Health Affairs ForefrontFollowing The ACA
Final Coverage Provisions In The American Rescue Plan And What Comes Next
On March 10, 2021, Congress passed the American Rescue Plan Act of 2021. The sweeping $1.9 trillion legislative package includes a significant range of policies to provide additional pandemic relief. This includes direct assistance to people in the form of $1,400 checks, funding for the COVID-19 public health response, extended unemployment benefits, extended paid sick leave, funding for states and schools, housing assistance, new child anti-poverty measures, and much more.
The American Rescue Plan also includes historic expansions of the Affordable Care Act (ACA) that will dramatically improve marketplace access and affordability. And the legislation subsidizes COBRA continuation coverage for laid-off workers and includes new incentives for states that have not yet expanded their Medicaid programs.
A version of the American Rescue Plan was previously passed by the House on February 27 by a vote of 219 to 212, was amended and passed by the Senate on March 6 by a vote of 50 to 49, and then passed by the House on March 10 by a vote of 220 to 211. The bill could be passed by narrow majorities in each chamber because of the budget reconciliation process, which allows for expedited procedures and a simple majority.
From here, President Biden is expected to swiftly sign the American Rescue Plan into law—and then his agencies will turn to implementing the legislation as quickly as possible. Speed is important, first, because people are suffering and need relief, but, second, because many of the provisions are only temporary. The ACA subsidy enhancements, for instance, extend only through 2022.
This post summarizes the American Rescue Plan’s final provisions related to the ACA, COBRA, and Medicaid, although many of these policies are unchanged from the initial version of the bill passed by the House that was summarized here. This post also includes a first pass at identifying some of the questions that the Biden administration will have to grapple with as it turns to implementing these first-in-a-decade expansions of the ACA.
Building On The ACA Marketplace Subsidies
The American Rescue Plan makes significant changes to bolster the ACA and improve marketplace access and affordability by:
- Extending ACA subsidies to higher-income people who do not currently qualify for 2021 and 2022;
- Increasing ACA subsidies for lower-income people who already qualify for 2021 and 2022;
- Providing maximal ACA subsidies for individuals that receive unemployment benefits in 2021; and
- Preventing taxpayers who misestimated their income in 2020 from having to repay excess premium tax credits at tax time.
It also provides $20 million for marketplace modernization to help state-based marketplaces update their systems to comply with the American Rescue Plan.
As suggested by the time limits, these changes are temporary. Subsidy enhancements will be in place for only two years while the clawback protection and link to unemployment will be in place only for one year. There is an expectation that Congress will make these changes permanent in future legislation. But, for now, these are temporary changes included in the broader response to the COVID-19 crisis.
In addition to including temporary changes, the legislation does not do everything that has been in prior ACA enhancement legislation or in the Biden campaign platform. It does not, for instance, fix the “family glitch,” tie the ACA benchmark plan to a gold plan (as opposed to the current silver plan), fund state initiatives, bolster outreach and enrollment funding, or adopt a public option.
Even so, the American Rescue Plan Act would expand access to coverage for millions of people, improve affordability for current enrollees, and further bolster enrollment during the 3-month special enrollment period (SEP) that runs through mid-May 2021 (assuming the legislation is implemented quickly). The Congressional Budget Office (CBO) expects these changes alone to extend coverage to about 800,000 uninsured people in 2021, 1.3 million uninsured people in 2022, and 400,000 uninsured people in 2023.
The American Rescue Plan will bolster the availability of premium tax credits (PTCs) for both lower- and middle-income people and families, reducing premium contributions significantly for those who purchase individual coverage. This includes many of the nearly 15 million uninsured people who are currently eligible to purchase marketplace coverage and the nearly 14 million existing individual market enrollees. An analysis from the Kaiser Family Foundation shows how these subsidies would impact premiums, and there is an updated calculator so people can assess their eligibility.
The CBO estimates that these changes will extend coverage to about 2.5 million uninsured consumers from 2021 through 2023 by making coverage more affordable for those not already enrolled in health insurance. Most of these gains are expected in 2022 when an estimated 1.7 million more people would enroll in marketplace coverage. Of these, 1.3 million are uninsured, 300,000 are insured in individual coverage outside of the marketplace, and 100,000 are enrolled in job-based coverage. Nearly half of the 1.7 million individuals—about 40 percent—would be newly eligible for premium tax credits because their income is over 400 percent FPL.
