New Health Insurance [Tax] Planning Opportunities

While the primary financial advisor focus of the recent American Rescue Plan legislation has been on the rollout of new “Recovery Rebate” stimulus checks (and ensuring clients qualify for all the dollars they can), another key change of the legislation was the introduction of several new forms of tax and financial support for health insurance.

Of particular note for financial advisors is a change to the Premium Assistance Tax Credits, which are made available to those who purchase health insurance from a state insurance exchange. In the past, Premium Assistance Tax Credits (PATCs) were only available to those with a Modified Adjusted Gross Income (MAGI) below 400% of the Federal poverty level (which was $51,520 for a single individual, $69,680 for a couple, and $106,000/year for a family of four); now, however, PATCs are available without any income limits for anyone whose health insurance premiums exceeds 8.5% of their AGI. Thus, if a married couple who retired “early” at age 62 and aren’t eligible for Medicare yet earn $70,000/year, and pay ~$2,000/month for health insurance for the two of them (given their age), in the past their PATC would have been $0 (as they were just over the $69,680 threshold for eligibility), but now their premiums are capped at 8.5% of their $70,000 of income (or $5,950/year), providing them a tax credit of nearly $18,000/year for their health insurance premiums! (And for those who don’t currently have coverage through an exchange, the open enrollment period has been re-opened and extended to August 15th.)

Other notable changes for health insurance planning opportunities under the American Rescue Plan include: anyone who received PATCs in 2020 and then ended out earning more income than anticipated (such that they would not have been eligible for some or all of the PATCs previously earned) will not need to repay them for 2020; anyone who receives even just one week of unemployment benefits in 2021 will be deemed as having earned no more than 133% of the Federal poverty level for the entire year, which will make them eligible for a no premium Silver plan on their health insurance exchange (and as a “low-income” individual, will also receive cost-sharing subsidies to lower their deductibles), even if they otherwise have substantive income from other sources this year; and for those who lose employer-based health insurance coverage due to a job loss or reduction in hours, new tax credits will cover the cost of COBRA health insurance premiums between April 1st and September 30th (but bear in mind that health insurance coverage cannot then be purchased until COBRA eligibility ends, or until the next open enrollment period for coverage that won’t start until next January).