American Rescue Plan Made Health Insurance Cheaper

The American Rescue Plan Act of 2021 is a $1.9 trillion economic stimulus bill passed in March 2021 that lowered premium costs for million of people. The legislation allowed people to claim higher tax credits if they have a health insurance plan purchased through the Affordable Care Act (ACA) marketplace.

The net effect was that most ACA marketplace participants saw less expensive health insurance premiums, and many more Americans were eligible for affordable plans. It was among the Biden Administration’s first health insurance-related measures.

Other major legislation affecting the ACA under Biden includes the Inflation Reduction Act of 2022 that extended ACA premium tax credits through 2025, among other provisions. The Inflation Reduction Act was signed into law Aug. 16, 2022.

What’s Changed?

The American Rescue Plan Act eliminated an income cap that restricted who qualifies for ACA tax credits to help offset the cost of monthly insurance premiums, opening the door to people with incomes above 400% of the federal poverty level ($51,040 annually for individuals), who were previously ineligible for the tax credits.

It also limited the maximum amount anyone must pay for marketplace health insurance to 8.5% of income versus 9.83%, and boosted subsidies to lower-income consumers. Low-income consumers were defined as those with incomes between 100% and 400% of the poverty level (from $12,760 to $51,040 for a single person or $26,200 to $104,800 for a family of four).

The increased credits and subsidies lowered costs for many who buy ACA-compliant plans, and more people were eligible for the savings. The new provisions were temporary. They did not extend past 2022 until the passage of the Inflation Reduction Act, which extends them until 2025.

“The American Rescue Plan represents the first major enhancement of the ACA, more than a decade since it became law,” Larry Levitt, executive vice president for health policy at the Kaiser Family Foundation (KFF) said during a web briefing outlining the law’s impact. “It provides significant new opportunities for more affordable healthcare.”

How Much Will People Save?

According to a Kaiser Family Foundation analysis, 92% of people who bought their own health insurance qualified for a subsidy and 1.4 million uninsured people were newly eligible for the subsidized marketplace coverage under the American Rescue Plan Act.  

When the American Rescue Act passed in March 2021, Kaiser estimated that the average savings would range from $33 a month for those with incomes under 150% of the poverty level to $213 a month for those with incomes between 400% and 600% of the federal poverty level.

Similarly, the Centers for Medicare & Medicaid Services (CMS) estimated that premiums after the new savings would decrease on average by $50 per person per month, or $85 per policy per month. CMS concluded that four out of five enrollees would be able to find a plan for $10 or less a month after premium tax credits and more than 50% would be able to find a “Silver” (or mid-level) plan for $10 or less.