Eliminating The Subsidy Cliff
The American Rescue Plan will expand the availability of PTCs to eligible individuals whose income is above 400 percent of the FPL for 2021 and 2022. Currently, PTCs are only available to individuals whose annual income is between 100 and 400 percent FPL (between about $12,760 and $51,040 for one person). PTCs are available on a sliding scale basis, meaning subsidies are more generous at lower income levels.
By ending eligibility at 400 percent FPL, the ACA has created a “subsidy cliff” for those whose income is above this level. Lack of subsidies has resulted in affordability challenges for many middle-income people and led to coverage losses among those who do not receive subsidies. Affordability challenges are particularly acute for older, middle-income consumers in rural areas. For instance, a 60-year-old earning just over the 400 percent cutoff for ACA subsidies would pay an average of $12,886 per year in premiums, or about 25.8 percent of their income.
The American Rescue Plan eliminates the ACA’s subsidy cliff and extends PTCs to those with incomes above 400 percent FPL for 2021 and 2022. There is no upper income limit on PTCs, meaning that all middle- and upper-income individuals who purchase their own coverage can access PTCs if their premiums exceed 8.5 percent of their overall household income. This provision would not subsidize the richest people, whose premium burden would not exceed this threshold. But this change would help ensure that individuals and families, such as the 60-year-old noted above, do not pay more than 8.5 percent of income towards premiums in the individual market.
The CBO’s analysis included a chart to illustrate savings based on age and incomes at 150 percent FPL and 450 percent FPL. Those whose income is 150 percent FPL would, regardless of age, pay no premiums, down from $800 under current law. For those whose income is 450 percent FPL, older Americans would see significant savings; the CBO’s example shows savings of nearly $8,000 for a 64-year old.
Increasing Existing Subsidies
Subsidies will be more generous for those who are already eligible for PTCs because the American Rescue Plan reduces the level of income that an individual must contribute towards premiums. Currently, an individual whose income is between 100 and 133 percent FPL must contribute about 2 percent of their income towards premiums, while an individual whose income is between 300 and 400 percent FPL pays no more than 9.78 percent of their income towards premiums.
The legislation does not change the sliding scale nature of PTCs. But, for 2021 and 2022, it reduces the premium percentage at all income levels (above 100 percent FPL). Those with incomes from 100 to 150 percent FPL are eligible for no-premium coverage (i.e., they contribute no income towards premiums for a silver benchmark plan). The premium contribution increases as income increases but is ultimately capped at no more than 8.5 percent of income for those with higher incomes (including those with income above 400 percent FPL). Unlike the current ACA, these levels are not indexed to increase annually, meaning the percentages (e.g., 0 percent to 8.5 percent) will remain the same for both 2021 and 2022.
This change significantly increases the generosity of PTCs because the federal government will pay a greater proportion of premiums relative to the ACA. Indeed, two-thirds of the price tag for the enhanced subsidies is driven by the cost of providing larger subsidies to those who already qualify for PTCs.
Extending Subsidy Eligibility To Those Who Receive Unemployment
The American Rescue Plan creates a “special rule” regarding PTC eligibility for those who receive unemployment compensation during 2021. If someone receives (or is approved to receive) unemployment benefits during 2021, their income will be treated as no higher than 133 percent of the FPL. This means that those who receive unemployment benefits can receive maximal subsidies for ACA coverage, including no-premium coverage.
In one change between the version of the legislation that initially passed the House (which only addressed premiums), the final legislation provides maximum subsidies for both premiums and out-of-pocket costs. This means those who qualify for coverage under this provision will receive the maximum amount of PTCs and cost-sharing reductions to lower their out-of-pocket costs. Individuals must attest to receiving or being approved to receive unemployment compensation; this requirement will be better defined by the Biden administration.
This unemployment provision does not affect access to employer-based coverage. It explicitly states that the income cap of 133 percent of the FPL does not apply for purposes of determining whether an employee has access to affordable employer-based coverage. There is thus no bearing on the “family glitch,” which will remain a challenge until it is fixed by Congress or the Biden administration. Under the federal government’s current interpretation of the family glitch, individuals who receive unemployment will still be barred from accessing ACA subsidies if someone in their household has an offer of affordable employer-based coverage.
