Unpacking The Coverage Provisions In The House Pandemic Relief Drafts

On February 8, 2021, the Ways and Means Committee and the Education and Labor Committee of the U.S. House of Representatives each released draft legislative text for the budget reconciliation legislation that Democrats are pursuing for additional pandemic relief. The drafts are the next step in a process that began when both chambers passed a 2021 budget reconciliation resolution last week. That resolution instructed various House and Senate committees to, by February 16, report legislation that increases the deficit by no more than about $1.9 trillion over the next 10 years. From here, various House committees will begin marking up their respective legislation, with the goal of having the full reconciliation package on the House floor in late February. The Senate will then consider the package.

This post summarizes the coverage-related proposals in the February 8 drafts. These bills may be revised, and drafts from other committees—such as the Energy and Commerce Committee (whose proposal is expected to address the Medicaid program)—should be expected soon. Unsurprisingly, the drafts generally track President Biden’s American Rescue Plan proposal and parts of Patient Protection and Affordable Care Enhancement Act passed by the House in July 2020.

Overview Of The Drafts

The Ways and Means proposal accounts for nearly half of the $1.9 trillion package. The proposal is, of course, much broader than health coverage and provides direct assistance to people in the form of $1,400 checks, extends federal unemployment benefits, supports long-term care facilities to help respond to COVID-19 outbreaks, helps stabilize pensions, extends paid sick leave, and more. The Education and Labor proposal similarly focuses on a range of topics with an emphasis on relief for students, schools, and the child care system while increasing the minimum wage to $15/hour, adopting COVID-19 worker protection programs, and bolstering some workers’ compensation programs.

The Ways and Means health coverage proposals are found in subtitles F and G and focus on subsidizing COBRA coverage and expanding subsidies under the Affordable Care Act (ACA). Summaries and the legislative text can be found here. The Education and Labor proposal only address COBRA subsidies, which are found in subtitle E of that draft.

Building On The ACA

The Ways and Means proposal would make significant changes to bolster the ACA and improve marketplace access and affordability. The proposal would:

• Extend ACA subsidies to higher-income people who do not currently qualify for 2021 and 2022;
• Increase ACA subsidies for lower-income people who already qualify for 2021 and 2022;
• Provide maximal ACA subsidies for individuals that receive unemployment benefits in 2021; and
• Prevent taxpayers who misestimated their income in 2020 from having to repay excess premium tax credits at tax time.

As suggested by the time limits, these changes are temporary. Subsidy enhancements would be in place for only two years while the clawback protection and link to unemployment would be in place only for one year. There is an expectation that Congress will make these changes permanent in future legislation. But, for now, these are temporary changes included in the broader response to the COVID-19 crisis.

In addition to including temporary changes, the proposal does not do everything that has been in prior ACA enhancement legislation or in the Biden campaign platform. It does not, for instance, fix the “family glitch,” tie the ACA benchmark plan to a gold plan (as opposed to the current silver plan), fund state initiatives, bolster outreach and enrollment funding, or adopt a public option.

Even so, it would expand access to coverage for millions of people, improve affordability for current enrollees, and significantly bolster enrollment during the 3-month special enrollment period that will run through mid-May 2020 (assuming the proposals are adopted and implemented quickly).

Subsidy Enhancements

Consistent with prior legislation, the Ways and Means proposal would bolster the availability of premium tax credits (PTCs) for both lower- and middle-income people and families, reducing premiums significantly for those who purchase individual coverage.

First, the proposal would expand the availability of PTCs to eligible individuals whose income is above 400 percent of the FPL. Currently, PTCs are only available to individuals whose annual income is between 100 and 400 percent FPL (between about $12,760 and $51,040 for one person). PTCs are available on a sliding scale basis, meaning subsidies are more generous at lower income levels.

By ending eligibility at 400 percent FPL, the ACA has created a “subsidy cliff” for those whose income is above this level. Lack of subsidies has resulted in affordability challenges for many middle-income people and led to coverage losses among those who do not receive subsidies. Affordability challenges are particularly acute for older, middle-income consumers in rural areas. For instance, a 60-year-old earning just over the 400 percent cutoff for ACA subsidies would pay an average of $12,886 per year in premiums, or about 25.8 percent of their income.

