Congress Passes American Rescue Plan; Health Coverage Provisions Could Have Lasting Impacts

The Big Picture

On March 11, President Joe Biden signed an approximately $1.9 trillion COVID-19 relief bill—the American Rescue Plan Act of 2021 (American Rescue Plan). It includes myriad health care provisions, focused primarily in two areas:

• Providing funding requested to carry out the Biden administration’s COVID-19 response plans, and
• The most significant changes to health care coverage and access policies since the passage of the Affordable Care Act (ACA). 

Although all health care coverage provisions of the bill are temporary, many lay the groundwork for future policy discussions, with the potential for lasting impact. For example, the bill includes provisions that temporarily make Marketplace subsidies more generous and available to more Americans, including those in “middle” income brackets. The Department of Health and Human Services (HHS) estimates that these provisions will reduce costs for existing enrollees and for 14.9 million uninsured Americans who are eligible for financial assistance. The temporary nature of the Marketplace improvements raises the question of whether Congress would seek to permanently modify these policies to avoid a coverage cliff. Other policies, such as incentivizing the dozen states that have not yet expanded Medicaid to do so, could permanently alter the coverage landscape if states adopt, and maintain, the Medicaid expansion.

Among the most important health care coverage provisions in the bill are:

• Enhancements to the advance premium tax credits available for individual insurance coverage purchased on the Marketplace, including increased premium and cost-sharing assistance for Americans who receive unemployment insurance in 2021;
• Increased subsidies to make COBRA coverage available to people who lose employer-sponsored coverage;
• Time-limited Medicaid matching rate increase for states that adopt the Affordable Care Act Medicaid expansion; and
• Establishment of an option for states to extend the period of time for which postpartum women are eligible for Medicaid/the Children’s Health Insurance Program (CHIP).

These coverage-promoting policies are described in further detail below. Importantly, the American Rescue Plan also expanded coverage of vaccines and COVID-19 treatment under Medicaid, abolished the cap on Medicaid rebates in the Medicaid Drug Rebate Program (MDRP), and modified rebate obligations relating to COVID-19 treatments. It also provides significant funding to states and localities—$350 billion—to address the fiscal impact of COVID-19. These funds will serve many purposes, including mitigating state budget crises that could otherwise mean cuts to state-funded programs, including Medicaid. The legislation also includes a targeted expansion of the Provider Relief Fund, allocating $8.5 billion for rural providers; additional funding for public health grants to address mental health and substance abuse and to provide maternal home visiting programs; and a handful of targeted Medicare policy changes. (A more detailed summary of the bill is available through Insights@ManattHealth, Manatt Health’s premium subscription service, designed to help health care stakeholders keep up with the latest developments and benefit from in-depth analyses critical to their business. For more information or to schedule a demo, please contact Barret Jefferds at bjefferds@manatt.com)

Marketplace Subsidies

Among the most significant health care provisions of the American Rescue Plan are three temporary enhancements for advance premium tax credits available for individual insurance coverage purchased on the Marketplace.

Zero Premium Coverage for People Who Receive Unemployment in 2021

Individuals who receive an unemployment insurance (UI) payment in 2021 would be eligible to receive premium tax credits that allow them to buy a Silver-level plan with $0 premiums in 2021 and would be eligible for the maximum cost-sharing subsidies amount, regardless of their income. This includes individuals who are currently below the federal poverty level (FPL) in the dozen states that have not expanded Medicaid. According to the Centers for Medicare & Medicaid Services (CMS), enhanced tax credits for consumers receiving unemployment compensation will be available starting this summer.

Enhanced Federal Tax Credits in 2021 and 2022

Financial assistance for people currently eligible for tax credits is increasing across all income levels and is extended to those above 400% of the FPL (who have no other offer of affordable insurance) for the first time. See Table 1 below for the proposed increased subsidies effective December 31, 2020, through 2022. The proposed subsidies do not cover individuals under 100% of the FPL who fall into the coverage gap and who do not receive UI benefits in 2021. On Friday, HHS issued a fact sheet with initial information for consumers about how to receive additional tax credits on Healthcare.gov. Starting April 1, enrollees may update their application and reselect coverage before the end of the special enrollment period on May 15. If consumers do not reselect a plan during the enrollment period, the enhanced subsidies will be reconciled in their tax filing next year. State Marketplaces are expected to release instructions in the coming days.

