Client Opportunities for Health Insurance Coverage Under the American Rescue Plan
On March 24, 2021, at approximately 10am ET this article was updated with the following: "On March 23, the Biden administration announced an extension of the open enrollment period for the Affordable Care Act to August 15. The tax credits apply only for the months a person is enrolled in a plan through the Affordable Care Act, so the sooner your client applies, the more they will save on health insurance."
The American Rescue Plan (ARP) has some welcome relief for clients who are responsible for obtaining their own health insurance coverage. Clients could benefit from the enhanced health insurance subsidies, maximal assistance for those who claim unemployment, a new round of COBRA premium assistance, and forgiveness of 2020 premium tax credit overcalculations.
Time is of the essence for some of these benefits and you should reach out to affected clients quickly.
Enhanced health insurance subsidies
This is the biggest news for your clients. Previous Affordable Care Act subsidies for health insurance coverage were limited to those with modified adjusted gross income (MAGI) less than 400% of the poverty level. This equates to $51,520 for a single person, $69,680 for a couple, and $106,000 for a family of four. This “cliff” for obtaining subsidies for health insurance is eliminated for 2021 and 2022.
For an example, let’s look at a couple who are both age 62 – a very expensive age for health insurance.
If this couple has MAGI of $70,000, they previously received no help paying for their health insurance coverage and were on the hook for all insurance premiums and out of pocket expenses. With the changes under ARP, premiums are limited to no more than 8.5% of MAGI. For this couple, premiums would be limited to $5,950 per year.
The credit is based on the cost of the second cheapest silver plan available in their area. In my zip code, the premium for the second cheapest silver plan for a 62-year-old couple is $23,838 per year. Since their payments are limited to $5,950 per year, this couple would receive a tax credit of $17,888 to assist with their health insurance purchase. Under previous ACA rules, they would receive nothing!
The credit is gradually phased out as income increases. Unlike the previous credit under the ACA, it isn’t suddenly “wiped out” because they jumped over the income limit.
To qualify for this credit, clients must purchase their health insurance at Healthcare.gov. The website will be updated on April 1 to reflect the new tax credit. Open enrollment lasts until May 15, so you must act fast. On March 23, the Biden administration announced an extension of the open enrollment period for the Affordable Care Act to August 15. The tax credits apply only for the months a person is enrolled in a plan through the Affordable Care Act, so the sooner your client applies, the more they will save on health insurance.