By Jason Levitis and Sabrina Corlette

The American Rescue Plan Act of 2021 (ARPA) included the largest expansion of the premium tax credit (PTC) since the enactment of the Affordable Care Act (ACA), but only for calendar years 2021 and 2022. With the PTC expansion’s sunset approaching, Congress has been considering passing an extension—first in the Build Back Better Act and more recently for potential inclusion in narrower reconciliation legislation.

Without an extension of the ARPA’s expanded PTC, most of the 14.5 million people in the ACA’s Marketplaces will experience a dramatic rise in premiums due to a reduction in PTC, an increase in insurers’ rates, or both. As many as 3.1 million people could become uninsured, according to a recent report from the Urban Institute. There is broad consensus among stakeholders on the importance of granting an extension, but there has been less discussion of timing. Given that the PTC expansion currently runs through December and that Congress commonly alters tax rules even after a tax year has begun, some observers may believe there is little urgency to act.

But that is 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’ new 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 would not be reversed even if the PTC expansion were later restored. Higher rates reflecting a smaller, sicker risk pool will be locked in this summer and cannot be changed for 2023. As a result, delaying legislation past mid to late summer 2022 would likely deny many people the benefits of any would-be extension. Delaying will also impose operational costs on Marketplaces, diverting scarce financial, communications, and information 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 will be.

It will never be “too late” to extend the PTC expansion—extending it will always expand coverage and save consumers money relative to letting it expire. But delaying enactment will begin to harm consumers sooner than many people 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 in the ACA was widely seen as having two key shortcomings: It was not sufficient to make coverage affordable for some who were eligible, and eligibility ended 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 regardless of their out-of-pocket premium. The ARPA addressed both shortcomings. It increased the amount of the PTC for everyone who is eligible, and it eliminated the cliff, limiting consumer contributions toward a benchmark silver plan to no more than 8.5 percent of income.

For many consumers, the ARPA PTC expansion has had a tremendous impact on out-of-pocket costs. For individuals 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 average Marketplace enrollee saved more 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 permanent.

Higher Rates Locked In By August

The annual timeline for developing and finalizing individual market premium rates starts early in the year before the rates go into effect. Most states require insurers to submit their proposed rates for the next year by mid-July (in some states, as early as May or June). Just a few weeks later—by August 17 for the federally run Marketplace—insurers must submit their final plan and rate changes to federal officials.

This year, 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 are not extended. Insurance company actuaries are likely assuming that those who choose to remain enrolled—and pay the higher net premiums—will be sicker, on average, than those who drop coverage. Insurers will need to adjust rates in 2023 to account for this smaller, sicker risk pool, resulting in an average rate increase of $712 per person, according to the Urban Institute.

Some state regulators could require insurers to submit two sets of proposed rates—one assuming ARPA subsidies are extended, one assuming they are not. This would allow for lower rates to be swapped in if Congress enacts an extension later this summer. But not all states will require this. The later Congress acts, the more difficult it will be to develop, review, and approve a new set of rates.

Once rates are approved by regulators, they are 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 more than once per year. If, as expected, insurers increase rates to account for reduced and less healthy Marketplace enrollment, it will mean higher costs for consumers at a time household budgets are already pinched by inflation. These price increases will fall primarily on consumers ineligible for PTC, since PTC insulates those eligible from list premiums. They will also increase costs for federal taxpayers, as premium tax credits rise with the increase 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 often thought of as beginning November 1 with the open enrollment period, in fact much of the process happens earlier. In September or October, Marketplaces send current enrollees renewal notices with information about their eligibility for the coming year—a process that may be spread over days or weeks given vendor capacity and the importance of not overwhelming call centers. Before that, in August or September, Marketplaces run calculations to determine each consumer’s default plan, expected PTC eligibility, and net premium—a process called “batch redetermination.” They thoroughly check the results, often refining and re-running the process. And before the batch process, they must update their IT systems’ PTC parameters and plan assignment algorithms. All of these 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 likely to decline. Either way, if the extension is not passed in time, consumers would learn beginning in September or October 2022 that they should expect to pay more out of pocket in 2023.

Telling consumers to expect premium increases could lead to substantial coverage losses, even if Congress later acts to extend 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 are receiving financial help for the first time under the ARPA will again have no protection against premiums—a particular concern for older enrollees and those in high-price states such as West Virginia and Wyoming. Consumers slated for automatic re-enrollment may opt out, resulting in much lower renewal rates. Consumers may write off the idea of re-enrolling and stop opening Marketplace mail or reading electronic communications—meaning they won’t find out if an extension is later enacted. They may remove the premium from their budget planning for the following year and commit those funds to other purposes. Even consumers who do decide to shop may lose trust in the Marketplace and be less likely to enroll.

Impact On Open Enrollment And Beyond

Unless an extension passes a week or more before the end of October, Marketplaces will be unable to update eligibility systems to reflect the expanded PTC when current enrollees and new customers come in to shop at the start of open enrollment. This could have several repercussions:

1. As with the renewal notices, some consumers will respond to higher premiums by choosing to be uninsured and will be difficult to win back if extension comes later. Current enrollees will lose the benefit of auto-reenrollment, and new customers may be impossible to reach because window shopping tools don’t generally collect contact information.
2. Some consumers will still enroll but will face lower PTC and thus larger out-of-pocket costs, and therefore have an increased likelihood of disenrolling. Marketplaces may adjust enrollees’ PTC later, as many of them did when the ARPA passed mid-year. But this may come too late and may not be possible for some enrollees.
3. Some consumers will choose a plan they would not want with the PTC expansion extended. Before the ARPA, many consumers chose cheap bronze plans with large deductibles, even if they were eligible for silver plans with large cost-sharing reductions. After the ARPA made silver plans inexpensive or free for many consumers, bronze enrollment fell by nearly 10 percent, and more consumers chose silver or gold plans. If consumers choose plans based on pre-ARPA rules, bronze enrollment is likely to climb again, even if later an ARPA extension brings a better plan within their budget. This would expose consumers to significantly higher deductibles and other out-of-pocket costs than they might have opted into if the PTC extension were firmly in place.

These issues will continue to ensnare additional consumers even after an extension passes—until Marketplaces can update their systems. This will take time, and it also may require taking down the Marketplace application during open enrollment for updating and testing, resulting in additional coverage losses and consumer confusion. Marketplaces will also lose the opportunity to do pre-open-enrollment marketing campaigns touting highly affordable premiums.

Operational Costs For Marketplaces

Modifying the PTC late in the game will also impose operational costs on Marketplaces, diverting resources from other key priorities at a very challenging 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 specific 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 advertising.

Costs from a delayed extension could reduce funding for other important expenses. In some cases, these costs will strain resources that cannot be readily scaled up, even if Congress were to provide additional funding for implementation, as they did in the ARPA. Many Marketplaces have a fixed IT capacity, so adding new work diverts resources from other key priorities. Last-minute changes also create more demand for call centers, which are both a large expense and subject to staffing shortages that money cannot readily solve. All of this comes at what is already a challenging time for Marketplaces with the coming 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 Benefits and Payment Parameters, and standing up a variety 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 cost once again.

Taken together, these costs mean delayed ARPA extension legislation would provide substantially less benefit than the exact same legislation passed earlier.

Levitis J, Corlette S, “Delays Extending the American Rescue Plan’s Health Insurance Subsidies Will Raise Premiums and Reduce Coverage,” Health Affairs Forefront, July 5, 2022, https://www.healthaffairs.org/do/10.1377/forefront.20220628.782958/full/. Copyright © 2022 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.