How the ARP makes marketplace health plans more affordable for older buyers

Editor’s note: The Inflation Reduction Act, which was enacted in August 2022, extends — through 2025 — the ARP subsidy enhancements that were in effect in 2022. So through 2025, there will not be a “subsidy cliff” and the subsidy structure will continue to be more generous than it was prior the ARP. Note that the subsidies that were provided in 2021 when a person was receiving unemployment benefits were specific to 2021 only, and did not get extended past the end of 2021. But the ARP subsidy enhancements that were in effect in 2022 have been extended through 2025.

The American Rescue Plan (ARP) is the single biggest improvement in health insurance affordability since the Affordable Care Act was implemented. For 2021 and 2022, it has increased the size of premium subsidies in the marketplace/exchange, and eliminated the “subsidy cliff.”

The ARP ensures that Americans who receive unemployment compensation at any time in 2021 can enroll in a premium-free Silver plan with full cost-sharing reductions. (If you’re eligible for this benefit but enrolled in a non-Silver plan, you’ll need to switch to a Silver plan in order to take advantage of the cost-sharing reductions. In most states, you have until August 15, 2021 to make this change.) It also provides subsidies to cover the full cost of COBRA or state continuation coverage, through September 2021, for people who involuntarily lose their jobs or have their hours reduced.

To allow people an opportunity to access the enhanced premium subsidies in the marketplace, there’s a one-time special enrollment window that continues through August 15, 2021 in most states. Largely as a result of this enrollment opportunity and the ARP’s subsidy enhancements, effectuated enrollment in the marketplaces nationwide has almost certainly reached a record high, with an estimated 1.65 million people enrolling during the first three-and-a-half months of the special enrollment period.

ARP subsidies particularly valuable for older plan buyers

People of all ages, including the “young and invincible” population, are finding that coverage is more affordable now that the American Rescue Plan has been implemented. But because the full-price cost of health insurance is based on age — and is therefore higher for older enrollees — the ARP’s additional subsidies are particularly valuable for older Americans.

Some older consumers have been purchasing their own individual-market health insurance for years, and are now finding that their premiums are lower than they were before the ARP was enacted. (This is true only if these consumers update their marketplace application to activate the new subsidies or claim them later on their tax returns. People who have off-exchange coverage will need to transition to the exchange in order to take advantage of the new subsidies, either upfront or on a tax return.)

But the ARP is also making it easier for people to transition from employer-sponsored health insurance to a self-purchased health plan. This is especially true for older applicants, since their subsidies are larger (to offset the higher premiums they would otherwise have to pay).

So if you’re still a few years out from Medicare eligibility and facing the loss of your employer-sponsored health plan, rest assured that you’ll have options for health coverage. And thanks to the ACA and the ARP, it’s more likely you’ll be able to afford it.

A closer look: age 60 and transitioning to the individual market

You can use this spreadsheet to get a sense of how much the ARP has boosted premium subsidies, particularly for older Americans who didn’t previously qualify for a subsidy due to income. (See the second section, with examples for a 60-year-old.) But here’s an example to help illustrate the point:

Let’s consider Giuseppe, a 60-year-old who lives in Dallas and has chosen to retire despite having another five years before he’s eligible for Medicare. To show just how much the American Rescue Plan has improved the situation, we’ll assume that he’s already earned $55,000 in 2021 before leaving his job.

Because his income level is above 400% of the federal poverty level for a single person, Giuseppe would not have been eligible for a premium subsidy at all under the pre-ARP rules, even for the months after he ceased to earn an income. And since Texas has refused to expand Medicaid eligibility under the ACA, he would also be ineligible for Medicaid – even if his monthly income drops to $0 due to the job loss. (This is still the case, even with the American Rescue Plan in place.)

Thanks to the ARP, Giuseppe will qualify for a premium tax credit (premium subsidy) of nearly $500/month once he transitions from his employer-sponsored plan to a plan in the Texas marketplace. (That’s based on the assumption that he won’t have any additional income for the remainder of the year, and that his annual income for 2021 will end up being $55,000.)

Giuseppe will be able to choose from among 83 different plans, with after-subsidy premiums that start at just $84/month. That’s a plan with a high deductible; depending on his expected medical needs, it might make sense to pay more to get a more robust plan. But no matter what plan he chooses, out-of-pocket costs for in-network care won’t exceed $8,550 in 2021, essential health benefits will be covered on all of the available plans, and pre-existing conditions will also be covered.

Before the American Rescue Plan was implemented, Giuseppe would have had to pay a minimum of $584/month for individual health insurance in 2021 (the full-price cost for the cheapest Bronze-level plan available in the marketplace), because he would have been ineligible for premium subsidies due to the income he earned earlier in the year.

ACA + ARP subsidy is particularly valuable for older enrollees

If Giuseppe were 30 instead of 60, the full-price cost for the least expensive Bronze plan would only be $243/month. That disparity highlights the importance of the ACA/ARP subsidies: Without any subsidies, Giuseppe would be paying almost two and a half times as much as a 30-year-old.

But thanks to the subsidies, Giuseppe has access to plans that are significantly less expensive than the options he would have if he were 30 years old. If he were 30 and earning the same $55,000 in income this year, he would not qualify for a subsidy at all, even with the ARP in place.

That’s because the cost of the benchmark plan would already be less than 8.5% of his income, which is the cap imposed by the ARP. (For a 30-year-old in Dallas, the full-price cost of the benchmark plan is $371/month. It would have to be more than $390/month to trigger a subsidy.)

