14 state-run exchange platforms will also use the same new formula for calculating premium tax credits.
We don’t yet know, however, the specifics of how they’ll all implement this. All enrollees will eventually be “made whole” via the reconciliation process with the IRS on their 2021 tax returns. But the exchanges should be able to automatically adjust premium subsidy amounts for people who have already provide the exchange with their income. And people who didn’t provide an income (perhaps because they were over 400% of the poverty level) will have an opportunity to log back into their exchange account and provide updated income information.

Marc Jordan
Marc Jordan
1 month ago

Great, great article. It’s the only one showing details that I could find. Question: is the income level based on raw W2 salary or adjusted gross income?

Louise Norris
Editor
1 month ago
Reply to  Marc Jordan

Thanks! Income is still calculated according to the ACA-specific version of MAGI: https://www.healthinsurance.org/glossary/modified-adjusted-gross-income-magi/

Fred Donaldson
1 month ago

Medicare for the wealthy is not the same price as other seniors. Premiums range from $140 to $471 per month, perperson. Most seniors would be far better off under Obamacare, but if you are 65 you cannot buy anything but Medicare or a private plan that uses Medicare rules and minimum pricing. Imagine having to spend $1,448 just to be admitted to the hospital, no dental, no long-term nursing home, no hearing aid, and 20% co-pays for doctors and medical supplies. The drug plan makes you pay at least $4,500 per person out of pocket before you get catastrophic coverage. Meanwhile, Medicaid pays all these things with no premiums, no FICA taxes for 40 years. Try that on a median Social Security benefit of $1,400 a month before they deduct the $140 minimum for Medicare B.

Louise Norris
Editor
1 month ago
Reply to  Fred Donaldson

It’s true that there are high-income surcharges for wealthy beneficiaries (a single person earning more than $88,000). But a person living on the median Social Security benefit is certainly not going to be paying the high-income surcharge for Medicare Part B/D.

With a Medigap plan, seniors can eliminate some or all of the out-of-pocket costs they would otherwise incur under Medicare alone: https://www.medicareresources.org/medicare-benefits/medigap/

There’s often a lot of confusion about Part D plans and how much you’ll end up spending in actual out-of-pocket costs. Figure 3 on this chart is a good illustration of how it works: https://www.kff.org/medicare/fact-sheet/an-overview-of-the-medicare-part-d-prescription-drug-benefit/

Although you note that “most” seniors would be better off with Obamacare, it really varies from person to person (and while your Obamacare coverage will not terminate when you become eligible for Medicaid, premium subsidies do end if you’re eligible for premium-free Medicare Part A, and there’s no coordination of benefits between Medicare and individual market coverage, so it’s not recommended that a person have both).

Obamacare plans generally do not cover adult dental either, and they do not cover long-term care.

Eric
Eric
3 days ago

I work through an agency that offers a plan that is affordable but does not provide minimum value, as there is no hospitalization. They even tell us that if you need major medical, you’ll have to get it on your own. I make over 400 FPL but live in an area where the premiums through the exchange would be about 25% of my take home pay. Getting a subsidy through the exchange would knock that down to about 12% of my take home pay, which would be manageable. My fear is that if I go through the exchange and get the subsidy that my employer/agency would then get dinged with the fine for not providing the necessary coverage. They didn’t have that fear before this new law, because they were protected by me making over 400 FPL, so I wasn’t eligible for marketplace coverage.

Is there anything in the new laws that would protect them from this fine? I’m not sure that losing my job at age 58, assuming they agency suddenly has no more projects for me to work on, is really an acceptable solution for me.

Louise Norris
Editor
3 days ago
Reply to  Eric

No, there is nothing in the American Rescue Plan that would protect an employer from the shared responsibility penalty in that circumstance (assuming the employer has 50+ full-time (or full-time equivalent) employees and you work at least 30 hours per week). You can read more about that here: https://www.benefitspro.com/2021/04/12/employers-the-american-rescue-plan-could-increase-your-risk-of-aca-non-compliance/
I understand your hesitation and concern. But if you decide to purchase a plan in the marketplace, you should be able to qualify for the benchmark silver plan in the marketplace with an after-subsidy premium equal to 8.5% of your ACA-specific MAGI. Or you can pick a more expensive or less expensive plan and apply the subsidy to it.

Eric
Eric
3 days ago
Reply to  Louise Norris

Thank you.

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