ACA Premiums Set to Surge

The ACA Stands at a Crossroads as Enhanced Tax Credits Near Expiry

The U.S. healthcare system is no stranger to political upheaval. A key topic of contention in recent months is the extension of health insurance tax credits under the Affordable Care Act (ACA). If Congress fails to act by the end of 2025, these enhanced tax credits will expire, leading to a significant increase in health insurance costs for millions of Americans. This issue has been a contributing factor to the federal government shut down on October 1.

Estimated Impact on ACA Health Insurance Costs

The Republican Party appears to be in favor of allowing the tax credits to lapse, which will lead to a surge in the cost of ACA health insurance. This will particularly affect households with an annual income ranging from $28,000 to $55,000, as they could see a rise in their annual premiums by $1,200 to $1,800.

The Evolution of ACA Premium Tax Credits

The ACA premium tax credits were initially introduced to help low and middle-income Americans afford insurance within the ACA marketplace. The original terms stipulated that people earning between 100% and 400% of the federal poverty level (FPL) would pay no more than a certain percentage of their income towards premiums, with the federal government covering the remainder.

In the aftermath of the COVID-19 pandemic, the American Rescue Plan Act was signed into law in 2021 in a bid to avert a coverage collapse. This Act boosted tax credits and removed the upper income cap, thereby enabling more Americans, especially those without steady employment or with middle-range incomes, to afford coverage. The enhanced credits were subsequently extended until 2025 under the Inflation Reduction Act of 2022. As a result, the number of people enrolled in the ACA marketplace more than doubled from about 11 million to over 24.3 million this year.

If Congress does not act by December 31 this year, the enhanced credits will no longer be available. Consequently, only those Americans from households with incomes between 100% and 400% of the FPL will be eligible for the ACA premium tax credits.

Instability in Healthcare Policy and Its Impact

Since its inception 15 years ago, the ACA has been a political hot potato, leading to uncertainty among Americans about the future of their health insurance coverage. This uncertainty deters people from seeking preventive care or managing chronic conditions, as it is difficult to plan future healthcare costs when these costs are dependent on the outcome of the next election.

Unless a resolution is found soon, this uncertainty is bound to have severe repercussions. As ACA plans post rates for 2026 that factor in the potential loss of enhanced subsidies, some Americans might decide not to sign up for health insurance, erroneously assuming that they will be unable to afford it.

The Looming Financial Crisis

According to the Peterson Foundation, more than 300 ACA marketplace insurers submit rate filings with state regulators each year. While ACA marketplace premiums have gradually risen over the years, 2026 is set to see the highest surge in premiums since 2018, even if the tax credits remain. If these subsidies are removed, the financial impact on those who depend on the ACA for insurance will be devastating.

If the enhanced credits are not extended and planned insurance premium hikes take effect, ACA marketplace premium increases could more than double. Self-employed adults, small-business owners, and small-business employees – the very demographics least likely to have employer-based coverage – will bear the brunt of these higher rates.

In addition, the number of uninsured people is expected to increase by about 4.8 million according to the Urban Institute’s estimates. Conversely, if Congress permanently extends the tax credits, an additional 3.6 million people would have health insurance by 2030.

The Knock-On Effect of Coverage Loss

When individuals drop coverage, it has a ripple effect on the entire system. Hospitals end up dealing with an increase in uncompensated care, clinics treat patients who have delayed preventive visits until their conditions have worsened, and insurers raise premiums for everyone to offset their losses. As a result, the uninsured get sicker, and the insured pay more.

This situation could not come at a worse time for Americans and their healthcare providers. The country is still reeling from the chaos brought on by Medicaid redeterminations, which have pushed 27 million people off Medicaid rolls since 2023. Many of these individuals were expected to transition to ACA coverage, but they now stand to lose affordable marketplace options as well.

If ACA enhanced credits lapse, the entire healthcare ecosystem will feel the impact. The uninsured rate, which dipped to a record low of 7.2% in 2023, is likely to rise again. Rural hospitals, already closing down at an alarming rate, will face an increase in uncompensated care, raising the risk of bankruptcy. Small businesses and gig workers will be forced to choose between paying premiums and paying rent.

The pain will not be evenly distributed. The largest coverage losses will occur in non-Medicaid-expansion states, primarily in the south and Midwest. These regions are already grappling with the highest rates of hospital closures, physician shortages, and poor healthcare system performance. The result is a deeper divide between the insured and the uninsured, and an even more fractured healthcare system.

Fixing healthcare in America does not necessitate a massive overhaul or the creation of a new bureaucracy. It requires predictability. Congress needs to make the enhanced premium tax credits permanent to provide long-term stability for the ACA marketplaces. Such a move would stabilize insurance markets, reduce churn, and allow patients, providers, and insurers to plan for the future.

The ACA is not perfect, but with adequate funding, support, and the freedom to function without constant disruption, it works. It is time for Republicans to acknowledge this fact.