The American Rescue Plan and Your Health Insurance

Makes Coverage More Affordable for Many Americans

Fact checked by Heather Mercer

On March 11, 2021, President Joe Biden signed H.R.1319, the American Rescue Plan Act, into law. This sweeping piece of legislation was designed to provide widespread relief to address the ongoing COVID-19 pandemic. It includes a vast range of provisions.

Among the most widely known are the third round of stimulus checks, enhanced child tax credits, and the extension of additional federal unemployment compensation.

But the legislation also includes several important provisions that make health insurance more affordable for millions of Americans. This article will explain how the provisions work and what consumers can expect, including these benefits:

• Subsidy cliff temporarily eliminated for marketplace enrollees (extended through 2025 under the Inflation Reduction Act of 2022)

• Enhanced premium tax credits in 2021 and 2022 for people who were already subsidy-eligible (also extended through 2025 by the Inflation Reduction Act).

• Full premium tax credits and cost-sharing reductions for people receiving unemployment compensation in 2021 (this was a one-time provision, and was not extended)

• Six months of COBRA subsidies in 2021 (this was a one-time provision and was not extended)

• Excess premium subsidies from 2020 did not have to be repaid to the IRS

The elimination of the subsidy cliff and the enhanced premium tax credits have resulted in record-high Marketplace enrollment for three years in a row, with well over 20 million people enrolled for 2024.

Subsidy Cliff Temporarily Eliminated

Since 2014, Americans who need to buy their own health insurance have been able to use the exchange/Marketplace. Most are eligible for premium tax credits (premium subsidies) that make their coverage much more affordable than it would otherwise be.

However, the ACA imposed an income limit for premium tax credit eligibility. People with household incomes above 400% of the poverty level were ineligible for premium tax credits under the ACA.

This was true regardless of where they lived (although the poverty level is higher in Alaska and Hawaii, making the income limit higher in those states) and regardless of how old they were.

These are important factors because full-price health insurance (i.e., without a subsidy) is much more expensive in some parts of the country than in others. It’s also three times as expensive for older enrollees as it is for younger enrollees.

The sharp cutoff for subsidy eligibility at 400% of the poverty level created what was known as a subsidy cliff. It resulted in some people paying well over a third of their annual income for health insurance.

But for 2021 and 2022, Section 9661 of the American Rescue Plan (ARP) eliminated the subsidy cliff. Instead of an income limit for subsidy eligibility, the new rule says that people who earn 400% of the poverty level or more are only required to spend 8.5% of their household income to buy the benchmark plan. And this provision has been extended through 2025, under the Inflation Reduction Act of 2022.

For people who are younger and/or live in an area where health insurance premiums are lower than average, subsidies still might not be available with incomes much over 400% of the poverty level. But for people who are older and/or live in an area where premiums are expensive, subsidy eligibility under the new rules can extend well above 400% of the poverty level.

Examples of Elimination of the Subsidy Cliff

Some examples help to illustrate what to expect with the elimination of the subsidy cliff:

Avery is 24 and lives in Santa Fe, New Mexico. According to HealthCare.gov’s plan comparison tool, the unsubsidized price of Avery’s benchmark plan was about $273/month in 2021 or $3,276 for the year.

Without the ARP, premium subsidy eligibility ended at 400% of the poverty level, which was $51,040 for a single person in the continental United States in 2021 (that’s based on the 2020 poverty level numbers, as the prior year’s levels are always used).

So let’s say that Avery earned $52,000 in 2021. That means the benchmark plan’s cost ($3,276 for the year) was 6.3% of her annual income.

Under normal ACA rules, Avery was not eligible for a premium subsidy. And even after we account for the American Rescue Plan, Avery still didn’t qualify for a premium subsidy due to the low cost of the benchmark plan (unsubsidized) relative to her income.

With an income of $52,000 (just a little above 400% of the 2020 poverty level), Avery was expected to pay no more than 8.5% of her income for the benchmark plan. But since we’ve already seen that it’s only 6.3% of her income, a subsidy was still not necessary for Avery in 2021.

