Health Care Costs and the American Rescue Plan

On March 11, 2021 the American Rescue Plan (ARP) was signed into law to offer financial assistance and economic stimulus for those effected by the Covid-19 pandemic.  Some of the many elements of the plan address health care costs for 2021 and 2022.  Following is a summary of some of the health care cost savings created by the bill.

• Formerly health care insurance subsidies in the form of tax credits were only available to those below a certain income level. Once that income level was reached the credits went to zero.  The ARP bill eliminated this income cliff for 2021 and 2022.  Under ARP, premiums for insurance purchased through the healthcare exchange are limited to 8.5% of modified adjusted gross income.  This, in effect, causes the credit to phase out gradually as income increases.

• Anyone who does not have access to health insurance through a family member and has received one week of unemployment for 2021 is deemed as having earnings no higher than 133% of poverty level for the year and will qualify for a no cost silver health insurance plan on the exchange. Also, anyone who receives unemployment in 2021 will be eligible for cost-sharing subsidies that will, in effect, lower the deductible on their health insurance plan.

• For anyone who loses their job and their access to health insurance through their employer, self paid COBRA is available for continuing coverage however the cost is generally quite high. The ARP offers some premium relief in the form of subsidies for those who elect COBRA from April 1 through September 30.  While COBRA is often the easiest choice, for those that apply for and receive unemployment, the above mentioned no cost silver plan and possible lowered deductible should be considered in the total cost as well as the cost of COBRA after subsidies end at the September 30 deadline.

• For those that receive premium tax credits in 2020 but underestimated their income for the year generally the tax credit must be paid back. The ARP offers forgiveness of any excess premium tax credit for 2020.  If the 2020 return has already been filed an amended return may be filed later in the year once the IRS has had a chance to update its information.

With the usual complexity of both the changing tax code and health insurance options we would suggest getting other advisors such as your accountant and health insurance broker involved in the decision-making if you believe one of these options might be helpful.

~Carolyn Rice