Last week, President Biden signed the $1.9 trillion American Rescue Plan (ARP), which provides new COVID-19 relief as well as establishes other policies. The Democrat-led bill was originally outlined by President Biden and was passed in Congress largely along party lines, via the budget reconciliation bill process, limiting what could be included in the bill.
Despite the political advantages, from a policy standpoint, budget reconciliation bills are limited to federal revenue or spending provisions. This restricts what policies can be included in the bill. For example, Democrats attempted to include a provision to increase the minimum wage to $15. However, the Senate parliamentarian ruled that the minimum wage increase violated the budget reconciliation rules so it was not included.
Assistance to Individuals and Families
The ARP builds upon some of the provisions from the $900 billion COVID-19 stimulus Congress passed at the end of 2020. For example, the bill provides $1,400 in direct payments to individuals ($2,800 to families). Combined with $600 ($1,200 for families) passed in the 2020 bill, this increases the payments to $2,000 for individuals ($4,000 for families). These payments phase out for individuals or families who earn over a certain income threshold.
The ARP also extends federal unemployment benefits that supplement state benefits through September. The bill extends the federal unemployment benefits at the current $300 per week amount.
The bill includes several tax policy changes for the 2021 tax year to help families such as increasing the Earned Income Tax Credit (EITC) and the Child Tax Credit. It also allows families to deduct up to half of their child care expenses from their taxes. The bill also provides tax benefits for businesses that offer paid leave under the policies established by the Families First Coronavirus Response Act (FFCRA) and extends the CARES Act employee retention tax credit through Dec. 31, 2021.
Assistance for Governments and Businesses
The ARP includes $350 billion in new funding for state and local governments for expenses related to the pandemic. It also provides new funding for federal agencies for testing and contact tracing and vaccine distribution. The federal government also receives funding to use the Defense Production Act to acquire and distribute medical supplies such as personal protective equipment and materials related to vaccine production.
It also provides new funding and increases the lending authority for the Paycheck Protection Program (PPP). The bill expands eligibility for PPP loans to more types of tax-exempt 501(c) organizations. In addition to the PPP, the ARP provides new funding for the Advanced EIDL loans.
Expand Access to Health Insurance
The ARP also expands access to health insurance through the Affordable Care Act (ACA) and other programs. Most of these coverage expansions are only for 2021 and 2022.
The ARP eliminates the income cap that determines eligibility for ACA premium subsidies for 2021 and 2022. ACA premium assistance is currently capped at 400% of the federal poverty line (FPL). The ARP makes people earning more than 400% of the FPL eligible for premium subsidies for 2021 and 2022.
The bill also increases the size of the premium assistance subsidies. The ACA premium assistance is designed to subsidize premiums to prevent people from paying more than a specific percentage of their income on premiums. The ARP lowers that income limitation, which, in turn, increases the size of the premium subsidies people can receive.
In addition to the ACA, the bill expands health insurance subsidies for people who maintain their employer coverage under COBRA after leaving a job. While COBRA allows people to maintain continuity of coverage, they no longer receive premium subsidies from their employer. People have to pay their full premium cost for COBRA plans. The ARP provides federal premium assistance for COBRA premiums through September.
The ARP incentivizes states to expand Medicaid eligibility if they have not done so already. Under the ACA, states have the option to expand Medicaid coverage to people earning up to 133% of the FPL. For states that expanded Medicaid, the federal government matches up to 90% of state spending on their expansion population. For states that newly expand Medicaid, the ARP would increase federal matching by 5% for both expansion and non-expansion populations for two years.
Looking Ahead: PAYGO Waiver and Medicare Cuts
Despite the ability of Democrats to pass the ARP without Republican support, Democrats will need bipartisan support to avoid billions in cuts to Medicare in 2022. In 2010, Congress adopted a fiscal responsibility policy called Pay-As-You-Go (PAYGO) that requires increases to the federal deficit to be offset by automatic cuts to federal programs, such as Medicare, the following year. Congress regularly avoids these cuts by waiving the PAYGO requirement for bills that add to the deficit. The Congressional Budget Office (CBO) says failure to waive PAYGO for the ARP will result in a four-percent cut ($36 billion) to Medicare payments in 2022.
Waiving PAYGO requires 60 votes in the Senate meaning Democrats will need Republican support to waive PAYGO for the ARP. PAYGO waivers often receive broad bipartisan support.
Congress did not include a PAYGO Waiver in the ARP, meaning Congress will need to do so in future legislation to avoid these cuts. This would set up a new “must-pass” bill to avoid these cuts that can serve as a vehicle for new COVID relief as well as other legislative priorities.
Congress also did not extend the two percent Medicare sequestration cuts in the ARP. The sequestration cuts will resume in April unless Congress takes new action to delay those cuts. It’s not clear if Congress will pass a new sequestration delay.