March 15, 2021 Update: On March 6, 2020 the Senate revised the American Rescue Plan Act, including two provisions which affect the content of this article.¹

1. Subsidies for COBRA coverage were increased from 85% to 100% of cost, which could cause additional uptake of COBRA coverage.
2. The Senate clarified that individuals who receive unemployment for any week in 2021 and indicate household income of at least 100% FPL would receive cost-sharing subsidies in the form of the 94% silver CSR plan variation in addition to full premium subsidies for the second lowest cost silver plan. This could also lead to an increase in ACA enrollment among individuals in this group.

The American Rescue Plan Act was signed into law by President Biden on March 11, 2021, and the U.S. Department of Health and Human Services has indicated that increased ACA subsidies will be available on healthcare.gov starting April 1, 2021.²

Original Content: President Biden released his first blueprint for COVID-19 relief legislation on January 15, 2021,³ and the U.S. House of Representatives passed legislative text for the American Rescue Plan Act of 2021 on February 27, 2021.⁴ This relief plan contains $1.9 trillion dollars in funding, in large part to combat the coronavirus pandemic and provide economic relief to individuals, businesses, and state and local governments. Included in these policy proposals are provisions that specifically address access to coverage, both for the uninsured and for those who have lost their employer-sponsored coverage. This legislation is moving quickly through Congress, with support primarily expected along party lines. And while the legislation may still see meaningful modification in the Senate under the rules of budget reconciliation, the general shape of the legislation is likely to remain. Ultimately speed to the President’s desk is a primary concern, as lawmakers race against a March 14 deadline, which is when extended unemployment benefits included in December 2020’s Consolidated Appropriations Act⁵ will end. As of this writing, the key provisions affecting private healthcare are:

• Federal subsidies for COBRA continuation coverage
• Expansion and improvement of Patient Protection and Affordable Care Act (ACA) subsidies
• ACA subsidy guarantees for the unemployed
• Enhanced funding for states that newly expand Medicaid.

We look at each of these proposals in more detail below.

Antivenom for COBRA coverage?

Approximately half of Americans receive health coverage through their employers, and the Congressional Budget Office (CBO) estimated that approximately 13 million individuals with employer-sponsored coverage have lost jobs due to the pandemic.⁶ While most employers are required to offer employees the ability to retain their coverage under provisions of COBRA, the end of employer subsidies for this coverage coupled with the lack of ongoing employment income typically leads to low uptake. Of the 13 million individuals who have lost employer-sponsored coverage, only about 800,000 individuals stayed on under COBRA. America’s Rescue Plan would subsidize 85% of COBRA premiums through September 2021; CBO estimates that a little over 2 million individuals (about one in six of those who lost coverage) will regain coverage with these subsidies.

Making ACA coverage more affordable for everyone (above the federal poverty guidelines)

One of the longstanding complaints about health coverage in general is its cost,⁷ and perhaps the most important of the original three legs of the ACA is premium subsidies to address cost for those with household income under 400% of the federal poverty level (FPL).⁸ President Biden campaigned on many changes intended to reduce cost and increase availability of affordable coverage in the individual market, including increased generosity of ACA subsidies. The America’s Rescue Plan Act includes these changes—for 2021 and 2022 benefit years only—lowering required premium contributions by households at all income levels. Nonsmokers with household incomes under 150% FPL will pay $0 for the second-lowest-cost silver plan (SLCSP), with required contributions increasing up to 8.5% of income at 300% FPL. The America’s Rescue Plan Act also extends subsidies to those above 400% FPL for the first time, as long as premiums for the SLCSP exceed 8.5% of household income. CBO estimates that almost 2 million individuals will sign up for coverage due to the enhanced subsidies.⁹

Unemployed for a week in 2021, covered for a year?

While unemployment is ideally a temporary condition, ACA premium subsidies are based on income over an entire year—as such, pre-unemployment (or post-unemployment) income can reduce the subsidies amount an individual is due and otherwise complicate the process of obtaining affordable coverage from ACA exchanges during periods of unemployment. Subsidies decrease in generosity as income goes up, so the America’s Rescue Plan Act holds harmless those who receive unemployment at any time in 2021 from any premium subsidy decreases related to income above 133% FPL. This effectively permits those with household income over the federal poverty level who are unemployed at any point in 2021 to receive ACA premium subsidies that cover the premium for the second-lowest-cost silver plan available to them on the exchange. CBO estimates this will lead to approximately half a million new lives entering the ACA’s exchange markets in 2021. One outstanding question related to the legislative text is whether unemployed individuals would also be automatically eligible for the ACA’s highest level of cost-sharing subsidies available for those under 150% FPL—as drafted, it appears this answer is no, which could lead to the unemployed having affordable premiums, but still facing coverage access issues due to the need to pay higher member cost-sharing amounts. The current language also appears to exclude those in the “Medicaid gap.”¹⁰

Increased funding for new Medicaid expansions

The bill additionally restores some enhanced funding for states that implement new ACA expansions—the federal government would subsidize an additional 5% of program expenditures in the first three years of expanded eligibility, for a total of 95% of overall program funding, after which federal subsidies would revert to the current level of 90%. As written, the legislation would provide this increased funding for expansions in Oklahoma¹¹ and Missouri,¹² both of which were approved by ballot initiative last year. It is less clear whether this additional federal funding will provide sufficient incentive to any of the 12 states¹³ that have yet to expand Medicaid to proceed down the path, such as Texas and Florida, both of which have significant ACA markets. If any of these states were to expand Medicaid, their marketplaces could see some contraction in the individual market as individuals in households with income under 138% FPL move into Medicaid. Because these individuals are currently eligible for the very rich 94% silver cost-sharing reduction (CSR) plan variants in the exchanges,¹⁴ this would likely reduce overall CSR enrollment. While this would reduce issuer exposure to CSR costs (which are not currently reimbursed by the federal government), the corresponding reduction in silver loads could reduce affordability for members who choose plans other than silver, as benchmark silver plan premiums and thus premium subsidies decrease, with little corresponding change to prices on the ACA’s other metallic tiers.

