Good News for Obamacare!
It seems Christmas came way, way too early this year. Especially for people who pay for their own health insurance. And for some crazy reason, it decided to show up on April Fool’s day!
All joking aside, this is huge for people who pay for their own health insurance. On March 11, President Biden signed the new American Rescue Plan Act (ARPA). The law provides $1.9 trillion of federal aid to Americans still struggling with the Covid-19 pandemic. The relief measures include additional premium subsidies for those who purchase health insurance under the Affordable Care Act.
A quick summary
Basically, the new ACT now allows people who are getting Obamacare tax credits to receive even more tax credits! And for those individuals who were just outside of the income thresholds, even you may be eligible to get tax credits to reduce your cost of your health insurance.
The new subsidies eligibility just became available on April 1 and here is what we have seen so far. People who already have very low premiums can most probably qualify for zero premiums for the same plans. The additional tax credits may also allow you to qualify for plans with richer benefits. But the biggest benefit is for people who were once outside the income thresholds for the tax credits. Until now, the premium subsidies were only for those whose income fell between 100 percent and 400 percent of the federal poverty level. (For example, the cutoff for a family of four in Georgia was $104,800. For an individual, it was $51,040.)
Now, no individual or family will have to pay more than 8.5 percent of their household income for a mid-level “silver” plan purchased from healthcare.gov. Even though the amount of the subsidy is based on a silver plan, you can apply the subsidy to any marketplace plan, including bronze, gold or platinum plans. The new rules eliminate what was known as the subsidies cliff so instead of not having any tax credits over the current income thresholds, the tax credits are tapered off based on the household incomes and insurance premiums.
This is huge! Here are some actual examples of quotes we are seeing right now:
EXAMPLE 1: For Husband (60), wife (57) and income $100k: Old Rates - $1390 for cheapest plan. Now: $1084/mo in tax credits. New Rates - $307/mo.
EXAMPLE 2: Family M 45, F 40, 2 kids 12, 13, $120k income. Old Rates - $1148/mo for cheapest plan. Now $1084/mo in tax credits. New Rates - $307/mo.
In order for the new rates to take affect, you will need to reprocess your marketplace applications. The good thing is that even if you do not want to reprocess your application, you will receive the excess tax credits at the end of the year when you file your taxes providing you have bought your plan through the health insurance marketplace. This would be a good strategy for people who believe they might end up making more money than what they had estimated for this year. That way you do not have to pay back the excess tax credits.
These enhanced subsidies are retroactive to the start of 2021, but they are also temporary. They will last only through 2022 unless congress enacts legislation to extend them.
Other key provisions
If you are unemployed in 2021, you qualify for free health insurance unless otherwise eligible for Medicaid. If you receive unemployment benefits for at least one week in 2021, the American Rescue Plan guarantees that you can receive a mid-level silver plan for 2021 at no cost to you. This is because the law will disregard any income you earn over 133 percent of the federal poverty level. And that, in turn, will lock in the highest level of premium assistance for you. If you get a job, your eligibility will change. Be prepared to prove that you are receiving or have received unemployment compensation this year.
As an alternative, from April through September of 2021, ARPA provides for 100 percent free coverage under COBRA for those who have been laid off or subject to a reduction of hours great enough to trigger COBRA eligibility. Speak to your former employer about this benefit.
If you owed excess premium subsidies for 2020, you don’t have to pay. Did you expect to owe the IRS for excess health insurance premium subsidies you received last year? The American Rescue Plan Act says you don’t have to pay back the money. If your subsidy assistance fell short of your eligibility, you can still claim the additional amount owed to you when you file your taxes. But if your subsidy amount was too large, you get a free pass this year—and only this year. In other words, don’t underestimate your income when you purchase a 2021 plan because you hope for a similar break next year. Because this rule is new and tax season is upon us, you may need to call your tax preparer for help. It’s not yet clear, for example, what you should do if you’ve already filed your 2020 tax return and repaid your excess tax credit.
If you’re not sure what to do, you can always request an extension to file your taxes, giving you until October 15 to sort it out. The other good news is that we have until August 15 to process your applications. Applications processed in the current month will see lower rates in the following month. Talk to your agent or broker about your options.
Moneywise is hosted by Rajesh Jyotishi with Shalin Financial Services, Inc. Rajesh Jyotishi is a registered representative of Dempsey Lord Smith, LLC, which is a registered broker-dealer and a member of FINRA/SIPC. Advisory Services are offered through Dempsey Lord Smith, LLC. Rajesh has been a resident of Atlanta since 1975 and in the financial services industry since 1991. For questions, he can be reached at 770-884-8175 or at RJ@shalinfinancial.com. |
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