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The American Rescue Plan Act of 2021 expanded the Affordable Care Act’s premium tax credits, enabling families earning over $103,000 to qualify for subsidies, but these were meant to be temporary measures ending in 2022. However, the Inflation Reduction Act extended these subsidies until 2025, and since their implementation, Affordable Care Act enrollment has more than doubled. However, the Congressional Budget Office warned that making the subsidies permanent would add $335 billion to federal deficits over 10 years, and reductions to pre-pandemic spending levels are interpreted as cuts, adding pressure to make the subsidies permanent.
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Implications of the American Rescue Plan Act of 2021: The Evolution of Temporary Measures
The American Rescue Plan Act of 2021, signed by President Joe Biden in March 2021, was initially crafted as a remarkable reaction to the unprecedented impact of the COVID-19 pandemic. A key element of this plan was the temporary enhancement of the Affordable Care Act’s premium tax credits. Aimed at providing a short-term relief funded from COVID-specific resources, the plan expanded the tax credits to cover premiums for those earning below 150% of the poverty line and offered subsidies for those earning up to 400% of the poverty line. As a result, for the first time, families earning more than $103,000 could qualify for taxpayer-funded subsidies, and the subsidies for everyone else increased significantly.
The Journey of Temporary Measures to Permanent Solutions
Despite being labelled as ‘temporary’, these emergency subsidies, originally intended to expire in 2022, gained extended utility under the Inflation Reduction Act and are now set to last till the end of 2025. Since their introduction, the ACA enrollment has seen a substantial increase, escalating from 11.4 million in 2020 to 24.3 million in 2025. North Carolina alone witnessed almost a million enrollments under these expanded emergency subsidies.
The potential discontinuation of the temporary, emergency spending and reverting to pre-pandemic spending patterns is being perceived as reduced funding, leading to a growing political propensity to make these subsidies permanent.
Fiscal Implications and the Rising National Debt
The Congressional Budget Office, in response to the concerns about the increasing fiscal deficit, cautioned in 2024 that making these subsidies permanent would add approximately $335 billion to federal deficits over a decade – roughly $8,800 per newly insured person annually. Consequently, temporary spending is turning into a structural, deficit-financed commitment. This rising commitment is driving the national debt beyond $37 trillion, despite the initial argument of these subsidies being a necessity due to the pandemic.
Future of Medicaid and the Fiscal Challenges Ahead
The recent passage of the One Big Beautiful Bill aimed to decelerate federal spending on Medicaid, intending to restore it to pre-pandemic levels by 2032. The Congressional Budget Office approximates that about a third of enrollees will be affected by the Bill’s introduction of work requirements, posing both present and future budgetary challenges for the states.
In July, state legislators approved House Bill 125, allocating $600 million for Medicaid funding. However, despite this allocation, NCDHHS Secretary Devutta Sangvai recently pointed out a $319 million shortfall in the state’s Medicaid program for the 2025–26 fiscal year.
The end of the temporary federal COVID aid, which had been used to cover deficits, has led the Department of Health and Human Services to prepare for provider rate cuts ranging from 3% to 10% and the elimination of certain services from October 1. These cost-cutting measures could potentially force providers to exit the program.
Despite Medicaid expansion not being part of the rebase calculations, it is separately funded by a 90% federal match. This has led to an increase in the size and complexity of the program, stretching administrative and provider capacity.
The Need for Fiscal Prudence
The lessons learned from the temporary ACA subsidy expansion in Washington and the reliance on federal pandemic aid for Medicaid in Raleigh shed light on our dependency on borrowed money. As the emergency situations conclude, looming bills highlight the need for fiscal prudence. If a program is deemed necessary, federal and state lawmakers must ensure its funding, avoiding reliance on future taxpayers. Without adopting such measures, North Carolinians could face more rate cuts, fewer services, and a progressively steeper fiscal cliff.
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