(Note that the poverty level generally increases each year. If Avery's income has remained at $52,000, that puts her at 357% of the 2023 poverty level, which is used to determine subsidy eligibility for 2024. New Mexico no longer uses HealthCare.gov, and instead runs its own Marketplace, called beWellnm. New Mexico also offers supplemental state-funded subsidies in addition to federal subsidies. Because Avery's income is now a smaller percentage of the poverty level and she's also 27 now, she's eligible for $82/month in federal premium subsidies in 2024, plus about $18/month in additional subsidies provided by New Mexico, according to beWellnm's shop and compare tool.)

Now let’s consider Xavier. He’s 62 and lives in Cheyenne, Wyoming. To make the comparison easier, we’ll say that he was also earning $52,000 in 2021. But in Xavier’s case, the benchmark plan, according to HealthCare.gov, was $1,644/month, or $19,728 for the whole year.

That’s 38% of Xavier’s income. Without the American Rescue Plan, he would have been facing the subsidy cliff, with no subsidy available at all (since his income was over 400% of the poverty level). Even though his premiums would use up 38% of his income, he wouldn’t have been eligible for any financial assistance with that cost.

This is where the ARP’s elimination of the subsidy cliff makes a big difference. It caps Xavier’s cost for the benchmark plan at 8.5% of his income, which would have been $4,420 for the whole year in 2021. The other $15,308 was covered by the new premium subsidy provided under the American Rescue Plan.

These examples represent extreme opposite ends of the spectrum. Avery is young and lives in an area where health insurance is much less expensive than average. In contrast, Xavier is in an area where health insurance is much more expensive than average, and his age means that he pays nearly three times as much as Avery would if she lived in Cheyenne.

These examples help illustrate how the elimination of the subsidy cliff provides targeted assistance where it’s needed the most. A person who earns more than 400% of the poverty level will still not be eligible for premium subsidies if the cost of the benchmark plan is already less than 8.5% of their income.

But a person who would otherwise be paying far more than 8.5% of their income for health insurance will be eligible for premium subsidies under the ARP, despite having an income above 400% of the poverty level.

As noted above, the Inflation Reduction Act has extended this American Rescue Plan provision through 2025. So people do not need to worry about the subsidy cliff until 2026. And it's possible that Congress could issue another extension between now and then.

Temporarily Larger Premium Tax Credits

In addition to capping benchmark plan premiums at no more than 8.5% of household income, the American Rescue Plan also reduces the percentage of income people have to pay for the benchmark plan if their income is under 400% of the poverty level.

Ever since the marketplace and premium subsidies debuted in 2014, a sliding scale was used to determine the percentage of income an enrollee has to pay for the benchmark plan. The person’s subsidy will then pick up the remaining cost of the benchmark plan, or it can be applied to any other metal-level (bronze, silver, gold, platinum) plan.

If the person picks a plan that’s less expensive than the benchmark, their after-subsidy premiums will amount to a smaller percentage of their income. In contrast, if they pick a more expensive plan, their after-subsidy premiums will amount to a larger percentage of their income.

In 2014, the scale ranged from 2% of income to 9.5% of income for people who were subsidy-eligible (again, nobody was subsidy-eligible with an income above 400% of the poverty level).

The exact percentages are adjusted slightly each year, but before the American Rescue Plan, they ranged from 2.07% of income to 9.83% of income in 2021, depending on an applicant’s income.

Under Section 9661 of the American Rescue Plan, however, the percentage of income people have to pay for the benchmark plan has been adjusted. For 2021 and 2022, the range was reset to range from 0% to 8.5% of income. And that has been extended through 2025, under the Inflation Reduction Act.

This means that people on the lower end of the income scale (up to 150% of the poverty level, or $21,870 for a single person in the continental United States enrolling in coverage for 2024) can enroll in the benchmark plan with no premium at all.

As incomes increase, enrollees have to pay a portion of their income for the benchmark plan, but it’s a smaller portion at all income levels than it would have been without the ARP.

Examples of Enhanced Subsidies

Let’s consider Valentina and her husband Akio. They are both 35 and live in Atlanta. Their combined household income in 2021 was $34,480, which put them right at 200% of the poverty level for a household of two. Under the pre-ARP rules for 2021 coverage, Valentina and Akio had to pay 6.52% of their household income for the benchmark plan.

