The American Rescue Plan Act of 2021 (ARPA) included the biggest expansion of the premium tax credit (PTC) because the enactment of the Inexpensive Care Act (ACA), but just for calendar years 2021 and 2022. With the PTC expansion’s sunset approaching, Congress has been considering passing an extension—first within the Construct Back Higher Act and more recently for potential inclusion in narrower reconciliation laws.
Without an extension of the ARPA’s expanded PTC, a lot of the 14.5 million people within the ACA’s Marketplaces will experience a dramatic rise in premiums resulting from a discount in PTC, a rise in insurers’ rates, or each. As many as 3.1 million people could grow to be uninsured, in keeping with a recent report from the Urban Institute. There may be broad consensus amongst stakeholders on the importance of granting an extension, but there was less discussion of timing. Provided that the PTC expansion currently runs through December and that Congress commonly alters tax rules even after a tax 12 months has begun, some observers may consider there’s little urgency to act.
But that is just not the case. Congress’s real deadline to avert premium increases and coverage losses is August. That’s because most consumers will make 2023 coverage decisions in 2022, and there are substantial operational runways to set insurance rates, update eligibility systems and consumer-facing language to reflect PTC parameters, and calculate enrollees’ latest eligibility and notify them—all before the open enrollment period begins November 1, 2022. Presenting consumers with large premium increases would likely cause coverage losses for 2023 that will not be reversed even when the PTC expansion were later restored. Higher rates reflecting a smaller, sicker risk pool can be locked on this summer and can’t be modified for 2023. Consequently, delaying laws past mid to late summer 2022 would likely deny many individuals the advantages of any would-be extension. Delaying can even impose operational costs on Marketplaces, diverting scarce financial, communications, and knowledge technology (IT) resources from other priorities.
And these costs will increase over time—the longer Congress delays, the greater these coverage losses, financial burdens, and administrative expenses can be.
It is going to never be “too late” to increase the PTC expansion—extending it is going to all the time expand coverage and save consumers money relative to letting it expire. But delaying enactment will begin to harm consumers ahead of many individuals realize.
Background On ARPA’s PTC Expansion
A central health care provision of the ARPA was the broad-based PTC expansion. The PTC as included within the ACA was widely seen as having two key shortcomings: It was not sufficient to make coverage reasonably priced for some who were eligible, and eligibility resulted in a cliff at 400 percent of the federal poverty line (or about $51,500 in annual income for a single person), leaving many middle-income people ineligible for assistance no matter their out-of-pocket premium. The ARPA addressed each shortcomings. It increased the quantity of the PTC for everybody who’s eligible, and it eliminated the cliff, limiting consumer contributions toward a benchmark silver plan to not more than 8.5 percent of income.
For a lot of consumers, the ARPA PTC expansion has had an incredible impact on out-of-pocket costs. For people below 150 percent of the federal poverty line (or $19,320 in annual income for a single person), premiums were reduced to $0 for a benchmark silver plan. Overall, the common Marketplace enrollee saved greater than $800 on premiums in 2021. These savings have translated to enrollment gains, with record-high Marketplace enrollment for 2022. Savings and enrollment gains are expected to be even greater if the ARPA PTC expansion is made everlasting.
Higher Rates Locked In By August
The annual timeline for developing and finalizing individual market premium rates starts early within the 12 months before the rates go into effect. Most states require insurers to submit their proposed rates for the subsequent 12 months by mid-July (in some states, as early as May or June). Just a couple of weeks later—by August 17 for the federally run Marketplace—insurers must submit their final plan and rate changes to federal officials.
This 12 months, unless Congress acts quickly, insurers will submit their proposed 2023 rates assuming that the ARPA PTC enhancements expire on December 31. The Urban Institute has projected that Marketplace enrollment will decline by nearly 37 percent if the ARPA premium tax credit enhancements aren’t prolonged. Insurance company actuaries are likely assuming that those that decide to remain enrolled—and pay the upper net premiums—can be sicker, on average, than those that drop coverage. Insurers might want to adjust rates in 2023 to account for this smaller, sicker risk pool, leading to a mean rate increase of $712 per person, in keeping with the Urban Institute.
Some state regulators could require insurers to submit two sets of proposed rates—one assuming ARPA subsidies are prolonged, one assuming they aren’t. This could allow for lower rates to be swapped in if Congress enacts an extension later this summer. But not all states would require this. The later Congress acts, the harder it is going to be to develop, review, and approve a latest set of rates.
Once rates are approved by regulators, they’re soon locked in place by contracts between insurers and Marketplaces, operational steps to upload plans and rates to Marketplaces, enrollment contracts with consumers, and federal regulations prohibiting rates from changing greater than once per 12 months. If, as expected, insurers increase rates to account for reduced and fewer healthy Marketplace enrollment, it is going to mean higher costs for consumers at a time household budgets are already pinched by inflation. These price increases will fall totally on consumers ineligible for PTC, since PTC insulates those eligible from list premiums. They can even increase costs for federal taxpayers, as premium tax credits rise with the rise in premiums.
