How the American Rescue Plan (ARP) Affects Health Insurance

Christian Worstell

The health insurance industry is influenced by competition and demand, but it can also be affected largely by state and federal legislation. Among the more influential and impactful laws to have been passed in recent years is the American Rescue Plan (ARP). 

In this article, we’ll explore how the American Rescue Plan affects health insurance costs, eligibility and the health care industry at large.  

What Is the American Rescue Plan?

The American Rescue Plan Act of 2021 is a $1.9 trillion economic stimulus bill that was designed to jumpstart a recovery from the health and economic effects of the COVID-19 pandemic. 

The American Rescue Plan makes up one piece of President Biden’s Build Back Better plan, which also includes the American Jobs Plan and American Families Plan.  

The key components of the American Rescue Plan include direct stimulus payments, an extension of unemployment compensation, the continuation of eviction and foreclosure moratoriums and expanding the size and accessibility of the Child Tax Credit. It also provided funds for schools to reopen safely amid the pandemic and subsidized COVID-19 testing and vaccination programs.  

The plan passed the House of Representatives on February 27, 2021, and passed through the Senate on March 6, 2021. It was then signed into law by President Biden on March 11, 2021. 

How Does the American Rescue Plan Affect Health Insurance?

The American Rescue Plan addressed health insurance in four fundamental ways. 

  1. It allowed more people to become eligible for premium subsidies for marketplace health insurance plans.

  2. It increased the amount of the premium subsidies available for marketplace plans.

  3. It encouraged states to expand their Medicaid programs to allow residents to qualify based on income.

  4. It covered the cost of COBRA insurance premiums for those who lost their job. 

The biggest ways in which the American Rescue Plan affects health insurance is by increasing the size of premium subsidies for marketplace plans and eliminating the “subsidy cliff.”

The Affordable Care Act (ACA) introduced federal and state-run marketplaces where consumers could enroll in individual or family health insurance plans using premium subsidies. However, some people did not qualify for a subsidy because they made too much money. And even some who did qualify faced affordability challenges because of high deductibles. 

The American Rescue Plan addressed both issues concerning premium subsidies. 

Expanded Eligibility for Premium Subsidies

Previously, the income limit to be eligible for a premium subsidy was 400% of the federal poverty level, which equates to $51,040 for an individual and $104,800 for a family of four in 2022.

If your household income was above those limits, you did not qualify for any premium tax cuts and had to pay the full amount for your health insurance. This 400% limit is known as the “subsidy cliff.” 

But the American Rescue Plan temporarily lifts the 400% rule and replaces it with an 8.5% rule. That is, nobody will have to spend more than 8.5% of their household income on a health insurance premium.

So even if you make more than 400% of the federal poverty level, you may now qualify for subsidies that will cap your spending at 8.5% of your income. The 8.5% limit applies to each person’s “benchmark” plan, which is the second lowest-cost Silver plan available where that person lives.

It’s important to note that eligibility is calculated using each person’s benchmark plan, but the premium subsidies can be used to purchase any plan at any level.

A Kaiser Foundation analysis estimated this change would increase the number of people eligible for a premium subsidy by 20% (18.1 million to 21.8 million). The 8.5% rule is slated to remain in effect throughout 2022. 

Increased Subsidies for Those Already Eligible

For those who make less than 400% of the federal poverty level and already qualified for premium tax cuts, those subsidies will now get even larger because of the American Rescue Plan.

The amount of the subsidy increase depends on age, location and income, but the table below illustrates a few examples of the impact of the American Rescue Plan on premium subsidies. 

Beneficiary Premium subsidy before ARP Premium subsidy after ARP Benchmark plan price before ARP Benchmark plan price after ARP Lowest cost plan before ARP Lowest cost plan after ARP

Age: 25

Location: Albuquerque, NM

Income: $18,000

$193

$247

$54

$0

$0

$0

Age: 60

Location: Jackson, MS

Income: $40,000

$649

$766

$328

$211

$212

$95

Age: 45, 43, 13, 10 (family of four)

Location: Cheyenne, WY

Income: $110,000

$0

$1,749

$2,528

$779

$1,654

$0


The Kaiser Foundation analysis estimates the average premium savings to be around $70 per month under the new terms, or a decrease of approximately 25%. 

Did the American Rescue Plan Affect Medicaid?

Prior to the passing of the American Rescue Plan, there were 15 states that did not have expanded Medicaid. Expanded Medicaid means having a Medicaid program in which an individual can qualify for Medicaid based on income alone. 

The American Rescue Plan rolled out some incentives for those 15 states to adopt expanded Medicaid, most notably increased federal funding to cover 90% of the cost of newly eligible adults. 

Since the start of the COVID-19 pandemic, three of the 15 holdout states have expanded their Medicaid programs. Nebraska was the first to do so on Oct. 1, 2020, after years of legislative delays. Oklahoma voted to expand its Medicaid program in June of 2020, and expansion officially began on July 1, 2021. And Missouri, after a lengthy legal battle of its own, began processing applications on Oct. 1, 2021, with coverage retroactive to July 1. 

Oklahoma’s Medicaid expansion made around 190,000 residents newly eligible for Medicaid, while Missouri’s expansion welcomed some 270,000 residents as newly eligible. Nebraska’s expansion reaches around 90,000 residents. 

The remaining 12 states without expanded Medicaid include:

  • Alabama
  • Florida
  • Georgia
  • Kansas
  • Mississippi
  • North Carolina
  • South Carolina
  • South Dakota
  • Tennessee
  • Texas
  • Wisconsin
  • Wyoming 

Did the American Rescue Plan Affect COBRA Insurance?

Continuation of Health Coverage (COBRA) grants the right to retain your employer-sponsored health insurance for a set period after losing your job, typically up to 36 months, at the full cost of the plan.   

Because the former employee becomes responsible for the full cost of the plan, COBRA is often difficult to afford for someone who is now out of work. The American Rescue Plan covered the full premiums for COBRA insurance from April 1, 2021, to Sept. 30, 2021. 

How Else Did the American Rescue Plan Affect Health Insurance?

The American Rescue Plan had some more indirect and less measurable effects on health insurance as well.

The bulk of the stimulus checks that were sent to millions of Americans in response to the COVID-19 pandemic were done so under a different piece of legislation, the Coronavirus Aid, Relief, and Economic Securities (CARES) Act. However, additional stimulus checks were sent out to a more limited number of eligible people as part of the American Rescue Plan.  

The American Rescue Plan also implemented additional unemployment compensation and extended the length of time that someone may collect benefits. 

Lastly, the American Rescue Plan increased the amount of the child tax credit and allowed those eligible to receive it monthly, as opposed to having to wait until tax filing time. 

While none of these measures addressed health insurance directly, the beneficiaries of stimulus checks, increased unemployment and child tax credits may have used the funds to pay for health insurance premiums, deductibles, copayments or other costs.

In fact, those who struggled to afford health care costs prior to receiving a child tax credit were found to spend more money on care after receiving the credit. 

Christian Worstell
About the Author

Christian Worstell is a licensed insurance agent and a Senior Staff Writer for HelpAdvisor.com. He is passionate about helping people navigate the complexities of federal benefits and understand their coverage options.

His work has been featured in outlets such as VoxMSN, and The Washington Post, and he is a frequent contributor to health care and finance blogs.

Christian is a graduate of Shippensburg University with a bachelor’s degree in journalism. He currently lives in Raleigh, NC.

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