The Ways and Means proposal would address this by eliminating the ACA’s subsidy cliff altogether and extending PTCs to those with incomes above 400 percent FPL for 2021 and 2022. There would be no upper income limit on PTCs, meaning that all middle- and upper-income individuals who purchase their own coverage could have access to PTCs if premiums exceeded 8.5 percent of their overall household income. This provision would not subsidize the richest people, whose premium burden would not exceed this threshold. But this change would help ensure that individuals and families, such as the 60-year old noted above, do not pay more than 8.5 percent of income towards premiums in the individual market.

Second, the proposal would make subsidies more generous by reducing the level of income that an individual must contribute towards premiums. Currently, an individual whose income is between 100 and 133 percent FPL must contribute about 2 percent of their income towards premiums, while an individual whose income is between 300 and 400 percent FPL pays no more than 9.78 percent of their income towards premiums.

The Ways and Means proposal would not change the sliding scale nature of PTCs. But it would, for 2021 and 2022, reduce the premium percentage at all income levels (above 100 percent FPL). Those with incomes from 100 to 150 percent FPL would be eligible for no-premium coverage (i.e., they would contribute no income towards premiums). The premium contribution increases as income increases but is ultimately capped at no more than 8.5 percent of income for those with higher incomes (including those with income above 400 percent FPL). This would increase the generosity of PTCs because the federal government would be paying a greater proportion of premiums relative to current law.

Third, the proposal would create a “special rule” regarding PTC eligibility for those who receive unemployment compensation during 2021. If someone received (or was approved to receive) unemployment benefits during 2021, they would be treated as eligible for marketplace subsidies for 2021 and their income would be treated as if it were capped at 133 percent of the FPL. This means that those who receive unemployment benefits would receive maximal subsidies for ACA coverage, including no-premium coverage, as well as cost-sharing reductions to lower out-of-pocket costs. Individuals would have to attest to receiving or being approved to receive unemployment compensation.

This provision would not affect access to employer-based coverage. It explicitly states that the income cap of 133 percent of the FPL does not apply for purposes of determining whether an employee has access to affordable employer-based coverage. There is thus no bearing on the “family glitch,” which will remain a challenge until it is fixed by Congress or the Biden administration. Thus, given the federal government’s current interpretation of the family glitch, even individuals who receive unemployment will still be barred from accessing ACA subsidies if someone in their household has an offer of affordable employer-based coverage.

Protecting Taxpayers From Premium Tax Credit Reconciliation Clawbacks

Recognizing the degree of income uncertainty for 2020, the Ways and Means proposal would hold consumers who received ACA subsidies harmless from income fluctuations in 2020. This would prevent those who underestimated their income from having to repay any excess subsidies if their income is higher than expected, thereby avoiding additional unexpected financial burdens for consumers.

The Background

Most marketplace enrollees receive advance premium tax credits (APTCs), which lower the amount they have to pay each month throughout the plan year. The amount of APTC is based on an individual’s projected income for the year at the time they apply for coverage. Then, at tax time, individuals who receive APTC must “reconcile” the amount of APTC they received (based on estimated income) with their actual income (based on federal income data). If actual income is higher than estimated, they may be required to repay all or part of the APTC to the federal government. This “clawback” results in a smaller tax refund or a larger balance owed to the Internal Revenue Service (IRS).

Liability for excess APTC is capped for enrollees who earn between 100 and 400 percent of the FPL (and some who earn below the poverty level in some circumstances). For 2020, those who earned less than 200 percent of the FPL will repay no more than $650 even if they received more in excess APTC. This amount increases to $2,700 for those whose income is between 300 and 400 percent of the FPL. These repayment limits help insulate low-income enrollees from being forced to pay back even higher excess APTC, but a liability of $650 or $2,700 is far from insignificant and could be the difference between being evicted or paying one’s rent or mortgage.

But repayment limits would not apply to those who received APTC because they expected their income to be lower but who ultimately earned more than 400 percent of the FPL. These enrollees must repay all APTC received in the prior year. This could leave those who earn just over 400 percent of the FPL in debt of many thousands of dollars to the IRS for full APTC, while those who earn just under 400 percent of the FPL would be protected by repayment limits.

