Most of the headlines regarding the American Rescue Plan Congress passed on March 10 focus on $1,400 stimulus checks and a 4-month extension of federal unemployment benefits. Less noticed are a set of changes to Obamacare, aka the Affordable Care Act, that are the biggest revamp of health care policy in more than a decade.
The American Rescue Plan, as it's known, will address one of the main flaws in the ACA by expanding health care subsidies to several million middle-income families that haven't been eligible for assistance up till now. Originally, the ACA offered subsidies that covered some or all of the cost of health insurance for lower-income Americans. The benefit declined as income rose, and phased out completely for incomes at 400% of the poverty line. For a family of four, that would be $106,000 in income, which meant above that level they'd get no help purchasing insurance.
Many people above that income level get coverage through an employer, which is generally affordable. But those who have to buy it on their own can easily spend $20,000 or more on insurance premiums alone. Costs are highest for those in their 50s or early 60s who aren’t yet eligible for Medicare. Some people stuck in this category simply forego insurance because it’s too expensive.
The new law eliminates the income cap and limits the amount any family pays for health insurance to 8.5% of household income. That means families that previously earned too much for subsidies can now enroll through an ACA marketplace, and the government will cover any amount paid for insurance above 8.5% of annual income.
The change covers calendar years 2021 and 2022, but the catch for this year is that it only covers plans offered through an ACA exchange. Families on a non-exchange plan can't ask for a rebate—but they can switch plans. The Biden administration has opened a special ACA enrollment period that lasts until May 15, which would allow people to cancel an unsubsidized plan and get a cheaper plan through an exchange.
The savings could make it well worth the hassle. A family earning $150,000 got no ACA subsidies up till now. But the change in the law means if that family joins an ACA plan, the most it will have to pay for premiums is 8.5% of its income, or $12,750. Some families now pay considerably more than that. They still have to pay other costs, such as deductibles and co-pays. But more affordable insurance could also allow families to buy more comprehensive plans with better coverage than they've been used to.
There's no upper income limit on the benefit because the cost of insurance available through an exchange has a ceiling. Somebody earning a million dollars couldn't pay $100,000 in premiums for an ACA plan, with the government covering $15,000 of the cost. Such lavish health coverage might exist in the private market, but not in any ACA plan.
A key issue in 2022 midterm elections
The ACA changes would only last for two years, because new federal spending that’s not offset by new revenues must be temporary. Democrats have already said, however, they'd like to make the changes permanent. That will make it a potent issue in the 2022 midterm elections, with Democrats saying they must retain control of Congress in order to lock in a treasured new middle-class benefit. Republicans have opposed any expansion of the ACA, but they've been surprisingly quiet about the latest move. There's no GOP alternative to the ACA so it's not clear how they'll battle the Democrats.
About 23 million Americans get coverage through the ACA, and eliminating the income cap for subsidies could bring a few million more into the program. It would also mark an important redo, dating to President Obama's mistaken claim that anybody who liked their insurance would be able to keep it under Obamacare. That wasn't true, because the law essentially banned inexpensive plans with limited coverage. Some people found they suddenly had to buy more expensive coverage. Over time, the biggest hikes in premiums came in the so-called individual market, where people who didn't get coverage through the ACA or an employer had to pay whatever insurers demanded, or go without.
Expanding the benefit will cost about $24 billion for both years, according to the Congressional Budget Office. Additional cost has been a barrier to expansion in the past, but Congress has authorized $6 trillion in economic relief during the last 12 months, an unprecedented spending blowout. Voters don't seem to mind. Approval of the Biden rescue is well above 60% in several polls, which suggests voters would be fine with a few billion per year to keep the ACA expansion in place after 2022.
There's disappointment among some progressives that this may be the extent of health care reform during Biden's first two years, and perhaps during his entire term. Biden has proposed a "public option," similar to Medicare, that would be available to people who can't get affordable coverage any other way. But opening ACA subsidies to many of those same people will accomplish at least part of the goal, and perhaps do it without the angry opposition that threatened the ACA for nearly a decade after Congress first passed it. American health care is becoming slightly more rational.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.