American Rescue Plan drives health insurance costs down for ‘young invincibles’

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For generations, one of the transition points for young adults has been the process of leaving their parents’ health insurance and enrolling in their own coverage (assuming they were fortunate enough to be covered under a parent’s health plan in the first place).

The Affordable Care Act (ACA) ushered in some important changes that made coverage much more accessible for young adults, including the provision that allows them to remain on a parent’s health plan until age 26. Now, the American Rescue Plan (ARP) is making coverage even more affordable, albeit temporarily.

For 2021 and 2022, the ARP provides enhanced premium subsidies (aka premium tax credits). And in most cases, those who are receiving unemployment compensation at any point in 2021 are eligible for premium-free coverage that includes robust cost-sharing reductions.

By the time they need to secure their own coverage, some young adults already have access to their own employer’s health plan. But what if you don’t? Maybe you’re working for a small business that doesn’t offer coverage, or striving to fulfill your entrepreneurial dreams, or working multiple part-time jobs. Let’s take a look at your options for obtaining your own health coverage, and the points you should consider when you’re working through this process:

Individual-market plans more affordable than ever

Purchasing an individual plan in the marketplace has always been an option for young adults, and the ACA ensures that coverage is guaranteed-issue, regardless of a person’s medical history (that is, you can’t be denied coverage or charged a higher premium due to a pre-existing medical condition). The ACA also created premium subsidies that make coverage more affordable than it would otherwise be. But the ARP has increased the size of those subsidies for 2021 and 2022.

Previously, healthy young people with limited income sometimes found themselves having to make a tough choice between a plan with a very low (or free) premium and very high out-of-pocket costs, versus a plan with more manageable out-of-pocket costs but a not-insignificant monthly premium. In some circumstances, the new subsidy structure under the ARP helps to eliminate this tough decision by reducing premiums for the more robust coverage.

How much can ‘young invincibles’ save on coverage?

The exact amount of a buyer’s subsidy will depend on how old they are and where they live. But some examples will help to illustrate how the ARP’s subsidy enhancements make coverage more affordable and allow young people to enroll in more robust health plans:

Let’s say you’re about to turn 26, you live in Chicago, and you expect to earn $18,000 this year working at two part-time jobs – neither of which offer health insurance benefits. You’re losing coverage under your parents’ health plan at the end of June, and need to get your own plan in place for July.

  • According to HealthCare.gov’s plan comparison tool, the benchmark plan in that area has a full-price cost of about $277/month for a 26-year-old.
  • Under the normal rules (ie, before the American Rescue Plan), the after-subsidy amount for the benchmark plan would be about $54/month. (That’s 3.59% of the person’s $18,000 income. Here’s the math on how that’s all determined.)
  • Under the American Rescue Plan, that policy is free at this income level. Zero premium. It’s got a $200 deductible, $5 copays for primary care visits and generic drugs, and an $800 out-of-pocket maximum. These robust benefits are thanks to the built-in cost-sharing reductions. (Note that this option –a $0 premium plan with robust cost-sharing reductions – is also available if you’re receiving unemployment compensation in 2021, regardless of your total income.)

Those cost-sharing reductions are always available. But without the American Rescue Plan, a healthy 26-year-old might have been tempted to get one of the less-expensive Bronze plans. (In this particular case, one plan was available for under $2/month, and others were available for under $30/month.) But those come with deductibles of at least $7,400, and out-of-pocket maximums of $8,550. (Cost-sharing reductions are only available on Silver plans. The benchmark plan is always a Silver plan, and its price is used to determine the amount of a person’s subsidy.)

A young, healthy person with a limited income might have enrolled in that $2/month plan because the premiums fit their budget. But they would likely have struggled to pay the out-of-pocket costs if they experienced a significant medical event during the year. Thanks to the expanded premium subsidies created by the ARP, there’s no longer a tough decision to make, since the benchmark plan, with robust cost-sharing reductions, has a $0 premium for people with income up to 150% of the federal poverty level (for a single person, that’s $19,140 in 2021).

Although the dollar amounts of the ARP’s subsidy increases are larger for older people (because their pre-subsidy premiums are so much higher), it’s really significant that the new law helps to make it easier for “young invincibles” with limited incomes to enroll in plans with cost-sharing reductions. The Bronze plans that come with much higher out-of-pocket costs won’t be such an appealing alternative when Silver plans are made much more affordable – or free, as in the case we just looked at.

What about young people with higher incomes?

