TL/DR –
A tax credit that made health insurance more affordable for millions of Americans is set to expire at the end of the year, potentially increasing health insurance premiums by an average of 18% in 2026. The tax credit was introduced as part of former President Barack Obama’s Affordable Care Act and was expanded during the pandemic under President Joe Biden. The Congressional Budget Office predicts that the end of these enhanced subsidies could increase the number of uninsured people by 4.2 million by 2034, and it could destabilize the health care market as increased costs drive some people to forego insurance.
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Expiring Health Insurance Tax Credit Projected to Spur Steep Hike in Prices
Millions of Americans could face significantly higher health insurance costs as a key tax credit is slated to expire at the end of the year. The expiry of this credit, which has made health insurance more affordable for a large number of Americans, could also lead to instability in the health care marketplace and has already resulted in growing concern amongst politicians who fear its potential impacts.
According to a combined prediction by health researcher KFF and the Peterson Center on Healthcare, the average premiums, the monthly payment paid by customers for their health insurance, could rise by 18% in 2026, the steepest increase since 2018. This projection primarily attributes the increase to the expiration of federal subsidies, whilst also acknowledging a rise in overall health care costs.
This news has triggered a sensitive reaction in Washington, especially in light of a recent surge in inflation during the current Biden administration, which played a crucial role in the Democrat’s loss of the White House. In addition, President Donald Trump’s import tariffs have created an atmosphere of uncertainty amongst consumers and investors.
The Expanded Premium Tax Credit
The tax credit that made insurance more affordable was a critical element of the health care reform law, the Affordable Care Act, passed under former President Barack Obama in 2010. It not only fostered the health insurance marketplace, allowing people to compare and enroll in health insurance plans but also introduced an income-based premium tax credit.
Former President Joe Biden expanded this credit in 2021 through the American Rescue Plan Act, and extended it a year later via the Inflation Reduction Act. Both pieces of legislation passed along party lines, with Democrats in support. This legislation removed the income cap on subsidies, tying eligibility instead to a limit on the cost of an insurance plan at no more than 8.5% of the household income. The enhanced credit was set to expire at the end of 2025.
Impact on Monthly Payments for Many
As reported by the Centers for Medicare and Medicaid Services, 93% of enrollees, or 21.8 million people, were availing the enhanced tax credit. The uncertain future of these subsidies could escalate beyond merely increased premiums. The Congressional Budget Office further predicts that heightened out-of-pocket health insurance expenses could leave an additional 4.2 million people uninsured by 2034.
Anticipated Political Actions
On the political front, Republican Rep. Jen Kiggans of Virginia recently introduced legislation to extend the enhanced premium tax credit for another year. This time-bought would be used by Congress to devise and deliver a more permanent solution to the escalating health insurance costs.
Despite the tense political climate surrounding health care, there are indications of increasing readiness amongst certain politicians to consider an extension of the federal subsidy. However, the challenges to secure this legislative change remain formidable, particularly in the Senate.
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