Ways and Means Committee Chair Jason Smith (R-MO) and House Budget Committee Chair Jodey Arrington (R-TX) have asked analysts how making the enhanced Affordable Care Act premium tax credit permanent — as proposed in President Biden’s Fiscal Year 2025 budget — would impact the deficit, health coverage, and more.
In a May 17 letter to the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT), Smith and Arrington express concerns with extending the enhanced premium tax credit, which is intended to assist taxpayers who do not have access to subsidized insurance through their employers in purchasing coverage from private health insurers. They point to the high costs of the credit that they say largely benefits those who are not truly in need of assistance.
Premium tax credits under Code Sec. 36B were made available through the Affordable Care Act (ACA, PL 111-148) to help individuals and families enroll in state health insurance exchange plans. Because the credit is refundable, taxpayers with little or no income tax liability can still claim their full credit. Taxpayers also may receive advance payments on a monthly basis to coincide with their monthly insurance premium payments.
Initially the premium tax credit was available only to lower income taxpayers, but the American Rescue Plan (PL 117-2) expanded the premium tax credit for the 2021 and 2022 tax years to taxpayers with incomes over 400% of the federal poverty line. Those with incomes over 150% of the federal poverty line are eligible for partial subsidies, while those with incomes over 400% of the federal poverty line must spend up to 8.5% of their income before becoming eligible for the credit. The Inflation Reduction Act (PL 117-169) extended the “enhanced” credits through 2025. Biden’s proposed budget would make the enhanced premium tax credit permanent.
According to a February 2024 Congressional Research Service report, “[d]uring the 2023 open enrollment period (OEP), approximately 90% of all exchange enrollees were eligible for the tax credit.” Smith and Arrington express concerns with making this broad expansion permanent.
Cost concerns.
Smith and Arrington first point to costs of the enhanced credit. The expansion through 2022 had a price tag on $34 billion, and extending the expansion through 2025 was estimated at $64 billion. However, they say that “actual costs associated with these expanded ACA premium tax credits have been significantly higher than initially estimated.” They cite the CBO’s estimate of $103 billion for the premium tax credits and related spending in 2024. And the CBO lists the cost of primary deficits over baseline for the extension through 2034 at $335 billion plus an additional $48 billion in net interest outlays.
They request more from the CBO and JCT on the “budgetary effects on outlays, revenues, and the deficit” of making the expanded premium tax credit permanent.
Beneficiaries.
Smith and Arrington also say the credit is helping taxpayers who aren’t truly in need. The cite hearing testimony that high-income families earning up to $599,000 in 2023 could qualify for the subsidy. They also note a JCT finding that 54% of spending on the premium tax credit under the Inflation Reduction Act’s extension “would go to those exceeding the previous income cap.”
They say, “[i]t is particularly concerning that, by removing the income eligibility limit, some of our nation’s highest earners are now eligible for government assistance.” To that end, they request further analysis of who will have access to subsidies — broken out by income level.
However, not all agree that the beneficiaries of the credit are largely the wealthy. According to the Center on Budget and Policy Priorities, “Between 2021 and 2023, marketplace enrollment among people with incomes between 100 and 150 percent of the poverty level … grew by 58 percent (compared to 36 percent enrollment growth overall).”
Impact on insurance markets.
Finally, Smith and Arrington contend the premium tax credit has led to inflation of health insurance premiums “by providing insurers increased pricing power, as the cost of tax credits grow dollar for dollar with benchmark premiums.” They accuse Biden and Democrats of “papering over these rising costs” with calls for a permanent expansion, ignoring the underlying issue of the “true cost of care.”
Smith and Arrington ask the CBO and JCT to look at how access to health coverage might change through 2034 if the premium tax credit is made permanent. The CBO and JCT, however, have already said that “if the enhanced premium tax credits were permanently extended, from 2026 to 2034, an average of 3.8 million more people would have health insurance.”
For more information on the premium tax credit, see Checkpoint’s Federal Tax Coordinator ¶ A-4240.
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