According to HealthCare.gov’s plan comparison tool, the unsubsidized benchmark plan premium for Valentina and Akio was $852/month in 2021. Under the pre-ARP rules, they qualified for a premium subsidy of $663/month, which brought their premiums down to an annual total equal to 6.52% of their income.

But under Section 9661 of the ARP, they only had to spend 2% of their income for that plan (based on an income equal to 200% of the poverty level), which amounts to $690 for the year, or a monthly premium of about $58. Since the benchmark plan still had a full-price premium of $852/month, their subsidy grew to $794/month (an increase of $131/month) to cover all but $58 of the monthly premium.

Valentina and Akio could apply that $794/month subsidy to any metal-level plan available in their area. However, silver-level plans were most likely their best option, as those have built-in cost-sharing reductions since their household income is under 250% of the poverty level.

But let’s say Valentina and Akio decided to enroll in the benchmark plan (which is always a silver plan): Their monthly after-subsidy premiums in 2021 would have dropped from about $189/month to about $58/month, thanks to the American Rescue Plan.

As noted above, this enhanced subsidy structure has been extended through 2025 under the Inflation Reduction Act. So subsidies will continue to be larger than they used to be, at least through 2025.

And just as we saw in the example with Avery above, Valentina and Akio will find that they're now paying even less for the benchmark plan if their income hasn't increased. That's because the poverty level has increased each year, meaning that the same income level will now be a smaller percentage of the poverty level.

But if their income has increased to keep pace with the poverty level (ie, they're still at about 200% of the poverty level), they'll still be paying roughly 2% of their income for the benchmark plan. This will be a slightly larger dollar amount, since it's the same percentage of a larger amount.

People Receiving Unemployment in 2021

The American Rescue Plan included a provision designed to ensure that people receiving unemployment compensation in 2021 could enroll in robust health insurance without worrying about affording the premiums.

Under ARP Section 9663, if a marketplace enrollee was receiving unemployment compensation at any point during 2021, their total annual income for the year was counted at no more than 133% of the poverty level to determine subsidy eligibility.

As we saw above, ARP Section 9661 results in a premium-free benchmark plan for applicants with a household income of up to 150% of the poverty level, so this provision ensured that a person receiving unemployment compensation was eligible for the benchmark plan without having to pay any premiums.

The enrollee’s countable income was also capped at 133% of the poverty level for determining eligibility for cost-sharing reductions.

This means that a person receiving unemployment compensation in 2021 was eligible for a premium-free silver plan that included the strongest level of cost-sharing reductions (making the plan better than a normal platinum plan thanks to increased actuarial value and reduced out-of-pocket limits).

If a person or family receiving unemployment compensation was in the Medicaid coverage gap because their total income was under the poverty level and they lived in a state that hadn’t expanded Medicaid, ARP Section 9663(a)(1)(A) clarified that they were eligible for premium subsidies in 2021.

The provisions in ARP Section 9663 continued throughout 2021 (and were retroactive to January 2021), but nothing changed about the rule that eliminates subsidy eligibility if a person is eligible for an affordable employer-sponsored plan that provides minimum value.

So if a person was receiving unemployment compensation in 2021 and was eligible for the enhanced premium subsidies and cost-sharing reductions, that would have ended if and when they again became eligible for an employer-sponsored plan (subsidy eligibility would also likely end for their family members, regardless of whether the employer’s coverage is affordable for the rest of the family).

Although the Inflation Reduction Act has extended some of the American Rescue Plan's provisions through 2025, the unemployment-based subsidies were only intended to be available in 2021. They did not get revived by the Inflation Reduction Act.

Six Months of COBRA Subsidies

The American Rescue Plan also made it easier for people to temporarily hold onto coverage that they had through an employer if they involuntarily lost their job or had their hours reduced to a level that resulted in a loss of health insurance coverage.

Section 9501 of the ARP created a new federal subsidy that fully covered the cost of COBRA coverage from April 1 through September 30, 2021 (and due to Section 9501(a)(9)(B), this also included state continuation coverage, often referred to as mini-COBRA).

Although COBRA itself continued to be available to people who voluntarily left their jobs or reduced their hours, the COBRA subsidy was only available if the job loss or reduction of hours was involuntary.