Rate Shock From Renewal Notices
Congress must also act by August to avoid renewal notices showing higher net premiums, which could cause many consumers to drop coverage. While the annual enrollment process is usually regarded as starting November 1 with the open enrollment period, the truth is much of the method happens earlier. In September or October, Marketplaces send current enrollees renewal notices with details about their eligibility for the approaching 12 months—a process which may be spread over days or even weeks given vendor capability and the importance of not overwhelming call centers. Before that, in August or September, Marketplaces run calculations to find out each consumer’s default plan, expected PTC eligibility, and net premium—a process called “batch redetermination.” They thoroughly check the outcomes, often refining and re-running the method. And before the batch process, they have to update their IT systems’ PTC parameters and plan project algorithms. All of those steps add lead time to changing or re-issuing notices.
In some states, these notices detail enrollees’ default plan, estimated PTC, and estimated premium. In other states, these notices are less specific, providing warnings if financial assistance is more likely to decline. Either way, if the extension is just not passed in time, consumers would learn starting in September or October 2022 that they need to expect to pay more out of pocket in 2023.
Telling consumers to expect premium increases could lead on to substantial coverage losses, even when Congress later acts to increase the PTC expansion. Lower-income consumers with low or zero premiums may experience “rate shock” at premiums returning to pre-ARPA levels. Middle-income consumers who’re receiving financial help for the primary time under the ARPA will again haven’t any protection against premiums—a specific concern for older enrollees and people in high-price states equivalent to West Virginia and Wyoming. Consumers slated for automatic re-enrollment may opt out, leading to much lower renewal rates. Consumers may write off the thought of re-enrolling and stop opening Marketplace mail or reading electronic communications—meaning they won’t discover if an extension is later enacted. They could remove the premium from their budget planning for the next 12 months and commit those funds to other purposes. Even consumers who do resolve to buy may lose trust within the Marketplace and be less more likely to enroll.
Impact On Open Enrollment And Beyond
Unless an extension passes per week or more before the tip of October, Marketplaces can be unable to update eligibility systems to reflect the expanded PTC when current enrollees and latest customers are available to buy at the beginning of open enrollment. This might have several repercussions:
- As with the renewal notices, some consumers will reply to higher premiums by selecting to be uninsured and can be difficult to win back if extension comes later. Current enrollees will lose the good thing about auto-reenrollment, and latest customers could also be not possible to succeed in because window shopping tools don’t generally collect contact information.
- Some consumers will still enroll but will face lower PTC and thus larger out-of-pocket costs, and due to this fact have an increased likelihood of disenrolling. Marketplaces may adjust enrollees’ PTC later, as lots of them did when the ARPA passed mid-year. But this may occasionally come too late and will not be possible for some enrollees.
- Some consumers will select a plan they’d not want with the PTC expansion prolonged. Before the ARPA, many consumers selected low cost bronze plans with large deductibles, even in the event that they were eligible for silver plans with large cost-sharing reductions. After the ARPA made silver plans inexpensive or free for a lot of consumers, bronze enrollment fell by nearly 10 percent, and more consumers selected silver or gold plans. If consumers select plans based on pre-ARPA rules, bronze enrollment is more likely to climb again, even when later an ARPA extension brings a greater plan inside their budget. This could expose consumers to significantly higher deductibles and other out-of-pocket costs than they might need opted into if the PTC extension were firmly in place.
These issues will proceed to ensnare additional consumers even after an extension passes—until Marketplaces can update their systems. This can take time, and it also may require taking down the Marketplace application during open enrollment for updating and testing, leading to additional coverage losses and consumer confusion. Marketplaces can even lose the chance to do pre-open-enrollment marketing campaigns touting highly reasonably priced premiums.
Operational Costs For Marketplaces
Modifying the PTC late in the sport can even impose operational costs on Marketplaces, diverting resources from other key priorities at a really difficult time. Incorporating last-minute policy changes generally requires additional effort to quickly make changes or re-run steps that were already taken. Depending on the precise timing, costs may include speedily re-programming IT systems, revising communications materials, re-training customer support staff and navigators, sending corrected outreach notices, and booking additional promoting.
Costs from a delayed extension could reduce funding for other essential expenses. In some cases, these costs will strain resources that can not be readily scaled up, even when Congress were to supply additional funding for implementation, as they did within the ARPA. Many Marketplaces have a hard and fast IT capability, so adding latest work diverts resources from other key priorities. Last-minute changes also create more demand for call centers, that are each a big expense and subject to staffing shortages that cash cannot readily solve. All of this comes at what’s already a difficult time for Marketplaces with the approaching unwinding of the Medicaid continuous coverage provision, the implementation of the family glitch fix, various changes under the Department of Health and Human Services Notice of Advantages and Payment Parameters, and standing up a wide range of state programs. Implementing last-minute changes and playing catch up would inevitably impair these other efforts to support coverage, leaving consumers to bear the fee once more.
Taken together, these costs mean delayed ARPA extension laws would supply substantially less profit than the very same laws passed earlier.