There are several health insurance-related benefits in the American Rescue Plan Act that President Joe Biden recently signed into law, and it's in the best interest of advisors to make sure their clients who qualify for those benefits understand how they can best take advantage of them, according to Carolyn McClanahan, a certified financial planner, physician and founder of financial services firm Life Planning Partners in Jacksonville, Florida.
"The most important thing is they got rid of the cliff for qualifying for subsidies to help pay for health insurance," she told ThinkAdvisor during a phone interview. Although it is applicable to all ages, it benefits 60- to 65-year-old Americans the most "because their health insurance costs are so expensive," she said.
Before, if you made more than 400% of the federal poverty level — that's about $51,000 for an individual or $104,800 for a family of four — "you lost any tax credit towards health insurance" through the Affordable Care Act exchanges, she explained. "Now it just gradually gets phased out so once you're over 400% poverty level, your health insurance cannot be more than 8.5% of your modified adjusted gross income."
Another big plus: Americans with an ACA plan won't have to pay back tax credits they received last year if their income wound up higher than they estimated during enrollment, she said. That has been an issue especially for freelancers and other ACA participants whose incomes were unpredictable and fluctuated even before the pandemic.
Here are seven health-related benefits in the rescue plan that advisors should tell their clients about, according to McClanahan.
1. ACA plans are in a special enrollment period.
A COVID-related special enrollment period for ACA plans ends Aug. 15. Those who miss the deadline won't be able to sign up until the next open enrollment period, unless they lose their health insurance as a result of losing a job after that or there is some other qualifying life event such as the birth of a baby, McClanahan pointed out.
2. No premiums on COBRA coverage for six months.
Another major health-related benefit in the American Rescue Plan is one that any age group can take full advantage of if they have lost their job or their hours have been slashed and they lose their health insurance, McClanahan noted.
For people who lose their job, COBRA is now "100% covered from April 1 through Sept. 30," which is significant because COBRA is otherwise quite expensive, she said.
3. 'Free' ACA insurance for workers who have lost jobs.
The American Rescue Plan adds a major tax break for unemployed workers — even high earners — who buy insurance through the ACA exchanges.
"If a person is unemployed and they collect unemployment insurance even for one week this year, in 2021," no matter how much they made this year, "for purposes of the tax credit, their income will be counted as no more than 133% of the poverty level," she said.
And "what that does is it basically gets them free health insurance" through the ACA "because with that low an income level you'll qualify for a huge tax credit and also much lower deductibles in cost share — even if you have a client that made $400,000 a year and then they go on unemployment for one week," she explained.
"For advisors, I think it's really important for them to make sure their clients understand the different options," she said. If they're laid off, "especially if they go on unemployment, then to me it makes more sense for somebody to actually go on an ACA-based plan instead of getting COBRA because once you go on COBRA, you cannot switch to an ACA-based plan unless it's open enrollment or unless your COBRA ends," she noted.
People are going to get subsidies for COBRA through the end of September, but they're still going to have to pay for October through December, she noted. "And COBRA premiums are easily $500 or more a month and so that could end up costing a couple of thousand dollars, whereas if they went on an ACA-based plan because they've collected unemployment, their health insurance is going to be free for the whole year," she explained.
4. Health care savings could have broader financial planning implications.
These American Rescue Plan benefits will "have a big impact" on at least some clients' retirement and other financial plans because "if you have clients [in] that upper middle income — if they're making over that 400% poverty level — it's going to greatly reduce their health insurance costs for the next couple of years," according to McClanahan.
She has a couple who are clients in their 60s and "are going to be saving about $18,000 a year on their health insurance" as a result of the American Rescue Plan, she pointed out, calling that "huge."
5. Fewer clients need to (legally) lower income to qualify.
"The other nice thing is if you have clients that are on ACA plans and they get a tax credit, before we had to really manipulate income to make sure that they didn't go over that 400% poverty level because they could lose the entire huge tax credit," according to McClanahan.
