Health Care Tax Credits: Shutdown Negotiations’ Sticking Point

Tax Credit Expiry Could Double Health Insurance Premiums Under ACA

Millions of American citizens could see their health insurance premiums double or potentially lose their coverage entirely if Congress fails to extend the key tax credits provided under the Affordable Care Act (ACA). This is especially relevant to people who depend on health plans under this act.

A Record Number of People Rely on ACA

Enhanced tax credits, which were expanded during the COVID-19 pandemic as part of a strategy to make health insurance more affordable, are at risk of not being extended. These credits facilitated the purchase of ACA plans, also known as Obamacare, by more than 20 million people in 2024, setting a new record. Most of these enrollees were beneficiaries of these credits.

Although the tax credits were initially due to expire at the end of 2022, they were extended as part of the Inflation Reduction Act. Now, their future is uncertain, leaving many to wonder about the potential impacts on American healthcare and its costs. Cynthia Cox, vice president, and director for the Program on the ACA at KFF shed some light on the situation.

What Happens if the Tax Credits Aren’t Extended?

With open enrollment just around the corner, and negotiations still underway, the question on many minds is: what happens if these tax credits are not extended? If this scenario unfolds, millions of people will log in to healthcare.gov or their state’s marketplace only to find that their premiums for next year have doubled, warned Cox.

The average healthcare insurance premium is expected to be twice the current amount if individuals want to keep the same plan. While some may be able to opt for a lower-cost plan, it may entail a deductible that runs into the thousands.

How Many People Could be Affected?

People who buy their health insurance coverage independently will be affected the most. This overlooks those who are covered through their employer’s insurance. Small business owners, farmers and ranchers, and people working at small companies that don’t offer health insurance are in the line of fire. These individuals typically buy their own insurance, helped by a tax credit.

About 22 million people are currently receiving these enhanced tax credits. If these credits are not extended, these people might have to resort to drastic measures like switching jobs to avail health insurance, or simply go uninsured if they can’t afford the premium.

What are the Ripple Effects of Losing Insurance?

People losing insurance doesn’t equate to them not falling sick or avoiding accidents. If millions of people lose their coverage, the ripple effects can be enormous. Insurance markets are already being impacted with some insurers charging higher premiums next year anticipating healthier people will exit the insurance market. Hospitals too are concerned as more uninsured people showing up at the emergency room means more costs to cover.

Are the Tax Credits Too Expensive?

Critics of these credits argue that they are too expensive, considering that some beneficiaries earn too much to warrant such help, especially as this measure was intended as a temporary relief during the pandemic. The cost to extend these enhanced tax credits is about $35 billion per year. However, the cost of health insurance in the United States is high, which means making it affordable for lower and middle-income people necessitates financial assistance.

Is There a Legislative Fix for the ACA Issues?

Certain criticisms of the Affordable Care Act need addressing. One of the main issues is the high cost of private health insurance. Making insurance less expensive can be achieved either by subsidizing it with taxpayer dollars or addressing underlying factors that make healthcare expensive. However, this could mean less pay for hospitals and doctors, which might not be politically popular.