What does this mean to ACA markets?

ACA marketplace enrollment has fallen from its high-water mark in 2015, such that the relatively limited impact of about 2.5 million new lives in ACA markets as projected by CBO represents over 15% growth in individual market coverage. Moreover, the expansion of subsidies will drive a larger portion of overall enrollment toward the ACA’s exchanges, as these subsidies are currently unavailable to individuals off the exchange. However, the net benefit to the marketplace won’t be fully known until we understand the risk profiles of these new enrollees. While there is always potential for anti-selection, most of those with the greatest needs have likely already obtained coverage, which limits the potential magnitude of any influx of poor morbidity lives. Depending on how the Centers for Medicare and Medicaid Services (CMS) and the Department of Treasury respond to these provisions, states with Section 1332 State Innovation Waivers could see an influx of federal dollars in 2022 and potentially even 2021. Specifically, the greater availability of subsidies should increase the percentage of subsidized enrollees, one of the key ingredients in the 1332 waiver pass-through funding calculation. While markets in states that have yet to expand Medicaid could see additional volatility if state governments choose to pursue additional federal funding for expansion, the lack of fundamental changes to the political calculus suggests that these changes may not be forthcoming.

Next steps

From here, the Senate will take up the legislation. As parts of the House bill have been ruled to violate Senate rules surrounding reconciliation, Senate Democrats will have to draft updated language that is capable of meeting procedural requirements. While initial text could be released as early as Wednesday, March 3, we could see multiple drafts of language as the Senate seeks to find a package that can earn the support of all 50 Democratic and Independent senators, as it currently appears unlikely that any Republicans will cross the aisle to vote for this legislation. And while the provisions in the America’s Rescue Plan Act are focused on affordability, many of the president’s other aspirations for healthcare reform are left unaddressed. With the likelihood of a second budget and accompanying budget reconciliation bill as early as the fourth quarter of 2021, this could be simply a down payment on future health reform.

Caveats and limitations

In preparing this paper, we relied on legislative text as contained on the House Rules Committee website for H.R. 1319, the American Rescue Plan Act of 2021 on February 25, 2021, as passed by the House on February 26, 2021. Differences between the details found in this legislation and final legislation will impact the conclusions found in this article.

We are not attorneys and nothing included in this article should be interpreted as legal advice.

Guidelines issued by the American Academy of Actuaries require actuaries to include their professional qualifications in all actuarial communications. Jason Karcher and Doug Norris are members of the American Academy of Actuaries, and meet the qualification standards for performing the analyses in this article.

¹The full text of the final legislation is available at https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319enr.pdf .

²Department of Health and Human Services (March 12, 2021). Fact Sheet: The American Rescue Plan: Reduces Health Care Costs, Expands Access to Insurance Coverage and Addresses Health Care Disparities. Retrieved March 15, 2021 from https://www.hhs.gov/about/news/2021/03/12/fact-sheet-american-rescue-plan-reduces-health-care-costs-expands-access-insurance-coverage.html.

³The announcement from the White House is available at https://www.whitehouse.gov/briefing-room/legislation/2021/01/20/president-biden-announces-american-rescue-plan/.

⁴The full text of the bill is available at https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319eh.pdf .

⁵The full text of the bill is available at https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf. .

⁶CBO (February 17, 2021). Cost Estimate: Reconciliation Recommendations of the House Committee on Ways and Means. Retrieved March 2, 2021, from https://www.cbo.gov/system/files/2021-02/hwaysandmeansreconciliation.pdf.

⁷Blue Cross Blue Shield. Why does healthcare cost so much? Retrieved March 2, 2021, from https://www.bcbs.com/issues-indepth/why-does-healthcare-cost-so-much.

⁸Gruber, J. (August 5, 2010). Health Care Reform Is a “Three-Legged Stool.” Center for American Progress. Retrieved March 2, 2021, from https://www.americanprogress.org/issues/healthcare/reports/2010/08/05/8226/health-care-reform-is-a-three-legged-stool/.

⁹A forthcoming Milliman white paper will explore the implications of the subsidy schedule change as well as other Biden campaign proposals affecting subsidies in the individual market.

¹⁰The Medicaid Gap consists of individuals in states that have not expanded Medicaid who make both too much to be eligible for Medicaid according to state standards and less than the 100% FPL minimum required to be eligible for ACA premium subsidies. For more information, the Kaiser Family Foundation (KFF) has a nice summary at https://www.kff.org/medicaid/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid/.

¹¹Oklahoma Health Care Authority. Medicaid Expansion. Retrieved March 2, 2021, from http://www.okhca.org/SoonerCare2/.

¹²Smith, A. (August 5, 2020). Missouri voters approve Medicaid expansion despite resistance from Republican leaders. NPR. Retrieved March 2, 2021, from https://www.npr.org/sections/health-shots/2020/08/05/898899246/missouri-voters-approve-medicaid-expansion-despite-resistance-from-republican-le

¹³Kaiser Family Foundation (February 22, 2021). Status of State Medicaid Expansion Decisions: Interactive Map. Retrieved March 2, 2021, from https://www.kff.org/medicaid/issue-brief/status-of-state-medicaid-expansion-decisions-interactive-map/.

¹⁴The ACA provides CSR plans covering approximately 94% of medical costs to eligible individuals with household incomes between 100% FPL and 150% FPL.