The CBO expects about 1.4 million people receiving unemployment benefits to enroll in subsidized marketplace coverage. This includes about 900,000 current marketplace enrollees who would receive an increased subsidy of about $1,040. An additional 500,000 people would newly enroll in marketplace coverage with an average premium tax credit of $7,040.
Protecting Taxpayers From Premium Tax Credit Reconciliation Clawbacks
As discussed in more detail here, the American Rescue Plan will hold consumers who received ACA subsidies harmless from income fluctuations in 2020. This will prevent those who underestimated their income from having to repay any excess subsidies if their income is higher than expected, thereby avoiding additional unexpected financial burdens for consumers.
Most marketplace enrollees opt to receive their PTCs in advance, which lowers the amount they have to pay each month throughout the plan year. The amount of advance PTC is based on an individual’s projected income for the year at the time they apply for coverage. Then, at tax time, those individuals must “reconcile” the amount of advance PTC they received (based on estimated income) with their actual income (based on federal income data). If actual income is higher than estimated, they may be required to repay all or part of the advance PTC to the federal government. This “clawback” results in a smaller tax refund or a larger balance owed to the Internal Revenue Service (IRS).
Liability for excess advance PTC is capped for enrollees who earn between 100 and 400 percent of the FPL (and some who earn below the poverty level in certain circumstances). This cap ranges from $650 to $2,700 based on income. These repayment limits help insulate low-income enrollees from being forced to pay back even higher excess advance PTC, but a liability of $650 or $2,700 is still significant for lower-income families.
Repayment limits do not apply at all for those who received advance PTC because they expected their income to be lower but who ultimately earned more than 400 percent of the FPL. These enrollees must repay all advance PTC received in the prior year. This can leave those who earn just over 400 percent of the FPL in debt of many thousands of dollars to the IRS for full APTC, while those who earn just under 400 percent of the FPL are protected by repayment limits.
It can be challenging for taxpayers to estimate their income in a normal year, but doing so was particularly challenging in 2020 as millions faced financial instability and uncertainty from layoffs and unpredictable work schedules. There are also many unusual reasons why a taxpayer may be more likely to be subject to a clawback for 2020. Workers might have seen their income boosted due to, say, unexpected hazard pay for essential workers, extra shifts to cover for coworkers who were out sick or in quarantine, the need to cash out retirement, a second job, or even debt cancellation. And unemployment benefits (including the temporary federal increases in benefits) are treated as income for purposes of PTC eligibility, meaning that these benefits increased income for purposes of PTC eligibility thereby making it more likely that consumers may be subject to the clawback. (This risk is reduced, however, because the American Rescue Plan exempts the first $10,200 in unemployment benefits for 2020 from the federal income tax.)
Recognizing the challenges with predicting income in 2020 and the burden that clawbacks put on strained finances, the American Rescue Plan temporarily waives the requirement for taxpayers to pay back excess advance PTC to the IRS. This will protect people at all income levels—those subject to repayment limits and those whose income is over 400 percent FPL—by not requiring any repayment for the 2020 tax year. This change does not appear to affect the ability of those who overestimated their income for 2020 to receive PTCs they are owed during tax time.
The American Rescue Plan will subsidize 100 percent of the cost of premiums for COBRA continuation coverage for workers who are laid off or have reduced hours. (The prior House version of the bill included 85 percent subsidies; this was increased in the Senate to 100 percent subsidies.) The subsidy will begin on April 1, 2021 and extend through September 30, 2021. This subsidy will not count towards an individual’s gross income and will be treated as an advance refundable payroll tax credit. COBRA subsidies have been considered in prior COVID-19 packages in the House, and Congress authorized similar (albeit less generous) subsidies during prior economic crises.
The COBRA subsidy is only available to individuals who are involuntarily terminated or had their hours reduced. These individuals will have an extended period to enroll. Those who have not yet enrolled in COBRA continuation coverage or who previously enrolled but discontinued that coverage can opt into subsidized COBRA continuation coverage from April 1 until 60 days after the group health plan notifies the individual of the extended election period. Coverage will be retroactive to April 1.
