At this point, we’ve all heard about the $1,400 checks included with the latest stimulus. But what you probably have not yet heard about are some of the significant changes to health plans that came with The American Rescue Plan of 2021. These changes include insurance costs being cut in half and some families saving $16,000 a year.
Yes, these are actual savings families and individuals can expect because of the third stimulus! There’s a lot to unpack, so let’s just take a look at why healthcare costs are being cut in half for some individuals.
1. Real Life Example
Let’s start with a real life example. Say we have a husband and wife, Darren and Lauren, who have a household income of $60,000. Right now, only Darren works because Lauren is a new stay-at-home mom with their two kids. That means they are a household of four with $60,000 of total annual income.
Darren and Lauren are looking to buy a silver plan for their family as Lauren steps out of her job to stay at home with the kiddos.
Before the stimulus, their costs on a silver plan would have been $379 per month. This isn’t terrible, but with two kids, every penny counts! And this was a bit more than they were wanting to spend.
Enter The American Rescue Plan.
Now, the cost of that same silver plan is just $159 per month, that’s $221 per month cheaper or a 58% decrease in costs! That money goes directly back into their pockets for diapers, food, etc. All in all, Darren and Lauren will save almost $3,000 for the year. Amazing!
2. Understanding the Numbers
Like many Americans will experience in the coming months and years, Darren and Lauren have received huge savings on healthcare because of this third stimulus.
The road to get to that level of savings, however, is not quick. This process is complex, but if a 50% cut on your healthcare costs sounds like something you’d like to take advantage of, then taking the time to understand this process is 100% worth it!
To understand how these numbers are calculated, we start with the Federal Poverty Level (FPL), which is a ratio of household size vs. income. For a household size of four, the 100% mark is $26,500 household income. For Darren and Lauren, they are sitting at about 229% FPL, which is a relatively normal percentage.
The next step in understanding the numbers is to look at their “spend limit.” Each household has a moderately varied contribution limit based on their FPL. This means they’re only expected to pay a certain percentage of their total income for the second-lowest cost “silver benchmark” on the Marketplace in their zip code.
For Darren and Lauren’s example at 229% FPL, they’d be expected to pay 7.6% of their income toward that silver benchmark. If the silver benchmark is $499, they are only expected to pay $379 (which is 7.6% of their income). Then a subsidy (i.e. an advanced premium tax credit) will discount the product for them.
Before Stimulus: $499 (silver benchmark) – $379 (contribution limit) = $120 subsidy per month
This is going to look different for every family, but the principle is that if you lower the contribution limit percentage, then the subsidy increases, which makes the costs of the health insurance plan go down.
This is what happened for Darren and Lauren. Their original contribution limit was 7.6% of their household income, but The American Rescue Plan has lowered that down to 3.2%. This, in turn, makes the subsidy (or “discount”) go up, and the cost of the product becomes cheaper.
After Stimulus: $499 (silver benchmark) – $159 (contribution limit) = $340 subsidy per month
Something else to note is that the subsidy is not tied to the silver benchmark—it’s merely based upon it. This means that families can upgrade to better plans, pick different carriers, or even find cheaper plans and spend $0 per month on health coverage (so long as the plan they choose doesn’t cost more than the subsidy they receive).
If you look at the national average of all costs between 100% and 400% FPL, the expected household contribution goes down from 6.8% to 3.4%. That means, on average, in the entire United States, costs for individual health plans have been cut in half across the board. This is incredibly monumental.
3. Cost Showdown: Traditional Group vs. Individual Marketplace
No one would disagree that organizations throughout America have been bleeding, and this was only worsened by Covid-19. While the Paycheck Protection Program helped in what ways it could, it didn’t address the steep rise of health insurance costs employers have been enduring for years.
Traditional group insurance costs have been steadily increasing by 3-5% for well over a decade. But this has not been the case for individual plans, predominantly for two reasons:
First, the base cost has remained stable over the past two years, averaging around a 0% cost change nationally. Second, individual prices are not primarily based on the plan cost, but on the size of the household and income. This is also true of subsidies.
2020 renewals were unique. Many people saw lower or 0% passive renewals on traditional group plans. Could health insurance costs actually be leveling out? Wouldn’t that have been great! Unfortunately, this is far from true.
The latest research has highlighted something fascinating. When you think back on 2020, what were most of us doing? We were stuck at home. And do you realize that we were not doing? Going to the doctor. Especially for elective or non-emergency procedures.
This means that 2021 will not only see its own standard medical care, but it will also carry with it all of 2020’s “missed” care, too. Not good! Current projections predict that group health plans could rise between 10% and 18% during renewal season at the end of 2021. If admins don’t pay attention, this surprise cost could be their demise.
4. Yes, Employers Can…
If you’re an employer, you probably have a lot of questions right now. How can an employer leverage tax credits? Aren’t employees disqualified from subsidies if their employer offers a group plan? And while you’re grateful for the impact this change can have on people who don’t have employer health benefits, what about you, right?
It is true that if an employer offers an IRS-affordable traditional group plan, individuals would not qualify for any subsidies. But there is a solution. For over 6 years, employers have canceled their group plans and given their employees taxable budgets to spend on individual plans—unlocking subsidies!
Imagine discounted insurance products for each one of your employees. What kind of impact could that have?
As you begin to navigate this process and look for more affordable solutions, Remodel Health steps in to help you discover more options. Our proprietary WageUp® group health benefits strategy has been helping employers serve employees better since 2015. We have seen millions of dollars be saved and put back into the organization.
Whether your organization needs the cash flow to turn the corner, finish up a capital project, or just lower the cost of insurance for employees to retain and recruit better than ever before—Remodel Health can help you get there.
Remember, at the end of the day, these are real people we’re talking about. Real life-change that can happen.
It’s time to rethink health benefits and explore what’s possible. Email us to connect with a consultant today.
Important Notice: Remodel Health does not intend to provide specific insurance, legal, or tax advice. Remodel Health always recommends to consult with your own professional representation to properly evaluate the information presented and its appropriate application to your particular situation.