Recent Stimulus Proposal from Biden Administration Could Expand COBRA and ACA Subsidies

Employee Benefits | 2/25/2021

Written By: Nathanael M. Alexander, Esq., Director of Compliance

In a January 14, 2021 Fact Sheet entitled the American Rescue Plan, the Biden Administration announced their intent to expand healthcare coverage as a result of the still ongoing COVID-19 pandemic. The key points for our purposes involve the expansion of premium subsidies under the Consolidated Omnibus Budget Reconciliation Act (COBRA) and the Affordable Care Act (ACA) but there are numerous other aspects of the proposal that impact the COVID-19 stimulus package currently making the rounds through Congress. This is of immediate significance to employers and employees alike since these changes, if included in the final bill, may take effect as soon as April 1, 2021.

Overall, the plan seeks to broaden access to healthcare and touches on a range of other aspects in the healthcare space aside from what will be more substantively discussed below. This includes matters such as containing the COVID-19 pandemic, mounting a national vaccination program, increasing the availability and funding of behavioral health and veterans’ health services, addressing health disparities encountered by underserved communities, along with a host of other items to be tackled.

COBRA Subsidies

Relying on data accumulated by the Kaiser Family Foundation (KFF), the American Rescue Plan stipulates that “roughly two to three million people lost employer sponsored health insurance between March and September [of 2020]”. As a result, the proposal hopes to extend COBRA subsidies through September 30, 2021 for the benefit of workers who lost employer-sponsored health coverage due to termination or a reduction in hours. This will aid in offsetting some of the costs to these individuals with a premium reduction amounting to 85 percent of their coverage. The premium reduction would go into effect beginning with the first of the month following the date the new law is enacted (or as early as April 1st of this year) but would not be applicable if an individual is eligible for other medical coverage or Medicare. “Other medical coverage” does not include dental, vision, or coverage offered under a healthcare flexible spending account (FSA).

Why This Is Important?

COBRA coverage tends to be prohibitively expensive for many, as the employer paid portion of the health insurance premium typically ceases. Although the amount charged for COBRA continuation cannot exceed 102% of the total cost of the plan itself, that increased monthly price tag can be a big ask for a laid off worker or for someone who has had their hours substantially reduced. The pandemic has of course added to the prevalence of such a scenario.

 ACA Premium Subsidies

The Biden Administration is “also asking Congress to expand and increase the value of the Premium Tax Credit to lower or eliminate health insurance premiums and ensure enrollees – including those who never had coverage through their jobs – will not pay more than 8.5 percent of their income for coverage.”

Through this expansion, the current Administration seeks to make some major modifications to the ACA in an effort to boost its general effectiveness. At the outset, these proposed changes will be temporary and in direct response to the pandemic, although it is entirely possible that certain aspects will be made permanent down the road. As noted in the Ways and Means Committee’s proposal, the anticipated adjustments include an increase in the ACA subsidies available to low and middle-income families for 2021 and 2022, an extension of ACA subsidies to higher-income persons who may not have previously qualified, as well as a provision which will allow individuals who receive or who have been approved to receive unemployment benefits during 2021 to obtain the maximum allowable subsidy amount for ACA coverage.

Why This Is Important?

The implementation of this portion of the proposal will likely lead to an uptick in and retention of ACA enrollees due to more favorable premiums being offered along with an enhanced ability to pay said premiums with the issuance of improved subsidies. In fact, the Biden Administration has even re-opened a Special Enrollment Period on healthcare.gov running from February 15 – May 15, 2021 in anticipation of this.

The Biden Administration speculates that “together, these policies [addressing COBRA and ACA] would reduce premiums for more than ten million people and reduce the ranks of the uninsured by millions more.” We will continue to monitor the situation as it develops and provide updates accordingly.