Health Insurance in the New Relief Bill: What to Know
With all the focus on stimulus checks and getting more people vaccinated faster, you may not have heard the American Rescue Plan includes some significant health insurance benefits, whether you’re on an Obamacare plan or have lost your job and want to keep your coverage.
Specifically, the pandemic relief package increases the subsidies for Obamacare health insurance and makes them available to more people by raising the income thresholds for eligibility through 2022. Those who already have coverage through a government-run marketplace should update their application to see if they qualify. (In most states, you can do this as of April 1.) And the expanded subsidies are available to any new enrollees, too. The changes are estimated to save the average person in most states $50 a month in premiums.
In addition, a subsidy to COBRA means laid-off workers who had health insurance through their jobs can keep it through September at no cost to themselves.
Here’s what you need to know about all of these provisions and more.
Increased and Expanded Eligibility for Subsidies
The new legislation not only increases the existing subsidies, or discounts, for those earning up to four times the poverty level—$51,040 for a one-person household—but for the first time adds income-based subsidies for those earning more than that.
The upshot is that purchasing private health insurance through a government marketplace will be less expensive for not only low-income households but for many higher-earning ones as well. This applies to both the federal government’s HealthCare.gov marketplace and the state-run equivalents in states that have their own exchange.
Those who reapply for health insurance on HealthCare.gov will see their monthly premiums lowered by an average of $50 per person and $85 per policy, starting with their May 1 premium, according to the Department of Health and Human Services (HHS). Here's why.
Basics of Obamacare
First, a quick primer on how the subsidies work under Obamacare—the term coined for the Affordable Care Act (ACA): A benchmark known as the “silver” plan, which offers the second-lowest premiums on a four-tiered scale, is used to determine how much consumers have to pay for their healthcare plans.
If this benchmark silver plan would cost you more than a certain percentage of your income (that percentage varies with your income), the government will kick in subsidies—technically tax credits—to make up the difference.
Consumers can choose a cheaper plan, such as a “bronze” one, or a more expensive plan, “gold” or “platinum” level, but the subsidies would remain the same, set by the silver benchmark. (The premiums for the plans vary according to your age and state as well as the provider of the plan.)
Now to what’s changed. Before the new legislation, a person with a household income of one to four times poverty level would have to pay between 2.07% and 9.83% of that income for this benchmark plan, with people who made less money paying a smaller share. Those making more than four times poverty level would get no subsidies at all. (In most states, though not all, people whose incomes are below the poverty line qualify for Medicaid instead.)
But now, and through 2022, no one has to pay more than 8.5% of their income for the benchmark silver plan, regardless of how much their household income is. So there is no longer a “subsidy cliff,” as the government calls it, that kicks in for those making over four times the poverty level.
This can mean big savings for many who aren’t much over the cliff level, especially older people, who generally face higher premiums because they tend to need more health care, according to the Kaiser Family Foundation (KFF), a nonpartisan nonprofit think tank focused on healthcare policy.
For example, a 60-year old making $55,000 a year—just over the former subsidy cliff—would see their monthly premiums for a silver plan fall to $390 from $887, according to a KFF analysis.
And now those making under the subsidy cliff have to kick in less of their incomes. For instance, someone with a household income between 150% and 200% of the poverty line—$19,140 to $25,520 if they live alone—would have to pay no more than 2% of their income for the benchmark plan now, and some would pay nothing. Under the ACA, it was 4.14% to 6.52%.
Who’s Most Impacted
The changes make health insurance more affordable for about 14.9 million people who currently lack coverage, including 1.8 million uninsured who are now eligible for coverage at no cost, 3.6 million estimated to be newly eligible for discounts, and another 9.5 million who are now eligible for increased subsidies, the HHS said.
It’s also expected to reduce premiums for 9 million people who are already getting financial assistance. More than 50% will be able to find a silver plan for $10 or less per month, up from 14% before the American Rescue Plan, according to the HHS. Four out of five, up from 69%, will be able to find some level of plan for $10 or less.
What Steps You Should Take
The HealthCare.gov marketplace is open for new applicants through Aug. 15 because of a special enrollment period enacted by President Joe Biden. The increased subsidies apply to new enrollees as of April 1 and last through 2022.
Those already enrolled in a plan should log in to HealthCare.gov to update their applications. If you qualify for more of a tax credit, you can reselect your current plan in order to lower your premiums or you can apply the additional savings to a more expensive plan.
For states that use their own exchanges, the enrollment period and the start time for the increased subsidies may be different. Some may even lower your premiums automatically without requiring you to reapply.
The new subsidies impact premium costs, but you should also consider how much you would have to pay in out-of-pocket costs if you incur expenses. While lower-tiered plans have lower premiums, they require the consumer to pay more if and when they need medical care. For example, a typical “bronze” plan requires you to pay 40% of costs, while a “platinum” plan only has you on the hook for 10% of the cost.
Taming the COBRA
The Consolidated Omnibus Budget Reconciliation Act —better known by its venomous acronym, COBRA—allows workers who have health insurance through their employer to keep it for a time if they lose their jobs.
The downside of this program is that it is expensive, often prohibitively so, and especially when someone has just lost their job. COBRA recipients have to pay both the employee and employer share of the premiums as well as a 2% administrative fee. On average, the annual cost for an employer-sponsored health plan from a firm of at least 20 people was $7,012 for single coverage and $20,599 for family coverage in 2019, according to the KFF.
But now through September, these costs are waived entirely if a job loss or reduced hours makes someone eligible. The new law requires a person’s former employer to pay the COBRA premium, which will then be reimbursed by the federal government.
The new law also provides premium tax credits to people who received unemployment benefits during any week in 2021. These will be available starting this summer. In many cases, these people will be able to buy a silver plan with no premium cost because receiving unemployment means they’ll be treated as if their income was no more than 133% of poverty level, according to the KFF. This also makes them eligible for cost-sharing reductions.