But what if you’re a young person with an income that’s too high for cost-sharing reductions? The American Rescue Plan still makes coverage more affordable, and makes it easier to afford a better-quality plan. Let’s say our 26-year-old in Chicago is earning $40,000 in 2021 – about 313% of the federal poverty level.

  • The benchmark plan is still $277/month without any premium subsidies.
  • Without the American Rescue Plan, no subsidies are available for this person at this income level (despite the fact that their income is under 400% of the poverty level). The benchmark plan is $277/month and the cheapest available plan is $215/month (it’s a Bronze plan with a $7,400 deductible, $60 primary care copays, and an out-of-pocket cap of $8,550).
  • Under the American Rescue Plan, this person would be eligible for a premium subsidy that would reduce the cost of the benchmark (Silver) plan to $211/month (because the percentage of income that people are expected to spend on the benchmark plan has been reduced). The lowest-cost plan would drop to about $149/month.

The take-away here? Buying your own health insurance is much more affordable in 2021 and 2022 than it would normally be. Depending on your income, you might be eligible for robust health coverage with $0 premiums, or you might be eligible for premium subsidies even if you weren’t prior to the American Rescue Plan.

Switching to your own plan: Things to keep in mind

If you’re switching to your own self-purchased health insurance plan after having coverage under a parent’s health plan, there are several things to be aware of as you make this change, particularly if your previous health coverage was offered by an employer:

  • You may have far more plan options than you and your family are used to having. If your parents’ plan is offered by an employer, it’s likely one of only a few options from which they can choose each year. But when you’re shopping for your own coverage in the individual market, you might see dozens of available plans. If the plan selection process feels overwhelming, here are some considerations to keep in mind as you go about picking a plan.
  • There might not be any PPO options. PPOs, which provide some coverage for out-of-network services and also tend to have broader provider networks, are widely available in the employer-sponsored market. But they tend to be much less available in the individual market. When you’re shopping for your own coverage, you’re more likely to encounter plans that only cover care received in-network. This makes it particularly important to understand what doctors and facilities are in-network before you enroll.
  • The provider network might be very different, even if the health insurance company is the same one you had before. For example, your parents’ plan might be provided or administered by Anthem Blue Cross Blue Shield, and you might decide to enroll in a marketplace plan offered by the same insurer. But most insurers have different provider networks for their individual and group health plans, so you’ll want to double-check to see if your medical providers are in-network with the plans you’re considering.

Low income? Medicaid may be an option

If you’re in Washington, DC or one of the 36 states (soon to be 38) where Medicaid eligibility was expanded as a result of the ACA, you might find that you’re eligible for Medicaid. For a single person in the continental U.S., Medicaid eligibility extends to an annual income of $17,774 in 2021. (It’s higher in Alaska and Hawaii, and DC also has a higher eligibility limit, allowing people to enroll in Medicaid with an income as high as $25,760.)

Medicaid eligibility is also based on current monthly income, meaning you won’t need to project your total annual income the way you do for premium subsidy eligibility. In a state that has expanded Medicaid eligibility under the ACA, a single individual can qualify for Medicaid with a monthly income of up to $1,482 in 2021. So if you’re going through a time period when your income is lower than normal, Medicaid can be a great safety net.

In most cases, Medicaid has no monthly premiums, and out-of-pocket costs are generally much lower than they would be with a private insurance plan.

In Minnesota and New York, Basic Health Program coverage is also available. These plans have modest premiums and provide robust health coverage. They’re available to people who earn too much for Medicaid but no more than 200% of the poverty level (which amounts to $25,520 for a single person in 2021).

COBRA: Access remains unchanged, but might be expensive

If you’re aging off your parents’ health plan, COBRA or mini-COBRA (state continuation coverage) might be available. This can be a good option if you’re able to afford it, as it allows you to keep the same coverage you already have for up to 18 additional months. You won’t have to start over with a new plan’s deductible and out-of-pocket maximum, nor will you need to worry about switching to a different provider network or selecting a plan with a different covered drug list.

The American Rescue Plan provides a one-time six-month federal subsidy that pays 100% of COBRA premiums, but this is only available to people who are eligible for COBRA due to an involuntary job loss of involuntary reduction in hours, and it’s only available through September 2020.

Aging off a parent’s health plan is a qualifying event that will allow you to continue your coverage via COBRA (assuming it’s available), but it’s not an event that will trigger the COBRA subsidy. (The details for in ARP Section 9501(a)(1)(B)(i), which references other existing statutes, all of which pertain to people who lose their jobs or have their hours reduced; the legislation notes that this must be involuntary in order to trigger the subsidies).