But as we saw above, 60-year-old Giuseppe’s subsidy is large enough that it brings down the cost of the least expensive plan to just $84/month. (It will make the benchmark plan equal to about $390/month, which is 8.5% of his income.)

Location matters

Subsidy amounts vary from one place to another, as do the number of available plans and the pricing for the lowest-cost plans. If 60-year-old Giuseppe lives in Orlando, for example, he’ll qualify for a subsidy of about $600/month, and will be able to choose from among 124 health plans. But the lowest-cost plan will be about $150/month. (Without the American Rescue Plan, it would have been about $750/month.)

But in both Dallas and Orlando — and anywhere else in the country — Giuseppe will pay no more than $390/month (8.5% of his income) for the benchmark Silver plan. Before the ARP was implemented, Giuseppe’s cost for the benchmark plan would simply have been the full-price cost for that plan — which varies from one place to another — as he wouldn’t have qualified for a subsidy since his income is more than 400% of the poverty level.

Even if Giuseppe had an income below 400% of the poverty level, and would have been eligible for a subsidy before the ARP, his subsidy is now larger than it would have been (as illustrated in the other income scenarios here), since he’s now expected to pay a smaller percentage of his income in premiums. For many enrollees, plans are available with no premiums at all. If you haven’t checked your subsidy eligibility lately, now’s a good time to do that!

Good subsidy news if you’re being laid off

For Americans who involuntarily lose (or recently lost) their job or involuntarily have their work hours reduced and no longer qualify for employer-sponsored health insurance, the American Rescue Plan provides a full subsidy for COBRA or state continuation (mini-COBRA) plans through the end of September 2021.

Assuming your coverage can be continued with COBRA or state continuation, you’ll have an option to do so regardless of whether you’re leaving your job voluntarily or involuntarily. But if you’re being laid off, you’ll be able to continue your coverage for free through September. (If you’re choosing to retire, you’ll still be able to elect COBRA or state continuation, but you’ll have to pay the premiums yourself.)

You’ll have 60 days to decide whether to extend your employer-sponsored coverage using the ARP’s COBRA subsidy (There is normally a 60-day window to elect COBRA in general, but that’s been extended during the COVID emergency period, which is expected to remain in place throughout 2021. But the ARP’s COBRA subsidy does have to be elected within 60 days of the person being notified of eligibility for COBRA and the subsidy.)

An option to take COBRA or state continuation coverage does not make a person ineligible for premium subsidies in the marketplace (as opposed to an offer of coverage from a current employer, which does generally make a person ineligible for marketplace subsidies). But it has to be one or the other: You can either enroll in a marketplace plan with ACA/ARP subsidies, or extend your employer-sponsored plan using COBRA or mini-COBRA with the federal subsidy through September 2021.

But if you choose to extend your employer-sponsored coverage and take the COBRA subsidy, HHS has confirmed that you’ll qualify for a special enrollment period to transition to a marketplace plan after the COBRA subsidy ends in the fall. The ARP’s additional premium subsidies for marketplace plans will be in effect throughout 2022 as well (and could be extended by Congress at a later date), so that’s an option that will remain affordable for the time being.

You’ll also have the option to keep the COBRA or state continuation coverage until it expires, but you’ll have to pay full price starting in October 2021. A marketplace plan may end up being much more affordable at that point, but it’s important to consider things like starting over with a new deductible when you transition from an employer-sponsored plan to an individual plan, as well as the different provider networks and drug formularies for the individual market plans.

The ARP’s COBRA subsidy and additional marketplace subsidies are available regardless of age. But because health insurance premiums are based on age — including, in most cases, premiums for employer-sponsored coverage — the ARP’s subsidies are particularly valuable for older Americans. Since the cost of coverage is higher, the subsidies are larger as well.

A couple of other points to keep in mind if you’re using the ARP’s COBRA subsidy:

You’ll want to check the cost of individual coverage through the marketplace during the open enrollment period that starts November 1, 2021. You’ll be seeing prices for 2022 coverage, so use your 2022 income projection to see what your after-subsidy premium will be. Even if you keep your COBRA coverage until the end of 2021, you might find that you’re better off switching to a marketplace plan as of January 2022.

If you’ll become eligible for Medicare during the time your COBRA will be in place, be sure you understand the rules regarding enrollment in Medicare Part B and D. You can delay Medicare Part B if you’re covered under an active employee plan, but not if you’re covered under COBRA. And your COBRA coverage may or may not be considered creditable coverage for Medicare Part D.

Guaranteed-issue coverage makes a smooth transition to Medicare

Thanks to the Affordable Care Act, older Americans can rely on individual market coverage in the years prior to Medicare, without having to worry about pre-existing medical conditions.

“Job lock” — continuing to work just for the health insurance benefits — doesn’t exist with the same level of urgency that it once did. And the individual/family plans that are available to early retirees are comprehensive, without the sort of coverage holes that often existed in individual market plans prior to the ACA.

The ACA already provided premium subsidies to many individuals who needed coverage prior to aging into Medicare. And the ARP has made those subsidies more substantial and more widely available — particularly for older enrollees.

If you’re nearing Medicare eligibility but not quite there yet, health insurance may not be as much of a retirement obstacle as you thought it would be. You might be pleasantly surprised to see how affordable the coverage options are.

And if you’re already in need of coverage, time is of the essence. The COVID-related special enrollment period ends in most states on August 15, 2021. After that, unless you experience a qualifying event, you’ll have to wait until open enrollment to sign up for individual health insurance, with coverage effective January 1. But during the COVID-related special enrollment period, you can enroll in health coverage through the marketplace and take advantage of the ACA/ARP subsidies, even if you don’t have a qualifying life event.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.