Understanding Health Insurance Changes for 2021

Healthcare reform has been in the news almost non-stop for the last few years, so if you're confused about what's happened and what's going on with the mid-year subsidy changes in 2021, you're certainly not alone. Let's take a look at what's changed, what's stayed the same, and what you can expect in terms of your health insurance in 2021.

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Note: This discussion mostly applies to individual/family health insurance. Although only a small fraction of the US population has individual market coverage, this is where the bulk of the headlines tend to focus, as it's the market that was most affected by the Affordable Care Act (ACA).

[If you get your health coverage from your employer, they will provide details about any changes for the coming plan year, which may or may not follow the calendar year. And if you have government-run health insurance (Medicare or Medicaid), you'll receive communications either from the state or federal government, or from the insurer that manages your coverage (Medicare Advantage, Medigap, Medicare Part D, or a private Medicaid managed care plan).]

The American Rescue Plan Has Made Subsidies Larger and More Widely Available for 2021 and 2022

For millions of people who already enrolled in 2021 health plans through the exchanges, the American Rescue Plan has increased the size of their premium subsidies and made the subsidies available to enrollees who previously didn't qualify. The larger subsidies are also available to millions of uninsured Americans and people who are enrolled in coverage outside the exchange, but only if they enroll in a plan through their state's exchange.

The American Rescue Plan has made several important changes to 2021 health insurance subsidies:

  • The income cap (normally 400% of the poverty level) for subsidy eligibility has been eliminated for 2021 and 2022. People with income above 400% of the poverty level can qualify for a premium subsidy if the cost of the benchmark plan would otherwise be more than 8.5% of their household income.
  • The percentage of income that people have to pay for the benchmark plan has been reduced for people with income below 400% of the poverty level. It now ranges from 0% to 8.5% of income, depending on the household's income. This means that people who already qualified for subsidies now qualify for larger subsidies.
  • People who are receiving unemployment compensation at any point during 2021 are eligible for a premium subsidy large enough to fully cover the cost of the benchmark plan, and for full cost-sharing reductions.

Second Chance to Enroll or Make a Plan Change: Runs Through August 15, 2021 in Most States

Because of the ongoing COVID pandemic and the expanded subsidies created by the American Rescue Plan, people are being given a second chance to enroll in health coverage for 2021 or switch to a different plan.

In most states, this enrollment window continues through August 15, 2021, although there are some states with earlier deadlines and some that have extended the deadline all the way to the end of 2021.

During the COVID/ARP enrollment window, a qualifying event is not necessary. Normally, enrollments and plan changes outside of the annual fall enrollment period would require a qualifying event, but the rules are different in 2021.

ACA Has Not Been Repealed or Replaced, & Lawsuit Doesn't Affect Enrollment in 2021 Plans

Despite the ever-present headlines about health care, the Affordable Care Act remains the law of the land. And as noted above, the American Rescue Plan has expanded the ACA's subsidies to make them larger and more widely available.

There is an ongoing judicial threat to the ACA, however. In December 2019, an appellate court ruling in the Texas v. U.S./Azar lawsuit struck down the ACA. The Supreme Court agreed to take the case, which is now called California v. Texas, and oral arguments were heard in November 2020, just days after Justice Amy Coney Barrett was sworn in as the newest justice. A ruling is expected by mid-2021. The original plaintiffs in the case—the ones seeking to overturn the ACA—are 18 GOP-led states. And the law has been defended by Democratic-led states, as the U.S. Department of Justice declined to defend the ACA.

The lawsuit is based on the fact that the ACA's individual mandate tax/penalty was eliminated after the end of 2018, with the plaintiffs arguing that without the tax, the mandate is no longer constitutional (since the tax was the crux of the mandate being declared constitutional by the Supreme Court in a 2012 lawsuit). And they're also claiming that the mandate is not severable from the rest of the ACA, meaning that if it's eliminated, the entire ACA must be struck down.

Federal judges agreed with the plaintiffs in late 2018, and again in late 2019, but nothing has changed about the ACA during the appeals process. That will continue to be the case at least until the Supreme Court issues a ruling on the case at some point in 2021 (likely in June, but possibly earlier).