So depending on the circumstances, it may make more sense to switch to an individual plan in the marketplace.

Student health plans: Most are compliant with the ACA

If you’re in school and eligible for a student health plan, this might be an affordable and convenient option. Thanks to the ACA, nearly all student health plans are much more robust than they used to be, and provide coverage that follows all of the same rules that apply to individual market plans.

Check with your school to see if coverage is offered, and if so, whether it’s compliant with the ACA (some self-insured student health plans have opted to avoid ACA-compliance; if your school offers one of these plans, make sure you understand what types of medical care might not be covered under the plan).

If you do have an option to enroll in a high-quality student health plan, you’ll want to compare that with the other available options, including self-purchased individual market coverage, or remaining on a parent’s plan if you’re under 26 and that option is 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.

The post American Rescue Plan drives health insurance costs down for ‘young invincibles’ appeared first on healthinsurance.org.

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

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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 May 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 (May 15 in most states), 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.

The post Five ways the American Rescue Plan might slash your health insurance costs appeared first on healthinsurance.org.

How the American Rescue Plan Act would boost marketplace premium subsidies

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Key takeaways

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 May 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.

The post How the American Rescue Plan Act would boost marketplace premium subsidies appeared first on healthinsurance.org.

How the American Rescue Plan Act will boost marketplace premium subsidies

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Key takeaways

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 May 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.

The post How the American Rescue Plan Act will boost marketplace premium subsidies appeared first on healthinsurance.org.

What happens if my income changes and my premium subsidy is too big? Will I have to repay it?

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Q: What happens if my income changes and my premium subsidy is too big? Will I have to repay it?

Obamacare subsidy calculator

Use our calculator to estimate how much you could save on your ACA-compliant health insurance premiums.

A: Monthly premium subsidy amounts (ie, the advance premium tax credit – APTC – that’s paid to your insurer each month to offset the cost of your premium) are estimated based on prior-year income and projections for the year ahead, but the actual premium tax credit amount to which you’re entitled depends on your actual income in the year that you’re getting subsidized health insurance coverage.

If recipients end up earning more than anticipated, they could have to pay back some of the subsidy. This can catch people off guard, especially since the tax credits are paid directly to the insurance carriers each month, but if overpaid, they must be returned by the insureds themselves.

The issue of reconciling APTCs was explained in a 2013 IRS publication (see the final column on page 30383, continued on page 30384) which clearly explains that they do expect people to pay back subsidies that are in excess of the actual amount for which the household qualifies.

But the portion of an excess subsidy that must be repaid is capped for families with incomes up to 400 percent of federal poverty level (FPL). Details regarding the maximum amount that must be repaid, depending on income, are in the instructions for Form 8962, on Table 5 (Repayment Limitation). These amounts are adjusted annually, but for the 2020 tax year, the repayment caps range from $325 to $2,700, depending on your income and your tax filing status (single filer versus any other filing status). GOP lawmakers considered various proposals in 2017 that would have eliminated the repayment limitations, essentially requiring anyone who received excess APTC to pay back the full amount, regardless of income. But those proposals were not enacted.

There are some scenarios in which repayment caps do not apply:

  • If a person projected an income below 400 percent of the poverty level (and received premium subsidies during the year based on that projection) but then ends up with an actual income above 400 percent of the poverty level (ie, not eligible for subsidies), the entire subsidy amount that was paid on their behalf has to be repaid to the IRS.
  • If a person projected an income at or above 100 percent of the poverty level (and received premium subsidies) but then ends up with an income below the poverty level (ie, not eligible for subsidies), none of the subsidy has to be repaid. This is confirmed in the instructions for Form 8962, on page 8, in the section about Line 6 (Estimated household income at least 100% of the federal poverty line). But there are new rules as of 2019 that make it less likely for people with income below the poverty level to qualify for premium subsidies based on income projections that are above the poverty level. This is explained in more detail here.

Is there any help for me if I have to repay premium subsidies?

The IRS noted that they would “consider possible avenues of administrative relief” for tax filers who are struggling to pay back excess APTC, including such options as payment plans and the waiver of interest and penalties for people who must return subsidy over-payments. If you find yourself in a situation where you must pay back a significant amount of the premium subsidies you received during the prior year, contact the IRS to see if you can work out a favorable payment plan/interest arrangement.

