Enhanced Premium Tax Credits Provide an Early Opportunity for Addressing Affordability Issues

American voters have just registered their dissatisfaction with increases in living expenses in the most direct way possible—at the ballot box. As policymakers consider a range of responses to this clear message from the American public, they can take concrete steps to address health care affordability for millions of Affordable Care Act (ACA) Marketplace enrollees. Critical enhancements to the premium tax credits (PTCs) that support enrollees’ premium payments on the ACA Marketplaces have resulted in significant savings for Marketplace enrollees and record-breaking health plan enrollment. These additional subsidies, which Congress first authorized in the American Rescue Plan Act (ARPA) of 2021 and extended in the Inflation Reduction Act (IRA) of 2022, will sunset at the end of 2025. If  Congress fails to make enhanced PTCs a permanent feature of the ACA, health insurance premiums will become less affordable for millions of Americans beginning with the 2026 plan year, and even Marketplace enrollees who do not qualify for PTCs will experience higher premiums in their absence.

Background

The vast majority of Marketplace enrollees—92 percent of enrollees in 2024—use PTCs to pay their health insurance premiums. The ACA makes PTCs available on an income-related sliding scale, with lower-income enrollees receiving more generous subsidies and paying a smaller proportion of their income for marketplace coverage. Under the original design, this support zeroed-out for enrollees with family incomes over 400 percent of the federal poverty level (FPL), which meant that no matter how high premiums climbed in their local market, these families did not receive help with their health insurance costs. Critics also noted that PTCs for lower-income families still left many facing significant premium expenses and out-of-pocket costs for needed health care.

Under ARPA and the IRA, Congress addressed these issues by extending PTCs to higher-income families whose premiums would otherwise exceed 8.5 percent of their annual income and by providing greater PTC support for lower-income families. These changes resulted in estimated average premium savings of $700 per enrollee in 2024 and dramatic enrollment increases in Marketplace plans. More than 7 million additional people are projected to enroll in 2025 plans using PTCs compared to likely Marketplace enrollment without these enhanced supports—a 71 percent increase in likely enrollment. Four million of these individuals would otherwise be uninsured. 

Critical Help with Health Care Costs

The ARPA enhancements to PTCs notably helped older adults and enrollees with incomes above the original ACA eligibility threshold. As originally passed, the ACA does not provide any financial help with Marketplace premiums for families with annual incomes over 400 percent FPL, or a little more than $80,000 a year for a two-person household. At the same time, health plans in most states may charge older enrollees up to three times more than they charge young adults for Marketplace coverage. Historically, this meant that older adults with incomes over 400 percent FPL could face premiums well over 8.5 percent of their income without any premium assistance from PTCs.  Since ARPA, however, enhanced PTCs have helped older individuals facing high premiums due to age-rating, with these subsidies lowering premiums for 60-year old Marketplace enrollees by an average of 57 percent and for 64-year-old enrollees by 60 percent.

Similarly, prior to ARPA, individuals and families who live in states with high health care costs, and therefore higher insurance premiums, could face unaffordable health insurance bills without any help from PTCs. PTC availability for those with family incomes over 400 percent FPL helps the residents of states with high benchmark premiums, such as West Virginia, Wyoming, Alaska, and Vermont.  

Enhanced PTCs have also helped millions of lower-income Marketplace enrollees by not only increasing premium affordability but also by making health care services more affordable. With more generous PTCs providing more help with health insurance premiums, enrollment in plans with lower enrollee cost-sharing has also increased. In particular, enrollment in plans with very low deductibles and other reduced cost sharing designs grew by 91 percent—from 5.6 million to 10.6 million enrollees—from 2020 to 2024.  

Enrollment Gains with Enhanced PTCs

Among the 7 million additional enrollees credited to enhanced PTCs are people who have historically been less likely to hold health insurance and faced significant affordability barriers to coverage. For example, coverage gains under enhanced PTCs include increased enrollment among people of color and among residents of states that have not expanded Medicaid eligibility as authorized by the ACA. Overall, researchers project that Black enrollment in 2025 will be 79 percent higher than it would have been under original ACA subsidy levels and estimate that Hispanic enrollment will be 61 percent higher. In addition, non-expansion states have seen notable increases in health coverage as health care premiums have become more affordable through more generous premium subsidies. For 2025, Black and Hispanic enrollment in Marketplace plans is expected to be 116 percent and 104 percent higher, respectively, than it would have been without enhanced PTCs. Similarly, White enrollment in Marketplace coverage will be 78 percent higher and enrollment among other racial and ethnic groups, including Asians and Pacific Islanders, Indigenous people, and multi-racial individuals, will be 70 percent higher in states that have not yet expanded Medicaid eligibility. 

Enhanced PTCs Reduce Prices for All Marketplace Enrollees

Beyond providing new and expanded help with Marketplace premiums, enhanced PTCs have held down premiums for all Marketplace enrollees. When help with premiums was less generous, and coverage therefore less affordable, healthier individuals were less likely to purchase coverage; upon implementation of ARPA’s enhanced PTCs, these lower-risk and lower-spending people were more likely to enroll in Marketplace coverage. These new enrollees, in turn, improved the overall risk pool and reduced per person health spending for Marketplace enrollees. Enhanced PTCs, according to one estimate, reduce average total premiums by 5 percent before subsidies are applied—thus also lowering premiums and improving affordability for individuals who do not qualify for premium support.

Affordability and Coverage Risks if Congress does not Extend Enhanced PTCs

Millions of Marketplace enrollees will face higher premiums and, in some cases, cost-sharing responsibilities, should enhanced PTCs sunset as envisioned by current law. A  recent analysis of states using the federally-facilitated Marketplace (i.e., HealthCare.gov) determined that enrollees in 12 states would see their out-of-pocket premium payments more than double without the additional support of enhanced PTCs. Premium increases could be significantly higher, depending on the enrollee’s age, income, and state of residence. On average, premiums for 50-year-old, middle-income enrollees in the second-lowest cost silver plan in West Virginia, for example, could increase by 179 percent. In the face of significant premium increases, Marketplace enrollees will also be less able to afford plans with reduced consumer cost-sharing at the point of service. (See this zip-code level map for more information on likely premium increases.)

In the face of these increased costs, many Marketplace enrollees will go without health insurance altogether. The  number of subsidized Marketplace enrollees is likely to drop by one-third, from 21 million to 14 million individuals, by plan year 2027; approximately 4 million will become uninsured, with the greatest declines in coverage occurring in states that have not expanded Medicaid eligibility, among Black and Hispanic enrollees. And while states currently use their own funds to buy-down deductibles, ensure that critical workers can obtain zero-premium coverage, offer additional premium subsidies to young adults, and further reduce premiums for lower-income residents, these state affordability initiatives currently complement, and cannot take the place of, enhanced federal premium supports. 

Takeaway

Enhanced PTCs have made Marketplace coverage more affordable and accessible to millions of low- and moderate-income enrollees, but the looming sunset of these more generous premium subsidies threatens family budgets and economic security, while foreshadowing dramatic coverage losses and higher premiums for enrollees who do not receive PTCs. Permanently authorizing enhanced PTCs is an immediate and impactful step on affordability that policymakers of all persuasions can make a shared priority.