With some exceptions, individuals who are currently enrolled in COBRA continuation coverage have up to 90 days to enroll in a different plan with that employer if they want to and the employer allows it; if so, the COBRA subsidies will apply towards that coverage.
COBRA subsidies are not available to those who are eligible to enroll in another group health plan (other than excepted benefits coverage), a flexible spending arrangement, a qualified small employer health reimbursement arrangement, or Medicare. Individuals who fail to notify their health plan that they are no longer eligible for the COBRA subsidy (because, say, they are eligible for one of these other types of coverage) may face financial penalties.
The availability of the COBRA subsidy does not extend the availability of COBRA continuation coverage itself. This means that an individual can apply the COBRA subsidy through September 30, 2021 to COBRA continuation coverage, but only if they would otherwise have been eligible for coverage. For example, if an individual’s COBRA continuation coverage is set to expire in July 2021, the American Rescue Plan does not require it to be extended through the end of September simply because the subsidy is available.
Finally, employers and group health plans will be required to provide several new notices to those who become eligible for COBRA continuation coverage. Notices will address the availability of the new subsidies, the option to enroll in different coverage as available, the extended period to enroll in COBRA continuation coverage, and the expiration of the premium assistance. Federal officials are responsible for developing model notices for these purposes within 45 days of enactment. The Department of Labor and other agencies are given implementing authority and $10 million in implementation funds.
The CBO’s analysis of the House version of this provision (with subsidies of only 85 percent) estimated that an additional 2.2 million people would enroll in subsidized COBRA continuation coverage on a full-year equivalent basis. Combined with the estimated 800,000 enrollees that would currently be in COBRA continuation coverage, the CBO expected a total of about 3 million full-year equivalent COBRA enrollees for 2021. Given the increased generosity of the final legislation (with subsidies of 100 percent), these estimates are too low: full subsidization of COBRA continuation coverage will mean greater take-up compared to the initial House bill. To my knowledge, the CBO has not yet released an updated analysis of the coverage implications, but the Joint Committee on Taxation released updated cost estimates that reflect increases from the full COBRA subsidy.
Medicaid And CHIP Provisions
The American Rescue Plan also includes sweeping changes to the Medicaid program. The new legislation will, among other changes, provide higher federal matching funds to states to promote home- and community-based services, allow a new state option for 12 months of post-partum coverage for new mothers, require the coverage of COVID-19 vaccines and treatment, and expand a prior Medicaid option for states to cover COVID-19 testing for the uninsured. These changes—from the bill that was passed by the House—have been well summarized by Georgetown University’s Center for Children and Families and are not recounted in detail here.
Further, the American Rescue Plan includes substantial new incentives for the 12 states that have not yet expanded their Medicaid program to low-income adults under the ACA. Under the ACA, the federal government permanently covers 90 percent of the costs of coverage for those eligible under the ACA’s Medicaid expansion (down from 100 percent of costs in 2014). While some have called for re-increasing this federal match (FMAP) to 100 percent for any new state that expands Medicaid, the American Rescue Plan takes a different approach that would be even more generous to states.
Under the legislation, non-expansion states that opt to expand their programs will receive a temporary increase of 5 percentage points in the FMAP for non-expansion populations (in addition to the 90 percent FMAP for the expansion population). This traditional FMAP covers children, seniors, people with disabilities, and any other non-expansion groups covered by the state and accounts for a significantly higher rate of costs compared to the expansion population. According to the Kaiser Family Foundation, this traditional, non-expansion population accounts for about 79 percent of overall Medicaid spending in expansion states. An FMAP increase of 5 percentage points for a state’s entire Medicaid program will thus account for a significant increase in additional federal funds. If all 12 states expanded their Medicaid program, they would receive (collectively) a total of $16.4 billion in federal funds over two years for the cost of about $6.8 billion in expansion.
States that opt in will receive this enhanced FMAP for two years. This includes two states—Missouri and Oklahoma—where Medicaid expansion will be implemented in July 2021. This means that those two states will receive the increased FMAP for their non-expansion populations in addition to the 90 percent FMAP for the expansion population. If additional states expand their programs this year, they will also benefit from the additional 6.2 percentage point FMAP increase authorized under the Families First legislation that will extend through the end of the COVID-19 public health emergency.
