ARPA Ends Dreaded Cliff for Health Insurance Premium Tax Credit

With the passage of the American Rescue Plan Act of 2021 (ARPA), Congress has temporarily abolished the health insurance premium tax credit “subsidy cliff.”

For 2020 and 2021, self-employed and small-business owners and other individuals who must purchase individual health insurance may qualify for premium tax credit health insurance subsidies even if their income far exceeds the old limit of 400 percent of the federal poverty level (FPL).

To take advantage of the government subsidy, go to the health insurance marketplace (federal marketplace or state exchange) before August 15, 2021. The government expanded the open enrollment period. You can’t be turned down.

For 2020 and 2021, Americans who earn over 400 percent of the FPL are required to pay no more than 8.5 percent of their modified adjusted gross income (MAGI) for their premium tax credit (PTC) health insurance. Regardless of how high their income is, they are entitled to a PTC to the extent the cost of the silver benchmark plan exceeds 8.5 percent of MAGI.

Let’s take a look at Al and Alice. They are a self-employed, married couple who live in Seattle. Both are 62 years old. The annual cost for them of the benchmark silver plan in their area is $21,000. Their MAGI is $150,000.

For 2021 and 2022, they are required to pay no more than $12,750 for PTC health insurance (8.5 percent x $150,000 = $12,750). Thus, they are entitled to a PTC of $8,500 ($21,000 – $12,500 = $8,500).

If their MAGI was $200,000, they would have to pay $17,000 for PTC coverage and would still be entitled to a $4,000 tax credit ($21,000 – $17,000 = $4,000).

If you are looking for a possible reduction in your health insurance cost, I suggest checking out www.healthcare.gov. The government will direct you to the proper place (federal marketplace or state exchange).