It’s also worth noting that contributions to a pre-tax retirement account and/or a health savings account will reduce your ACA-specific modified adjusted gross income, which is what the IRS uses to determine your premium tax credit eligibility. If you had HSA-qualified health coverage during the year, you can make HSA contributions up until the tax filing deadline the following spring. And IRA contributions can also be made up until the tax filing deadline. You’ll want to talk with your tax advisor to see what makes the most sense given your specific circumstances, but you may find that some pre-tax savings end up making you eligible for a premium subsidy afterall, or reduce the amount that you’d otherwise have to repay.

The COVID pandemic caused widespread financial uncertainty and employment upheavals throughout much of 2020. Additional federal unemployment benefits were provided to millions of people, but there are concerns that the premium tax credit reconciliation could be particularly challenging during the 2021 tax filing season, with many people having to repay subsidies that were paid on their behalf during a time they were unemployed in 2020.

In December 2020, insurance commissioners from 11 states sent a letter to President-elect Biden, recommending various immediate and long-term actions designed to improve access to health coverage and care. One of the short-term recommendations is to provide relief from subsidy claw-backs for the 2020 tax year. Even in the best of times, it can be challenging to accurately project your income for the coming year, but the uncertainty caused by the COVID pandemic made this much more challenging than usual. So it’s possible that the Biden administration and/or Congress might be able to take action to provide some relief in this area, for at least the 2020 tax year.

What if you get employer-sponsored health insurance mid-year?

Most non-elderly Americans get their health coverage from an employer. Individual health insurance is great for filling in the gaps between jobs, but what happens if you start off the year without access to an affordable employer-sponsored health insurance plan, and then get a job mid-year that provides health coverage?

If a premium subsidy was paid on your behalf during the months you had individual market coverage, you may end up having to repay some or all of the subsidy when you file your tax return. It all depends on your total income for the year, including income from your new job. If your total income still ends up being in line with the estimate you provided when you applied for your subsidy, you won’t have to pay that money back. But if your actual income for the year ends up being substantially higher than you initially projected, you may end up having to repay some or all of that subsidy when you file your taxes.

It doesn’t matter that your income was lower when you were covered under the individual market plan. In the eyes of the IRS, annual income is annual income — it can be evenly distributed throughout the year, or come in the form of a windfall on December 31. (As noted above, insurance commissioners have urged the Biden administration to consider ways of providing relief on this issue for the 2020 tax year, given that it was even more challenging than normal to accurately project an annual income during the COVID panemic).

Once you become eligible for an affordable health insurance plan through your employer that provides minimum value, you’re no longer eligible for premium subsidies as of the month you become eligible for the employer’s plan. But premium tax credit reconciliation is done on a month-by-month basis, so as long as your total income for the year is still in the subsidy-eligible range, you’ll almost certainly still be eligible for at least some amount of subsidy for the months when you had a plan that you purchased through the exchange.

Finally, if you’re offered health insurance through an employer that you feel is too expensive based on the share you have to pay, you can’t just opt out, buy your own health plan, and attempt to snag a subsidy. The fact that an affordable plan (by IRS definitions) is available to you renders you ineligible for money toward your premiums. Unfortunately, the cost of obtaining family coverage is not taken into consideration when determining whether an employer-sponsored plan is affordable, which leaves some families stuck without a viable coverage option.

How many people have to repay premium subsidies?

For 2015 coverage, subsidies were reconciled when taxes were filed in early 2016. The IRS reported in early 2017 that about 3.3 million tax filers who received APTC in 2015 had to repay a portion of the subsidy when they filed their 2015 taxes; the average amount that had to be repaid was about $870, and 60 percent of people who had to pay back excess APTC still received a refund once the excess APTC was subtracted from their initial refund. [IRS data for premium tax credit reporting is available here; as of 2019, data had only been reported for the 2014 and 2015 tax years.]

But on the opposite end of the spectrum, about 2.4 million tax filers who were eligible for a premium tax credit ended up receiving all or some of it when they filed their return. These are people who either paid full price for their exchange plan in 2015 but ended up qualifying for a subsidy based on their 2015 income, or people who got an APTC that was less than the amount for which they ultimately qualified. The average amount of additional premium tax credit paid out on tax returns for 2015 was $670.

[The IRS noted that it was very uncommon for people to pay full price for their coverage and wait to claim their full refund on their return: 98 percent of the people who claimed a premium tax credit on their return had received at least some APTC during the year.]

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.

The post What happens if my income changes and my premium subsidy is too big? Will I have to repay it? appeared first on healthinsurance.org.

 

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