Subsidy Income Cap Changes

Changes in Marketplace Subsidy Eligibility

Many people do not realize that the income cap for subsidies have recently increased with the RESCUES Act.

The Affordable Care Act (ACA) has provided subsidized health insurance on and state-run Marketplaces since 2014, with about 9 million people purchasing coverage with federal help with their premiums.

However, millions remain uninsured despite being eligible to purchase on the Marketplace. Some uninsured people have been priced out of the market because their incomes did not qualify them for a subsidy; other uninsured people have been eligible for subsidized or even FREE Marketplace coverage but either did not know about the financial assistance available to them or still found coverage unaffordable or unappealing due to high deductibles. Additionally, people already purchasing Marketplace or off-exchange coverage may still face affordability challenged.

The March 2021 legislation, the American Rescue Plan Act (ARPA), extends eligibility for ACA health insurance subsidies to people buying their own health coverage on the Marketplace who have incomes over 400% of poverty. The law also increases the amount of financial assistance for people at lower incomes who were already eligible under the ACA. Both provisions are temporary, lasting for two years, retroactive to January 1, 2021. A more detailed explanation of these enhanced and expanded subsidies and other coverage provisions of the ARPA can be found HERE.

Under the ACA, before passing ARPA, there were an estimated 18.1 million people eligible for a Marketplace premium subsidy (including people who were insured and those who were uninsured). Because federal ACA subsidies maxed out at 400% of poverty before the passage of ARPA, nearly all of these 18.1 million people eligible for Marketplace subsidies had incomes below 400% of the poverty level, which is $51,040 for a single individual or $104,800 for a family of four. Only a very small group (less than 1%) of people eligible for ACA subsidies before the passage of the ARPA had incomes over 400% of poverty, with only the state of CA offering state-funded financial assistance to some people in this group.

It is estimated that the number of people eligible for subsidized Marketplace coverage has increased 20% with the passage of ARPA, from 18.1 million to 21.8 million people, including both insured and uninsured people. Of the people eligible for Marketplace subsidies for the next two years under the ARPA, it is still the case that most (84%) have incomes below 400% of poverty, but now with 11% of people eligible for Marketplace subsidies have incomes between 400-600% of poverty (up to an income of $76,560 for a single for a single individual or $157,200 for a family of four).

Under the ARPA, Marketplace shoppers with higher incomes will still be liable for a larger share of their premium than people with lower incomes. On average, current individual market enrollees who either stay or move onto the Marketplace will be expected to pay $205 per month for a benchmark silver plan, ranging from $0 per month for people with incomes below 150% of poverty to an average of $513 per month for people with incomes over 600% of poverty.

Uninsured people who could buy on the Marketplace would similarly see lower premiums than they would have if they shopped before the APRA went into effect. Relative to previous premium liability for uninsured people eligible to shop on the Marketplace, the ARPA reduces their monthly costs by an average of $61 (26% of current premiums after subsidies), ranging from $174 (33% of current premiums after subsidies) per month for uninsured people with incomes between 400-600% of poverty to a savings of $23 per month for uninsured people with incomes below 150% of poverty (who are now eligible for $0 premium platinum-like coverage, discussed more below).

Eligibility for Zero-Premium Coverage

Millions of potential Marketplace shoppers will become eligible for zero-premium coverage for two years under the ARPA. There are at least 5.2 million people who are now eligible for zero-premium silver plans with cost-sharing reductions (CSRs) that bring their deductibles down to an average of $177. At this income level, silver plans are modified to resemble platinum coverage. (CSRs lower otherwise applicable cost-sharing in silver plans; three levels of CSR apply to enrollees with income up to 150% FPL, between 150-200% FPL, and between 200-250% FPL.) Additionally, any enrollee receiving unemployment insurance for any part of the year 2021 is also eligible for zero-premium platinum-like coverage. Some people with incomes just above 150% of poverty may also qualify for zero-premium silver plans with slightly less cost-sharing assistance (such that their silver plan resembles a gold plan), and many people also qualify for zero-premium bronze plans, though with much higher deductibles.

Changes in Premium Payments after Subsidies

As shown in our earlier analysis, the ARPA lowers premiums not just for people who are newly eligible for financial assistance (those with incomes over 400% of poverty), but also for people who were already eligible for subsidies under the ACA and are now eligible for more significant financial assistance.

We estimate that the average savings for current individual market purchasers will be $70 per month (25% of current premiums after subsidies), ranging from an average savings of $213 per month (39% of current premiums after subsidies) for people with incomes between 400% and 600% of poverty to an average savings of $33 per month for people with incomes under 150% of poverty (who will now pay $0 for silver plans with reduced cost sharing). Households with multiple family members purchasing Marketplace coverage could see even greater savings. These estimates and the chart below include all current individual market enrollees, including the few who are still ineligible for a subsidy (and who are therefore counted as having a $0 subsidy).

