Now that President Biden has signed the American Rescue Plan Act into law, the federal government will begin spending nearly $2 trillion to help spur recovery from the dual COVID-19 and economic crises. Tens of billions of dollars will go directly to reducing health insurance premiums for consumers shopping through the Affordable Care Act (ACA) marketplaces. The provision has been on Democrats’ wish list for a decade. Could the ACA could soon be living its best life?

Under the American Rescue Plan, nearly everyone who purchases insurance through the marketplaces will pay less for health insurance, making the plans much more affordable. That’s great news, but it also raises a lot of questions. How much less will consumers pay? And when? Can consumers switch to a different plan?

Federal and state governments are now scrambling to modify back end systems to answer these questions. But calculating the amount of premium assistance (officially called an advance premium tax credit) was complicated to begin with and just got more so. Here’s why:

Premium assistance amounts are completely individualized. The government doesn’t pay a fixed amount of each enrollee’s premium. Instead, each enrollee pays up to a certain percentage of their estimated income toward the premium and the government covers the rest. The American Rescue Plan reduced the percentage of income enrollees must pay, and re-determining each individual premium tax credit amount will be…complicated.
New premium assistance amounts are retroactive to January 1. Coverage started January 1 for people who signed up during last fall’s open enrollment, so those enrollees have paid three months of premiums at the previous, higher amounts. Health insurance marketplaces will not only have to recalculate the premiums enrollees pay moving forward, but also reconcile overpayments made during the first three months of the year. It will be…complicated.
With more generous premium assistance, people may choose a different plan. Once people realize their premiums will be lower, they may opt for a different plan, perhaps one with a lower deductible or cost-sharing to save even more money. The Biden administration has indicated that people may use the current special enrollment period, which runs through May 15, to switch plans, but the mechanics of that will likely be…complicated.
People who purchased coverage outside of the marketplace may want to move inside. Previously, people earning more than 400% of the federal poverty level (FPL) – about $106,000 for a family of four – were ineligible for premium assistance, which is only available through the marketplaces. Without the premium credit as incentive, many higher-income people purchased insurance outside the marketplace. With the American Rescue Plan, that same family of four would have their premium capped at about $9,000, or $750 per month. This could be a substantial savings for many families, but changing health insurance is…complicated, in part because…
Switching plans mid-year resets the deductible. A deductible is the amount of health care an enrollee must pay out of pocket before their health insurance provides coverage. For example, a family may have to pay the first $7,000 in health care expenses before their insurance begins to cover part of each bill. If that family had a lot of health care expenses in the first two months of the year, they will have to determine whether switching plans for a lower premium offsets the additional out-of-pocket spending they will incur with a new deductible to meet, a complicated calculation.

The good news is that any errors in determining premium assistance amounts will be corrected when people file their 2021 tax returns next April. That’s when the amount of income enrollees estimated to determine their premium assistance amount is compared to what they actually earned during the year. If a taxpayer earned more than estimated, they may owe the federal government money; if they earned less, they may get a larger refund.

But given the imperative to get more money to consumers by making health insurance more affordable, the incentive to get this right the first time is quite high. The Biden administration has provided some funding to navigators who can help Americans make an informed choice and to marketplaces to help speed the adoption of these changes. But the task of figuring out savings for each enrollee requires a series of complex, back end adjustments to the federal and state marketplaces and the health insurers’ systems that connect with them. Data engineers will need to make these adjustments quickly, and they have little room for error.