The new law also gave people a chance to opt back into COBRA if they had an opportunity to be covered under COBRA but either declined it initially or dropped it at some point. This only applied for people whose COBRA coverage window would still have been ongoing under normal rules (generally, COBRA only lasts for 18 months, and state continuation can be much shorter).

Under normal rules, there’s only one two-month window during which a person can elect COBRA. Then there’s no opportunity to reinstate it if you decide to cancel it before the scheduled termination date. But the ARP provided some flexibility on this to give more people an opportunity to take advantage of the federal COBRA subsidies.

The COBRA subsidy ended on the earliest occurrence of one of the below:

• September 30, 2021 (this did not get extended via any subsequent legislation)

• The date that COBRA or mini-COBRA coverage would have been exhausted

• The date that the person became eligible for another employer-sponsored health plan

The federal COBRA subsidy was available to people who were already covered under COBRA, as well as those who transitioned to COBRA during the subsidy window. It did not extend a person’s COBRA eligibility, however. So if your COBRA coverage was scheduled to terminate at the end of July 2021, that still happened, and you would have only have received a subsidy through July.

Nothing about the COBRA subsidy has been extended. This was a one-time six-month subsidy.

No Repayment of 2020 Excess Premium Subsidies

Premium tax credits are the key to keeping individual/family coverage affordable. Ever since the marketplace debuted for 2014 coverage, a large majority of enrollees (around 85%) have been eligible for premium tax credits.

Unlike other tax credits, you don’t have to wait to claim the premium tax credits on your tax return. You can do that if you like, but most people who are subsidy-eligible cannot afford to pay full price for their coverage throughout the year and then claim the full tax credit on their tax return.

Instead, most people take the tax credit in advance: The marketplace calculates it based on projected income and then sends it to the person’s insurance company each month, offsetting the amount that the enrollee has to pay themselves.

This works well, except it all has to be reconciled with the IRS after the year is over. If a premium tax credit was paid on your behalf during the year, you have to complete Form 8962 when you file your taxes. By then, you’ll be using your actual income, as opposed to your projected income.

Depending on whether your income ended up being more or less than you projected, you might get additional money from the IRS at tax time—or you might have to repay some or all of the tax credit that was paid on your behalf.

This can be problematic in any year, but accurately projecting total income for 2020 was particularly challenging. The additional federal unemployment compensation, provided as part of the early rounds of COVID relief legislation, pushed income higher than some enrollees had projected.

Others got new jobs later in the year, but if their total income for 2020 ended up above 400% of the poverty level, they were facing the prospect of having to repay every penny of their premium tax credit to the IRS, regardless of how low their income was during the time they were enrolled in marketplace coverage.

In late 2020, insurance commissioners from several states sent a letter to incoming President Biden, asking him to address this issue (along with various other provisions to keep health coverage affordable) and ensure that people would not have to repay excess premium tax credits from 2020.

Section 9662 of the American Rescue Plan did just that. Under that section, excess premium tax credits from 2020 did not have to be repaid to the IRS. People who were due additional premium tax credits could still claim them on their 2020 tax returns. But people who would otherwise been required to repay some or all of their tax credit did not have to do so.

This was a one-time provision, and does not apply to any years other than 2020. For all other years, premium subsidies have to be reconciled on the tax return using Form 8962.

Summary

The American Rescue Plan included several provisions that temporarily made health coverage more affordable:

• Premium subsidies became larger and more widely available for 2021 and 2022. These provisions have subsequently been extended through 2025 under the Inflation Reduction Act.

• People receiving unemployment compensation were eligible for premium-free marketplace coverage in 2021, regardless of their total annual income.

• There was a six-month COBRA subsidy in 2021.

• People who received excess premium tax credits through the marketplace in 2020 did not have to repay them to the IRS.

A Word From Verywell

The health insurance provisions in the American Rescue Plan helped to make health coverage much more affordable for people who rely on individual/family coverage or COBRA. And although all of the provisions were temporary, the Inflation Reduction Act has extended some of them through 2025.

Additional legislation may be enacted at a later date that might make enhanced premium subsidies available beyond 2025, as increased affordability is something that consumer advocates have long pushed for in the individual/family health insurance market.

Read the original article on Verywell Health.