What Comes Next?
Once the American Rescue Plan is signed by President Biden, federal and state officials are expected to kick into high gear to implement the sweeping package. The IRS may bear the brunt of many of these changes, given that many of the policies (including the clawback policy) will affect tax filings for 2020. Some people have already submitted their tax filings, so they may need to file amended tax return, or the IRS may need to take steps to recalculate tax liability. It is unclear whether tax preparer software or other tools can be updated to reflect all the changes before the end of the filing season. The IRS will presumably issue lots of future guidance on many of these issues.
There is also a long list of items that must be addressed to roll out the new benefits and expanded ACA subsidies. One key question is how long it will take for HealthCare.gov and the state-based marketplaces to operationalize the enhanced subsidies. It may be relatively straightforward to eliminate the subsidy cliff and enhance the current subsidies, although that will take some time. It may be more challenging, or at least take some additional time, to implement the subsidies for those who receive unemployment benefits. This may require changes to the eligibility engine. And the Treasury Department must provide guidance on how a taxpayer can attest (and provide documentation if needed) to the fact that they have received, or have been approved to receive, unemployment benefits.
As noted above, the bill includes $20 million for state-based marketplace modernization aimed at helping speed the adoption of these changes. The Secretary of the Department of Health and Human Services must award grants to state-based marketplaces that apply for these funds to help modernize or update current systems or programs. This will help ensure that the state-based marketplaces have some financial support to implement the changes needed to comply with the American Rescue Plan. Funds will be available through September 30, 2022.
If the enhanced subsidies can be operationalized quickly, many people will be able to receive them while taking advantage of the current three-month SEP through HealthCare.gov (and the similar SEPs in many states with state-based marketplaces). During this SEP, individuals can enroll in a new plan or change plans—and many may want to do so given the enhanced subsidies. A consumer in a bronze plan, for instance, might want to newly enroll in a gold plan, which should be more affordable under the American Rescue Plan. The Biden administration may ultimately want to extend the current SEP or announce a narrower version where anyone newly eligible for subsidies or receiving unemployment benefits can enroll in or change coverage.
There is a question of how to apply the PTCs for current enrollees and whether the marketplace will do so automatically, or how it will otherwise inform enrollees that they qualify for new subsidies. All current enrollees should be encouraged, especially during the current SEP, to return to the marketplace to consider their options. But there are questions about what to do if a consumer does not return. Will the subsidy be applied automatically as advance PTC? That would help with affordability in 2021 but could force higher repayments at tax time next year due to the clawback provision if a consumer’s income is ultimately higher than expected. Or will the additional subsidy be held back and only claimed at tax time next year in the form of a premium tax credit (i.e., not received in advance)?
A new SEP will also likely need to be created for individuals who lose their COBRA subsidies at the end of September. Currently, the loss of COBRA continuation coverage is a qualifying event that triggers a special enrollment period, but there is no automatic special enrollment opportunity because of the loss of subsidies alone.
The Department of Labor and other agencies will also have to quickly develop, or require, new notices to help inform consumers of their coverage options. This may be especially important for those who are eligible for the COBRA subsidy. Individuals will need to look long and hard—and may want to rely on the help of a navigator—to understand whether subsidized marketplace coverage, Medicaid, or COBRA is the best option for them financially and health-wise. There are many considerations to account for, including whether someone is currently in treatment (and may not want to lose access to their providers) and whether they have already paid some funds towards their existing deductible.
There is a question of whether states with an approved waiver under Section 1332 will receive federal pass-through funding for enhanced PTCs for 2021. This issue is discussed in more detail here. And it is unclear if the Medicaid expansion incentives will be enough for new states to expand their program. States such as Wyoming appear to be revisiting Medicaid expansion once again while others such as Kansas have been close in prior years. It remains to be seen if these extra federal funds will help push this policy across the finish line in those states. It may also help other states to see how the financial benefits of this option play out in Missouri and Oklahoma. Given anticipated Medicaid expansion ballot initiatives in 2022 in states such as Florida, Mississippi, and South Dakota, states may see this experience and want to take advantage of these federal funds sooner rather than later.