If the Supreme Court rules that the individual mandate is unconstitutional and unseverable from the rest of the ACA (ie, that the entire ACA should be overturned), it would certainly create unprecedented havoc in the insurance markets and many other aspects of our healthcare system. Many legal experts have predicted that the Court will instead rule that the individual mandate is severable from the rest of the ACA, leaving the rest of the law unchanged, although it's never wise to make broad assumptions in terms of how the Court will rule. But if they do rule that only the individual mandate should be overturned—and the rest of the ACA upheld—it wouldn't really change anything, as the federal penalty for non-compliance with the mandate has been $0 since the start of 2019.

So for the time being, nothing has changed about the ACA. That could be a very different story as of mid-2021, but we won't know until the Supreme Court issues its ruling in the case.

Individual Mandate Penalty No Longer Applies (in Most States)

Although efforts to repeal the ACA were unsuccessful, GOP lawmakers did succeed in repealing the ACA's individual mandate penalty as part of the tax bill that they passed in late 2017.

The penalty repeal took effect in January 2019, which means there is no longer a federal penalty for being uninsured in 2019 or future years.

But Massachusetts, New Jersey, DC, California, and Rhode Island have their own individual mandates, with penalties for non-compliance. (Vermont also has an individual mandate as of 2020, but without a penalty for non-compliance). So if you're in one of those states and choose to go without coverage in 2021, know that you'll either have to qualify for an exemption from the penalty (details on those vary by state) or pay a penalty when you file your 2021 state tax return.

The Rest of the ACA Remains in Effect

Other than the individual mandate penalty repeal (and the repeal of a few of the ACA's taxes, including the Cadillac Tax), the ACA is still fully in effect. This includes the premium subsidies, the cost-sharing reductions (aka, cost-sharing subsidies), guaranteed-issue coverage, Medicaid expansion, the employer mandate, protections for people with pre-existing conditions, essential health benefits, medical loss ratio rules, caps on out-of-pocket costs, etc.

Cost-sharing subsidies continue to be available for 2021, despite the fact that the federal government stopped reimbursing insurers for that cost in late 2017. Insurers in most states have incorporated the cost of providing cost-sharing subsidies into the premiums they charge. In most cases, the cost has only been added to silver plan rates, which results in larger premium subsidies for everyone who gets premium subsidies.

Millions of uninsured Americans were already eligible for free (ie, no monthly premiums at all) health coverage for 2021, due in part to these larger premiums subsidies. And millions of additional people are eligible for premium-free coverage in 2021 now that the American Rescue Plan has been enacted.

Maximum Out-of-Pocket Limit Increased to $8,550

Under ACA rules, the maximum out-of-pocket limit for essential health benefits is capped, as long as the person receives their health care from an in-network medical provider. In 2021, the maximum out-of-pocket limit for a single person is $8,550 (the limit for a family is always twice as much). Health plans can have out-of-pocket caps that are smaller than that amount, but not larger.

Catastrophic plans have deductibles that are equal to the maximum out-of-pocket limit, so all catastrophic plans in 2021 have deductibles of $8,550.

The maximum out-of-pocket limits apply to all non-grandfathered, non-grandmothered health plans, including large group plans and self-insured plans. These plans do not have to cover the ACA's essential health benefits, but to the extent that they do (and most of them do), they cannot have out-of-pocket exposure above $8,550 for 2021.

Average Premiums Increased Slightly for 2021 (Average Benchmark Premiums Decreased in Most States), But American Rescue Plan Makes Subsidies Larger

Unlike 2017 and 2018, when individual market health insurance premiums increased significantly, average pre-subsidy premiums increased by less than 3% nationwide for 2019, were essentially flat for 2020, and increased only slightly for 2021, with a median increase of just 1.1%.

But for the third year in a row, overall average premiums for the benchmark plan (the second-lowest-cost silver plan in each area) decreased for 2021 in the 36 states that use HealthCare.gov. For 2021, the average premium decrease for these plans was 3%.

The overall average reduction in benchmark premiums was due to a combination of new insurers entering (or re-entering) the individual markets in many states, as well as price reductions from some of the existing insurers.

As is always the case when it comes to individual health insurance, there are significant variations from one state to another, and even from one area to another within the same state. But in general, benchmark premiums dropped while overall average premiums (for existing plans; not counting new entrants to the market) increased very slightly.

Premium subsidies are based on the cost of the benchmark plan. And when benchmark premiums decline—with all other factors remaining unchanged—premium subsidies decline as well. So enrollees who receive premium subsidies may have found that their subsidy amounts were smaller in 2021, before the American Rescue Plan's subsidy enhancements were implemented. Depending on how the pre-subsidy cost of their own plan changed, that could have resulted in a higher after-subsidy premium in 2021 if they opted to keep their existing plan.