HHS estimates that increased subsidies under the revised affordability scale shown in Table 1 will reduce the cost of health care coverage for 9 million consumers currently receiving financial assistance on the Marketplace. An additional 14.9 million uninsured people would be eligible for federal assistance if they choose to enroll in coverage, including 3.6 million uninsured Americans who are newly eligible for subsidies. Increased affordability with more financial assistance may prompt uninsured individuals who have forgone coverage in the past to enroll.

Table 1. Proposed Premium Percentages by Household Income, Based on the Cost of Silver Plan

Eliminating Requirement to Repay Premium Tax Credit in 2020

In tax year 2020, individuals receiving tax credits will not be required to reconcile premium tax credits if their annual income increases during the year.

State-Based Marketplace Funding

In addition to the Marketplace tax credits, the bill appropriates $20 million in grants for state-based Marketplaces to modernize or update any system, program or technology to ensure compliance with ACA Marketplace requirements.

COBRA Subsidies

The American Rescue Plan provides federal premium assistance equal to 100% of COBRA continuation coverage premiums for COBRA-eligible individuals and families from the first of the month after enactment through September 30, 2021. The IRS will provide a refundable payroll tax credit to reimburse employers and health plans for the premiums. The American Rescue Plan also includes requirements that employers notify employees about COBRA eligibility and the availability of federal premium assistance. While for most consumers enhanced Marketplace subsidies may prove a more affordable option, consumers with generous employer-sponsored coverage may prefer COBRA  to maintain continuity of care.

Promoting Medicaid Coverage

The American Rescue Plan includes provisions that encourage states to adopt the Medicaid expansion, gives states an option to extend Medicaid coverage during the postpartum period, provides a temporarily enhanced matching rate for home and community based services and mobile crisis units, and temporarily fill gaps in Medicaid coverage of COVID-19 vaccines and treatment. The bill also imposes new rebate obligations under the MDRP and ends the cap on Medicaid rebates, effective January 1, 2024.

Enhanced FMAP for Medicaid Expansion

To encourage the 12 states that have not adopted the ACA adult Medicaid expansion to do so, the American Rescue Plan provides states that implement a Medicaid expansion after the date of enactment with a two-year, 5-percentage-point increase in the Medicaid matching rate (FMAP) for most non-expansion populations.

Unlike other provisions in the American Rescue Plan, the increased matching rate is available at any point after enactment and is tied to when a new expansion state begins enrolling people in the adult Medicaid expansion group. States that begin enrolling adults in the Medicaid expansion group during the public health emergency (PHE) will receive both the 6.2-percentage-point bump authorized by the Families First Coronavirus Response Act (FFCRA) and the 5-percentage-point increase described here. The increased match does not apply to the already-enhanced matching rate for expansion populations, to federal matching rates for Disproportionate Share Hospital (DSH) payments, to CHIP or to other HHS programs that are tied to the Medicaid FMAP.

State Option to Extend Medicaid and CHIP Coverage Postpartum

Under current law, individuals who are eligible for Medicaid/CHIP on the basis of their pregnancy and are not eligible for Medicaid/CHIP under other pathways (e.g., Medicaid expansion, parent/caretaker) lose Medicaid/CHIP eligibility 60 days postpartum. The American Rescue Plan gives states the option to extend Medicaid/CHIP eligibility for pregnant people enrolled in Medicaid/CHIP for 12 months postpartum. These provisions take effect on April 1, 2022, and will remain in effect for five years.

Although several states have submitted CMS waiver requests aimed at extending postpartum coverage, it is unknown whether states where the greatest coverage gaps exist will take up a new state plan option. The Medicaid and CHIP Payment and Access Commission (MACPAC) recently indicated that nearly two-thirds of the people who would gain coverage if a national postpartum Medicaid extension were adopted live in five states: Florida, Georgia, Missouri, North Carolina, and Texas. The legislation does not provide states with an enhanced matching rate for the extension. States that adopt the option to extend postpartum coverage must provide full benefits to pregnant and postpartum individuals, as opposed to having the option to provide only “pregnancy-related” benefits to pregnant and postpartum people, as permitted by current law.

Conclusion

Given the time limited nature of the changes, implementation will likely be on a fast track in the coming weeks and months. Stay tuned for updates on federal guidance and actions as these legislative changes are operationalized.