The extended unemployment benefits and $1,400 direct payments that are part of the American Rescue Plan Act of 2021 signed into law by President Biden on March 11 have gained much attention.
But the new law contains several other provisions aimed at making health insurance more affordable for millions of people with lower and moderate incomes, as well as helping people without insurance get insured.
“The American Rescue Plan is the biggest step to reducing the number of uninsured Americans since the Affordable Care Act,” said Deb Gordon, author of “The Health Care Consumer’s Manifesto: How to Get the Most for Your Money.”
“Covering more uninsured is so important when millions of Americans have lost their jobs, wages, and coverage due to the pandemic,” she said.
For now, these provisions are temporary, but they include an expansion of Affordable Care Act (ACA) subsidies, new COBRA subsidies, relief from the premium tax credit clawback, and additional Medicaid coverage.
Expands ACA subsidies
The American Rescue Plan expands who is eligible for the ACA premium tax credit and increases the amount for certain people already eligible.
This subsidy lowers the monthly health insurance payment, or premium, for people who buy their insurance through Healthcare.gov or their state marketplace.
In previous years, only households with incomes that fell between 100 and 400 percent of the federal poverty level (between $26,500 and $106,000 for a family of four in 2021) qualified for the premium tax credit.
Many people above this “subsidy cliff” didn’t qualify for assistance but were not able to afford full-price premiums. The new law closes this long-standing gap in the ACA.
“Many people earned too much to get financial help paying for insurance and too little to be able to afford it,” Gordon said. “Now, the subsidies are based on how much of your income you’d have to pay toward health insurance.”
During 2021 and 2022, individuals and families above the income cutoff can access premium tax credits. They will also pay no more than 8.5 percent of their household income for a plan purchased through the state or federal marketplaces.
“These increased subsidies are designed to increase coverage at the margin and also to let people enroll in higher metal-level plans so they can reduce their cost-sharing obligations,” said Kathy Hempstead, PhD, a senior policy adviser at the Robert Wood Johnson Foundation.
Some people opt for lower-premium plans, but these come with higher deductibles and other out-of-pocket expenses.
Hempstead said the increased subsidies will be “significantly more generous” for people whose income is close to 400 percent of the federal poverty level.
In addition, people who earn between 100 and 150 percent of the federal poverty level will now have their entire premium covered. In 2020, a family of four at this income level paid around 2 to 4 percent of their household income.
People who receive unemployment benefits at any point during 2021 may also be eligible for a premium tax credit.
Nearly 15 million uninsured Americans could now qualify for subsidies if they enroll through the federal or state marketplace, the Department of Health & Human Services estimates.
Gordon said if you’re uninsured or bought your own individual health insurance outside the state or federal marketplaces, it’s time to check again to see whether you qualify for a premium tax credit or other subsidy.
A special enrollment period for the marketplaces began Feb. 15 and continues through May 15. During this time, people can sign up for or change their plan.
Eliminates premium tax credit clawback
Another issue addressed by this law is the premium tax credit clawback.
This affects people who had to estimate their income for the year when applying for health insurance through the ACA marketplace.
If they underestimated their income, they could have had to pay back some of the tax credits they received — aka the federal government’s “clawback.”
This problem with a “clawback” has existed since the ACA was passed, but could have been more of a problem this year with many people facing unsteady employment during the pandemic.
Because of pandemic-related business closures and slowdowns, along with other income categories like hazard pay and unemployment benefits, many people’s income estimates for 2020 were off.
The new law waives repayment for people who received more subsidies due to underestimating their income. This only applies to 2020 income.
Offers full COBRA subsidies
The American Rescue Plan will subsidize 100 percent of the premiums for COBRA from April 1, 2021, through Sept. 30, 2021.
This program allows people who lose their job or have reduced hours to stay on their employer’s health insurance for 18 or 36 months.
In previous years, people paid the full premium along with an administrative fee. This is often more expensive than a marketplace plan but makes sense for some people.
“Depending on the individual, COBRA can cost a lot more than ACA insurance, but the benefits can be better,” said Dr. Michael D. Miller, a healthcare and life sciences consultant. “Also, if it is midyear, switching insurance means having to start over with a new deductible for the year.”
A deductible is the amount you have to pay out of pocket for healthcare services before your insurance plan starts to pay.
For people who’ve had significant healthcare spending during the year — and have already met their deductible — it sometimes makes sense to go with COBRA initially and then choose an ACA plan during the next open enrollment period.
By subsidizing the full COBRA premium, the new law makes COBRA a better choice for many people. It also helps millions of people who lost a job that was providing them with employer-sponsored health insurance.
Expands Medicaid program
The American Rescue Plan makes several changes to the federal-state Medicaid program.
Gordon said this will enable “more of the most economically vulnerable Americans [to] get free or significantly subsidized coverage.”
In addition, “the American Rescue Plan makes it harder for states with lots of uninsured, vulnerable residents to do nothing to help,” she said.
The changes include increasing funding to states for home- and community-based services, allowing states to offer 12 months of postpartum coverage for new mothers, requiring the coverage of COVID-19 vaccines and treatment for Medicaid enrollees, and expanding COVID-19 testing for people who are uninsured.
The COVID-19 coverage, in particular, aims to reduce some of the health disparities that have affected lower-income households during the pandemic.
“The new guidance on testing coverage closes a really important gap which surely contributed to significant undertesting,” Hempstead said. “This is much overdue and very welcome.”
Gordon said many women with lower incomes, who have been harder hit economically by the pandemic, will benefit from the Medicaid changes.
“Low-income women can stay covered for longer after childbirth,” she said, “an important time for mothers’ health and well-being.”
The American Rescue Plan also offers new incentives for the 12 “hold-out” states that have not yet expanded their Medicaid program under the ACA. This expansion would extend Medicaid benefits in those states to households with incomes up to 138 percent of the federal poverty level.
Hempstead said the new law is a very good deal for these hold-out states, but they have already left a lot of federal money on the table over the years by not expanding.
Whether the new incentives are enough to get them on board remains to be seen. But many people in those states are eagerly awaiting the Medicaid expansion.
“There is strong public support for expansion in all of these states, and that will be brought to bear ‘with bells on’ this time,” Hempstead said. “Hopefully common sense will prevail.”