COVID Relief Bill Provides Increased Subsidies Under the ACA

Last Wednesday, March 10, 2021, House Democrats passed the $1.9 trillion American Rescue plan (ARP). President Biden signed the bill into law the next day, enacting several programs designed to assist small business owners and their employees.  

Many of these programs were detailed in our coverage of the bill passage by the Senate, but another major benefit came in the form of increased subsidies for lower- and middle-income individuals under the Affordable Care Act (ACA). This temporary amendment to the ACA is included under Part 7, Section 9661 of the ARP, entitled “Improving Affordability by Expanding Premium Assistance for Consumers.” 

Section 9661 provides two years of expanded eligibility for subsidies under health care plans purchased through federal marketplaces. These subsidies are primarily provided through premium tax credits that are available for individuals with a modified adjusted gross income (AGI) between 100% (or 139% in states with expanded Medicaid) to 400% of the 2020 federal poverty level (FPL).  

Under the current law, in order to qualify for premium tax credits, individuals must be lawful residents of the United States who are not eligible for public coverage (e.g., Medicaid or the Children’s Health Insurance Program) and do not have an affordable offer of an employer-sponsored health plan with a minimum value standard. Coverage is deemed “affordable” if employee contributions for employee-only coverage would not exceed a specified percentage of the employee’s annual household income after tax credits are applied. In 2020, this percentage was 9.78%, and in 2021, it increased to 9.83%. A health plan meets the minimum value standard if at least 60% of the cost of covered medical services (e.g., deductibles, copays, and coinsurance) are paid under the plan.   

Under Section 9661 of the ARP, eligibility for subsidies for the next two years is greatly expanded because during the tax years 2021 and 2022, premium subsidies will be available to individuals with modified AGI above 400% of the FPL. The amount of the subsidy is based on the cost of the second-least expensive benchmark Silver plan (the benchmark plan) in the state where the individual resides, compared to the allowable percentage (9.83% in 2021) of the individual’s modified AGI. The subsidy is designed to make up the cost of the difference between the amount that an individual is expected to contribute and the actual cost of the benchmark plan. To assist individuals in calculating subsidy amounts, the IRS created the “Premium Tax Credit Estimator.”  

The Congressional Budget Office (CBO) created the chart below, which compares maximum income contributions by household income for premium tax credits in 2021: 

Section 9661 of the ARP should lead to a decrease in out-of-pocket premium costs for individuals already receiving health insurance coverage through the federal marketplaces. Additionally, it may assist many of the 31 million Americans who were uninsured in 2020.  

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