For the first time since ratification of the Affordable Care Act, high earners may be eligible for assistance, or subsidies, toward their health insurance premiums.
Under the recently passed American Rescue Plan (ARP), individuals and families with income up to $200,000 or more may find relief from high healthcare costs.
Unfortunately, ARP provisions are not for everyone—and they currently apply to 2021 and 2022 only.
The Subsidy Backstory
From 2014 to 2020, individuals and families generally earning 100% to 400% of the federal poverty level could qualify for tax credits, or subsidies, on individual health insurance purchased on healthcare exchanges.
Subsidies could range from $4,000 to more than $15,000 annually, depending on income, health status, location, and type of coverage.
However, these income thresholds were hard and fast. In 2020, for example, income limits were $51,040 for single earners, $68,960 for couples, and $104,800 for families of four.
Those earning more did not qualify for assistance. They simply fell off what’s known as the healthcare subsidy “cliff.”
Time-Limited Subsidy Slopes
Thanks to the ARP, however, these unforgiving cliffs have been replaced with gentler slopes.
In 2021 and 2022, healthcare enrollees—including many higher earners—will pay no more than a certain percentage of income toward healthcare costs, as determined by earnings.
Those with incomes greater than 400% of the federal poverty level will now pay no more than 8.5% of their household income toward annual healthcare premiums for plans purchased on the public exchange. The rest will be covered by Uncle Sam.
Savings under the ARP can be significant:
Consider a retired couple with $110,000 in annual portfolio income and annual health insurance premiums of $20,400.
Prior to passage of the ARP, the couple would have shelled out the entire $20,400, or about 18% of their annual income, to cover health care for the year since they exceeded the subsidy income threshold.
Under the ARP, alternatively, they would only pay 8.5% of their household income, or $9,350 toward yearly healthcare premiums—an annual savings of $11,050.
Who Stands to Benefit?
Those who might benefit from the new legislation include:
- Individuals not yet on Medicare (under 65 years old)
- Retirees or individuals who are not employed
- Those with household income at or below about $200,000 annually
- People currently paying large health insurance premiums ($20,000 or more annually)
- Individuals who received unemployment benefits this year
To qualify, households must be signed up for health insurance via the public exchange or marketplace, not on private exchanges.
Individuals who don’t currently use the exchange to sign up for coverage will need to enroll in the exchange by the deadline to receive a subsidy.
Those with household incomes above 400% of the federal poverty level and benchmark plan premiums under 8.5% of 2021 or 2022 income will not qualify for a premium subsidy.
Special Enrollment Deadline
In most states, open enrollment for 2021 health plans ended on December 15, 2020.
However, a special pandemic enrollment window is currently open through August 15 in many states, including Oregon and Washington. (To check on enrollment windows in other states, visit this site).
People currently uninsured or those already covered through HealthCare.gov can now sign up for coverage or pick a different plan for 2021.
A qualifying event is not needed to use this window.
Other ARP Benefits
In addition to flattening subsidy cliffs, the ARP has eliminated excess subsidy repayments for the 2020 plan year.
Those whose 2020 income ended up being over 400% of the poverty level—and who faced having to pay back a subsidy to the IRS—no longer have to repay 2020 subsidies paid on their behalf.
The ARP also impacts COBRA coverage.
Individuals who lost eligibility for a group health plan can now continue benefits under that group plan for a certain period, generally 18 to 36 months, depending on the situation.
Will Subsidy Cliffs Return?
While the ARP currently eliminates subsidy cliffs for 2021 and 2022 only, the provision could become permanent under the proposed American Families Plan.
An additional note: because expanded subsidy eligibility under the ARP is only good through 2022, premiums may increase in 2023, depending on an individual’s age.
How to Assess Your Situation
While the ARP can mean annual savings of $10,000 or more for individuals and families never eligible in the past, changing health plans is not for everyone.
Estimated healthcare savings, net worth, and willingness to change health insurance must be taken into account. It’s possible modest savings afforded by the ARP may not be worth the hassle.
Vista can help clients weigh the pros and cons and can also connect clients with a broker who can help navigate this process and ensure consistent coverage.