But now that the American Rescue Plan has been enacted, most enrollees should see an increase in their subsidy amount and a decrease in their after-subsidy premium. In most states, however, this is not automatic. Enrollees need to log back into their exchange/marketplace account to claim the additional subsidies and see the reduction in their monthly premium. But there's also an option to just claim the extra money on the 2021 tax return, for enrollees who don't reset their exchange accounts to claim the extra subsidies throughout the remainder of 2021.

Changes That Were Implemented for 2018 Continue to Apply

In April 2017, HHS finalized the market stabilization rule, which implemented several changes that apply to people who buy individual market coverage, on or off-exchange. These changes continue to apply for 2021:

  • In most states, open enrollment now lasts for just over six weeks, running from November 1 to December 15, with all plans effective January 1 of the coming year. State-run exchanges that have their own enrollment platforms (there are 15 of them now) have the option to extend open enrollment, and most did so for the enrollment period for 2021 health plans.
  • If your policy was canceled for non-payment of premiums within the last 12 months and you're planning to re-enroll with the same insurer (or another insurer owned by the same parent company) during open enrollment, a special enrollment period, or the COVID/ARP enrollment window, the insurer is allowed to require you to pay your past-due premiums before effectuating your new coverage. In general, it should only be one month of past-due premiums owed, as premiums are not charged after the plan was terminated.
  • The allowable actuarial value range for each metal level of coverage in the individual and small group market was expanded as of 2018. Bronze plans can have a -4/+5 range (including expanded bronze plans on the upper end of that range), while silver, gold, and platinum plans can have a -4/+2 range. Bronze plans have an actuarial value of about 60%, silver about 70%, gold about 80%, and platinum about 90%. But they can vary according to the allowable de minimus ranges, which were widened as of 2018. Individuals and small businesses should carefully compare the various options that are available within each metal level.

Benefit and coverage changes in the individual and small group market apply for 2021 just as they have in past years, with adjustments to deductibles and out-of-pocket limits, along with provider networks and covered drug lists. And there are new insurers offering plans in the exchanges in many states for 2021. All of this annual upheaval makes it particularly important for enrollees to actively compare available plans anytime they have an opportunity to enroll (open enrollment, a special enrollment period, or the COVID/ARP enrollment window), and select the one that offers the best value, instead of opting for auto-renewal.

Short-Term Plans Continue to Be Available in Most States

In 2018, the Trump administration made changes to the rules that apply to short-term limited-duration health plans (STLDI). The changes make the plans more readily available as a substitute for regular ACA-compliant individual market health insurance. But buyers need to beware: The cheaper prices that apply to short-term plans are a result of less robust coverage—you get what you pay for.

Because the new federal rules serve as minimum standards and states are allowed to impose stricter rules, the rules now vary considerably from one state to another. There are 11 states where no short-term plans are available at all and numerous other states where short-term plans are available but must meet stricter rules than those imposed by the Trump administration.

In Idaho, "enhanced short-term plans" debuted for 2020 and continue to be available for 2021. These plans are much more robust than traditional short-term plans, and can be thought of as a middle-ground between short-term coverage and ACA-compliant coverage.

Large Group, Medicare, and Medicaid

Most of the healthcare reform debates in recent years have centered around the individual market, the small group market, and Medicaid expansion under the ACA (which accounts for well over 15 million people, but still just a fraction of the total Medicaid population). For people who get their insurance from large employers, Medicare, or Medicaid (taken together, that's most of the population), the changes for 2021 were generally the same sort of changes that happen each year.

Medicaid work requirements had been gaining traction in GOP-led states in recent years. But they are currently all suspended after a federal judge overturned them in three states and the COVID-19 pandemic resulted in federal changes that prohibit states from terminating Medicaid coverage for the duration of the public health emergency (this is true if the state is receiving enhanced federal Medicaid funding to address the pandemic, and all states are receiving this additional funding). And the Biden administration has informed states that they are reconsidering any already-approved Medicaid work requirements (and beginning the withdrawal process for those waivers), and will not approve any that are still pending.

Open enrollment for Medicare Advantage and Medicare Part D ran from October 15 to December 7, with all changes effective January 1, 2021 (this is the same schedule that's been used for several years). And the Medicare Advantage open enrollment period ran from January 1 to March 31, giving people enrolled in Medicare Advantage an opportunity to switch to a different Advantage plan or switch to Original Medicare.

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22 Sources
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