Though the enhanced health care Premium Tax Credit doesn’t expire until the end of 2025, an extension is needed much sooner to avoid impacts on 2026 rates, say health care advocacy groups and the Centers for Medicare and Medicaid Services (CMS). And Democrat lawmakers are pushing to make the enhanced credit permanent with bicameral legislation introduced last month.
The Premium Tax Credit under Code Sec. 36B was established by the Affordable Case Act (ACA) to benefit certain individuals and families enrolling in ACA Marketplace plans — it was originally available to lower-income taxpayers who were not eligible for health insurance through their employers. The credit is refundable, and taxpayers can receive monthly advance payments coinciding with their health insurance premium payments.
The American Rescue Plan Act (P.L. 117-2) expanded the credit for the 2021 and 2022 tax years to allow taxpayers with incomes over 400% of the federal poverty line to claim a portion of the credit. The Inflation Reduction Act (P.L. 117-169) extended this “enhanced” credit through 2025.
Enrollment impacts.
The enhanced Premium Tax Credit has boosted enrollment in Affordable Care Act (ACA) Marketplace healthcare plans, Treasury confirmed last month. Treasury found that “effectuated enrollment for February 2024 was 20.8 million, the highest point-in-time enrollment observed to that date.”
Treasury also estimated that 14.2% of U.S. residents have been enrolled in an ACA Marketplace plan at some point since 2014. States with the highest “ever-enrolled” rates were Florida (28.7%), Utah (20.8%), Georgia (20.6%), and Texas (19%).
Democrat proposals.
Earlier this year, President Biden proposed in his Fiscal Year 2025 budget making the enhanced credit permanent. And last month, Senators Jeanne Shaheen (D-NH) and Tammy Baldwin (D-WI), and Representative Lauren Underwood (D-IL) introduced legislation to the same effect — the Health Care Affordability Act (S. 5194/H.R. 9774). The Senate bill had 45 original co-sponsors, signaling broad support from Senate Democrats.
Underwood, who is a registered nurse, said in press release that she “came to Congress to expand access to high-quality, affordable health care for every American,” adding that the bicameral legislation would do so by “making tax credits for Marketplace plans more generous and available to more Americans.”
Shaheen and Underwood also headed up letters to congressional leadership in September urging swift action to renew the enhanced credit.
Timeline.
Shaheen explained at a recent press conference that passing legislation to extend the enhanced credit by the end of 2025 is not sufficient. “In order to give insurers the ability to set their rates for the next year, we need to get this done in the first quarter of next year,” she said. “So that means we need to get it done now.”
“[W]e must extend these ACA tax credits as soon as possible, or else millions of Americans will see spikes in their premiums or go uninsured,” Shaheen told Checkpoint. “We cannot wait until the end of 2025 to act. Plans start determining premiums in the first quarter of next year, and unless we give the market certainty that these tax credits will be extended soon, low- and middle-class Americans will be priced out of purchasing quality health insurance.”
The CMS, in the preamble to its October 10 proposed rule on benefit and payment parameters, echoed this message that swift action is needed on the enhanced credit. The agency said any extension to the enhanced credit must occur by March 31, 2025, noting “we anticipate this date as the latest date we could select that would still provide issuers the opportunity to take enactment of the law into account in setting rates for the 2026 benefit year.”
The CMS also proposed two sets of user rates based on scenarios where the enhanced credit is extended by that March deadline and where it is not. Congress must meet the March deadline for extending the enhanced credit “in order for HHS to apply the alternative FFE [Federally-facilitated Exchanges] and SBE [State-based Exchanges] user rates,” the agency said.
But the State Marketplace Network, a group of 21 state-based health insurance marketplaces, say action is needed even earlier — by this fall — to avoid impacts to 2026 rates. It said in a September 23 letter to congressional leadership that “[e]stimated price increases resulting from the anticipated expiration of credits are likely to be made public as soon as January 2025, with consumers directly notified about their estimated premium cost increases beginning in August 2025.” The group released a timeline for state development of 2026 Marketplace plans over the summer, indicating that some states would begin the process as soon as September 2024.
Expiration’s ripple effects.
The Congressional Budget Office and Joint Committee on Taxation said in a June letter that “if the extension of the expanded Premium Tax Credit became permanent, 3.4 million more people would have health insurance in each year, on average, over the 2025-2034 period, than under current law.”
The CMS agreed with those projections, adding that if the enhanced credit is not extended, it anticipates that “issuers would likely rate for the uncertainty associated with the expected decreased enrollment in the risk pool and increase premiums, potentially resulting in a decline in issuer participation within ACA markets in the long-term.”
According to the CMS, “the expiration of the subsidies at the end of the 2025 benefit year creates a significant amount of uncertainty in the ACA markets and their expiration will have a ripple impact across the ACA markets.”
Among the impacts identified by the State Marketplace Network are consumer “sticker shock” over price increases, coverage losses, “overpriced” plans due to “anticipated lower enrollment and a less healthy population mix,” and increases in consumer debt and uncompensated health care.
And Keep Americans Covered, a coalition of health care and patient groups, said over 5 million Americans could lose health coverage if the enhanced credit expires. Meanwhile, those currently relying on the enhanced credit may need to pay an “average of 90% more on their premiums in 2026,” it added, citing a recent report commissioned by the Blue Cross Blue Shield Association.
The CMS also noted that failing to extend the enhanced credit would likely “considerably impact” funding for State Innovation Waiver programs under ACA Section 1332 — a majority those programs are state-based reinsurance programs. The agency also anticipates impacts to funding for state Basic Health Programs through which states can offer affordable coverage to lower-income residents who don’t qualify for Medicaid, CHIP, or other minimum essential coverage.
Cost, quality concerns.
Not all lawmakers are on board with extending the enhanced credit, however, with the biggest concern being cost. House Budget Chair Jodey Arrington (R-TX) and Ways and Means Chair Jason Smith (R-MO) said in May that the actual cost of the enhanced credit was “significantly higher” than original estimates — CBO estimates rose from $78 billion in fiscal year 2024 to $103 billion for that same period. They also contended that “by removing the income eligibility limit, some of our nation’s highest earners are now eligible for government assistance.”
Making the enhanced credit permanent would be costly, said the CBO and JCT, putting the estimated net cost at $335 billion over the 2025-2034 period.
But another concern, said Arrington and Smith, is that “expanded ACA premium tax credits have had an inflationary effect on health insurance premiums by providing insurers increased pricing power, as the cost of tax credits grow dollar for dollar with benchmark premiums.” They accused Democrats of “papering over these rising costs … instead of addressing the true cost of care.”
Theo Merkel, a fellow at the Paragon Health Institute and the Manhattan Institute, seconded those concerns at a recent Senate Finance Committee hearing, saying that rather than extending the enhanced premium credit, a better option is to “actually take a look at what is driving the low quality of the underlying plans.”
Senate Finance Ranking member Mike Crapo (R-ID) agreed during the hearing, noting that marketplace plan provider networks had narrowed, and actuarial values had decreased between 2014 and 2023 despite rapid premiums increases.
For more on the premium tax credit, see Checkpoint’s Federal Tax Coordinator ¶ A-4240 et seq.
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