Cobra Coverage Expansion

The American Rescue Plan (ARP), recently signed into law by President Biden, increases and expands eligibility for Affordable Care Act (ACA) premium subsidies for people enrolled in marketplace health plans. The law also creates new, temporary premium subsidies for COBRA continuation coverage; and it temporarily changes the rules for year-end tax reconciliation of marketplace premium subsidies. These changes will improve the affordability of coverage for individuals who are already enrolled in marketplace health plans, and will provide millions more an opportunity to newly sign up for coverage with increased financial assistance this year.  The law also made changes to the Medicaid program designed to increase coverage, expand benefits, and adjust federal financing.

Temporary COBRA Premium Subsidies for 2021

The ARP provides for temporary COBRA premium subsidies for up to 6 months during 2021. Subsidies will cover 100% of the monthly cost of COBRA while people are eligible. The law requires the former employer to pay the COBRA premium for subsidy-eligible individuals; the federal government will then reimburse the former employer for this cost.

The COBRA premium subsidies can be paid for coverage months no earlier than April 1, 2021 and no later than September 30, 2021. The subsidy can end earlier than September 30 in some circumstances.  It ends when COBRA coverage is exhausted; so for example, someone who first became eligible for COBRA due to a job layoff on March 1, 2020 could continue in that plan for 18 months, or through August 2021.  That person could claim the COBRA premium subsidy starting in April 2021, but the subsidy would stop when COBRA exhausts at the end of August.  People also lose eligibility for the COBRA premium subsidy once they become eligible for other job-based coverage.  If this happens, people must notify their COBRA plan administrator or risk owing a penalty.  

The subsidy is for people whose COBRA qualifying event involves termination of employment or reduction in hours worked. People are not eligible for the COBRA subsidy if they quit voluntarily. Nor are they eligible for subsidies if COBRA resulted from other qualifying events, including death of or divorce from the covered employee, the covered employee becoming entitled to Medicare, or loss of dependent child status.

People who became eligible for COBRA earlier in the pandemic can still elect it. Normally, people have up to 60 days from their qualifying event to elect COBRA continuation coverage. During the pandemic, however, people have additional time to elect COBRA, thanks to a COVID disaster relief notice issued by the Departments of Labor and Treasury. Their new COBRA election deadline will be the earlier of (1) one year from the date the person’s election period would otherwise have ended, or (2) 60 days after the announced end of the COVID National Emergency. For example, a person who was laid off early in 2020 and whose deadline for electing COBRA was April 1, 2020 can now take until April 1, 2021 to elect COBRA. Going forward, a person who becomes newly eligible for COBRA can have her election period extended by up to 1 year (or until 60 days following the end of the National Emergency, whichever is earlier.) This emergency rule applies to election of COBRA arising from all qualifying events.

People who became eligible for COBRA earlier in the pandemic can have coverage start prospectively. Normally, once elected, COBRA coverage dates back to the qualifying event and premiums have to be paid retroactive to that point in time. This will remain the rule for subsidy-eligible people whose qualifying event occurs on or after April 1, 2021

However, under the ARP a special rule applies for subsidy-eligible individuals whose COBRA qualifying event pre-dates enactment of the ARP and who have not yet elected COBRA; or for such individuals if they previously elected COBRA but subsequently discontinued it, and who otherwise remain eligible for COBRA. When these individuals elect COBRA, coverage will commence on the first day of April 2021. Their COBRA coverage will not extend back in time before that date and they will not owe COBRA premiums prior to that date.

Eligible individuals who were already paying for COBRA when the law passed can also claim the subsidy.

COBRA premium subsidies are not counted as income to the individual. Subsidies will not affect a person’s tax liability or eligibility for other income-related benefits.

People eligible for COBRA subsidies may also be eligible for marketplace subsidies or Medicaid. Just being eligible for COBRA does not affect a person’s eligibility for marketplace subsidies or Medicaid. Those who have a choice will want to weigh their out of pocket costs (for premiums and cost sharing, net of subsidies), as well as any differences in plan provider networks, covered benefits, and other plan features. Generally, once a person enrolls in COBRA, she won’t have an opportunity to choose marketplace coverage again until the earlier of the next open enrollment period or the date when she exhausts COBRA coverage.

When COBRA premium subsidies end, people can continue unsubsidized enrollment in COBRA. Of course, for many, unsubsidized COBRA may prove unaffordable. Generally, if a person terminates (or stops paying the premium for) COBRA before it exhausts, this loss of coverage does not make a person eligible for a special enrollment period (SEP) in the marketplace.

However, the marketplace has broad authority to recognize new SEP qualifying events. It remains to be seen if and state-based marketplaces will recognize termination of COBRA premium subsidies as a qualifying event and allow people the option to switch to more affordable marketplace plans and subsidies at that time.