American Rescue Plan Improvements to Covered California Affordability: Who Gains?

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The American Rescue Plan (ARP), a $1.9 trillion relief and recovery package passed last month, includes the first major federal improvements to the Affordable Care Act since it was passed over 10 years ago. The ARP substantially increases premium subsidies for coverage purchased through health insurance exchanges like Covered California.

With the implementation of the Affordable Care Act (ACA) in 2014, California was able to significantly reduce its uninsured rate, recording the largest decline of any state. Nevertheless, millions of Californians struggled to afford insurance on the individual market or remained uninsured. Since implementation of the ACA, California increased premium subsidies for some Covered California enrollees, expanded Medi-Cal coverage to undocumented children and young adults up to age 26 in families with low incomes, and instituted a state tax penalty for being uninsured. These policies resulted in new or continued coverage for hundreds of thousands of Californians and were important steps toward addressing the state’s affordability challenges and coverage gaps.

The American Rescue Plan has a number of important health coverage provisions, including 100% premium subsidies for COBRA coverage through September 2021. Those receiving unemployment benefits in 2021 will pay only $1 per month for an enhanced silver 94 plan, the Covered California plan option requiring the least cost sharing from households. (Covered California hopes to implement the subsidies for unemployment insurance recipients by this summer, though the subsidies are for the entire calendar year of 2021.)

In addition, the ARP includes substantial additional premium subsidies for coverage purchased through Covered California for 2021 and 2022. Californians earning up to 150% of the federal poverty level ($19,140 for a single person in 2021) qualify for an Enhanced Silver 94 Plan for $1 per month. Expected contributions vary by income but are significantly lower for families at every income level. The ARP also eliminates the federal subsidy cliff that existed for those with income above 400% FPL; no family is required to pay more than 8.5% of income for a benchmark plan.

The ARP will provide additional subsidies for the 1.35 million Californians already enrolled (XLSX) with subsidies through Covered California as of June 2020. Without the ARP, these Californians would have received subsidies worth an average of $411 per person per month in 2022 through a combination of ACA and California-specific subsidies; under the ARP, they will get an additional $91 per month.

Our modeling, using the California Simulation of Insurance Markets (CalSIM) model, suggests that in 2022 almost 300,000 Californians would newly get subsidies. This includes 151,000 Californians who would otherwise be enrolled in the individual market without subsidies who will now receive an average of $165 per person per month from the ARP in 2022. Almost all (80%) of these 151,000 people have incomes above 400% FPL, with about one-third above 600% FPL; the ARP ensures that none of them pay more than 8.5% of income toward premiums for a benchmark plan. A majority are age 45–64, similar to the age distribution of those already enrolled in subsidized coverage. Approximately two-thirds are part of a household with at least one self-employed worker, reflecting that while most California workers have health insurance through their employer, the self-employed generally do not have that option and are disproportionately enrolled in individual market coverage.

We also project that 135,000 Californians who would otherwise be uninsured in 2022 will enroll in subsidized coverage in the individual market as a result of the more generous subsidies. A majority of these enrollees have incomes under 400% of the federal poverty level ($51,040 for a single person in 2021), and a majority are age 45–64. About half of these enrollees are part of a household with at least one self-employed worker. These enrollees would get a total of $464 on average per person per month, $55 more per month than they would have without the ARP subsidies.

Whether all these additional beneficiaries actually enroll in coverage or switch from off-exchange coverage to Covered California to receive these subsidies will depend on marketing, outreach, and enrollment efforts already underway in California. The Congressional Budget Office projects (PDF) that the effects of the enhanced subsidies on enrollment will be “much more limited” (PDF) in 2021 than 2022 due to the midyear implementation.

We assume that with robust outreach during both the 2021 Special Enrollment Period and 2022 Open Enrollment, Covered California will convert all off-exchange enrollees eligible for subsidies to Covered California by 2022 and that all individuals who decide to enroll in coverage due to the ARP subsidies will enroll by 2022. We project Covered California will enroll 135,000 who would otherwise be uninsured, leaving 630,000 uninsured but eligible for subsidies in 2022.

The benefits will be reversed, however, if the subsidies disappear in 2023 and are not made permanent. Despite the ARP’s substantial improvements in the affordability of coverage through Covered California, we project that the state will still have 3.2 million uninsured Californians under age 65 in 2022, or approximately 9.5% of the population under age 65.

This article is reprinted with permission from the UC Berkeley Labor Center and the UCLA Center for Health Policy Research. CHCF provides funding to both organizations.