Marketplace enrollees agree to regularly report their income and other household changes to help safeguard against major surprises in APTC liability at tax time. But many do not, resulting in significant tax liability. In the 2019 tax filing season, marketplace enrollees on 2.6 million tax returns owed a total of $4.5 billion in excess APTC. Of this $4.5 billion, $3.2 billion was paid back to the government because it was below the repayment limit (while the remaining $1.3 billion in excess APTC was not required to be repaid because it was above the repayment limit). Marketplace enrollees on another 1.8 million tax returns were owed about $1.3 billion from the government in premium tax credits.

Impact Of The Pandemic

As you can see from this data, it can be challenging for taxpayers to estimate their income in a normal year. But doing so in 2020 presented significant challenges. Millions of low-income workers faced widespread financial instability and uncertainty from layoffs, changes to hours or shifts, and unpredictable work schedules as communities closed down and reopened throughout the pandemic.

There are also many unusual reasons why a taxpayer’s income projection for 2020 might be too low (which would make them subject to a clawback). Workers might have seen their income unexpectedly boosted due to, say, unexpected hazard pay for essential workers, extra shifts to cover for coworkers who were out sick or in quarantine, the need to cash out retirement, a second job, or even debt cancellation. Further, unemployment benefits (including the temporary federal increases in benefits) are treated as income for purposes of premium tax credit eligibility.

Marketplace enrollees who did not realize they needed to report these payments as income may be receiving more generous APTC relative to their actual income, leading to a significant surprise at tax time that families could not have budgeted for. These concerns about income fluctuations and inaccurate reporting are exacerbated by the fact that the Trump administration did not do as much outreach as in prior years to encourage enrollees to report income changes to the marketplace.

The Proposal

Recognizing the challenges with predicting income in 2020 and the burden that clawbacks could put on strained finances, the Ways and Means proposal would temporarily waive the requirement for taxpayers to pay back excess APTC to the IRS. This would protect people at all income levels—those subject to repayment limits and those whose income is over 400 percent FPL—by not requiring any repayment for the 2020 tax year. This change does not appear to affect the ability of those who overestimated their income for 2020 to receive PTCs they are owed during tax time.

Such a proposal is not new: similar legislation has been introduced before by Senate Democrats, although that bill would have extended to 2020 and 2021 and disregarded any increased unemployment benefits for the purposes of eligibility for ACA subsidies.

COBRA Subsidies

Both the Ways and Means proposal and the Education and Labor proposal would subsidize 85 percent of the cost of premiums for COBRA continuation coverage for workers who are laid off or have reduced hours. The subsidy would begin the first month after the new law is enacted and extend through September 30, 2021. This subsidy would not count towards an individual’s gross income and would be treated as an advance refundable payroll tax credit. COBRA subsidies have been considered in prior COVID-19 packages in the House, and Congress authorized similar (albeit less generous) subsidies during prior economic crises.

The proposals incorporate the current list of existing qualifying events for COBRA continuation coverage and provide an extended period to enroll. Those who have not yet enrolled in COBRA continuation coverage or who were enrolled but discontinued that coverage could opt into subsidized COBRA continuation coverage beginning on the first day of the first month after enactment through 60 days after the group health plan notifies the individual of the extended election period. Any individual who is denied access to subsidies could file a request for expedited review by the Secretary of Labor or the Secretary of Health and Human Services. An eligibility determination would be provided within 15 business days of a request.

COBRA subsidies are not available to those who are eligible to enroll in another group health plan, a flexible spending arrangement, a qualified small employer health reimbursement arrangement, or Medicare. Individuals who fail to notify their health plan that they are no longer eligible for the COBRA subsidy may face financial penalties.

Finally, employers and group health plans would be required to provide several new notices to those who become eligible for COBRA continuation coverage. Notices would address the availability of the new subsidies, the option to enroll in different coverage as available, the extended period to enroll in COBRA continuation coverage, and the expiration of the premium assistance. Federal officials would be tasked with developing model notices for these purposes and conducting outreach and public education. The Department of Labor and other agencies would be granted implementing authority and $10 million in implementation funds.