After the Congressional Budget Office (CBO) found that 3.8 million Americans will go uninsured if an expiring tax credit is not renewed, Democrats are pushing for an extension.
The Premium Tax Credit under Code Sec. 36B was put into place by the Affordable Care Act to help lower-income taxpayers who enroll in ACA Marketplace plans. The refundable credit is available to taxpayers who are not eligible for health insurance through their employers. Eligible taxpayers may receive monthly advance payments coinciding with their health insurance premium payments.
The Premium Tax Credit was made available to higher income taxpayers in recent years. Under the American Rescue Plan Act (P.L. 117-2), taxpayers with incomes over 400% of the federal poverty level could claim a portion of the credit for the 2021 and 2022 tax years. The Inflation Reduction Act (P.L. 117-169) extended this “enhanced” credit through 2025.
Impacts of expiration.
With no action, the enhanced version of the credit will expire in 2026. In a December 5 report, the CBO said that will result in 3.8 million Americans going uninsured each year over a 10-year period. The expiration also will lead to a 7.9% increase in ACA Marketplace premiums on average over the same period, said the CBO.
A December 9 Urban Institute analysis predicted similar impacts if the enhanced credit is not extended. Specifically, it found that premiums for those with incomes between 150% and 200% of the federal poverty level would increase five-fold if the enhanced credit expires. It also concluded that “household spending on premiums would surge, and enrollment would shrink.”
Dems push for permanent enhancement.
The CBO issued its report at the request of Senator Jeanne Shaheen (D-NH), Representative Lauren Underwood (D-IL), and Democrat taxwriting committee leaders Senator Ron Wyden (D-OR) and Representative Richard Neal (D-MA). The lawmakers, joined by Senate Majority Leader Chuck Schumer (D-NY) and House Minority Leader Hakeem Jeffries (D-NY), urged swift action in light of the CBO’s predictions.
“Congress should work in a bipartisan manner to extend these middle class tax cuts rather than give another tax break to corporations and the ultra-wealthy,” said Schumer.
“We now know just how devastating the impact will be on everyday Americans should Congress allow these vital tax credits to expire,” Shaheen told Checkpoint. “If my Republican colleagues are serious about lowering costs, they should come to the table and extend this lifeline for working families.”
Shaheen and Underwood introduced legislation in September that would make the enhanced credit permanent. The Health Care Affordability Act (S. 5194/H.R. 9774) has strong support from Democrats, but no Republicans have signed on.
President Joe Biden, too, has urged that the enhanced credit be made permanent. He included a proposal to that effect in his Fiscal Year 2025 budget earlier this year. And after the CBO’s recent report, Biden renewed his call for extension of the credit. Allowing it to expire — and premiums to “spike” while 3.8 million people become uninsured — is “simply wrong,” he said.
Criticisms.
Some Republican lawmakers, however, have spoken out against the enhanced credit — contending it is costly, provides an unnecessary benefit to high earners, and has had an inflationary impact on health insurance premiums.
But a Democrat supporter of the enhanced credit told Checkpoint it overwhelmingly helps low- and middle-income earners and keeps premium costs down.
A June Urban Institute report supports this — showing that in 2025, those with incomes between 150% and 200% of the federal poverty level will likely pay 80% less in premiums than they would under the original Premium Tax Credit. Meanwhile, the report predicts people with incomes of between 300% and 400% of the federal poverty level would pay just 23% less under the enhanced credit.
A July KFF report, too, concludes that the bulk of the growth in ACA Marketplace plan enrollment consists of people with incomes at or below 250% of the federal poverty level.
And claims that the enhanced credit is inflationary stand in contrast to the CBO’s December findings that premiums would rise without an extension. Specifically, the CBO predicts a 4.3% increase in gross benchmark premiums in 2026 as people “remain temporarily enrolled” immediately following the enhanced credit’s expiration. But it predicts a 7.7% increase by 2027, and a 7.9% average increase between 2026 and 2034.
The Congressional Research Service (CRS), however, confirmed the costliness of extending the enhanced credit in its December 4 FAQs. It put the cost of an enhanced credit at about $355 billion over a 10-year period. Meanwhile, allowing the enhancements to expire would decrease federal spending by $21 billion in fiscal year 2026, said the CRS.
Timing.
While the enhanced credit doesn’t expire until the end of 2025, proponents say an extension is needed much sooner to avoid impacts on 2026 rates. That’s because health insurers will begin planning for 2026 premiums in the first quarter of 2025, prior to rate filings with state regulators.
Open enrollment for ACA plans starts November 1, 2025, but according to the National Association of Insurance Commissioners (NAIC), “insurers must file their plans and rates with states in the first half of 2025” to make plans available by that start date.
NAIC has urged lawmakers to act before the end of 2024 so health insurers know whether the enhanced subsidies will be available as they set rates for 2026. “Without a decision on the enhanced subsidies, the rate filing and approval process will be challenging, and costly,” said NAIC in a July letter to congressional leadership.
NAIC’s letter recalls the uncertainty during 2022 rate setting, when health insurers had to file two sets of rates in some states, accounting for the presence and absence of the enhanced credit. “Developing two sets of rates was costly and confusing for insurers and reviewing them was more complicated and resource-intensive for state regulators,” said NAIC.
On December 9, Health and Human Services Secretary Xavier Becerra urged state insurance commissioners to work with issuers to minimize uncertainty in the Marketplace.
Should the enhanced credit expire, the “expected sharp decline in enrollment will have spillover effects,” said Becerra. He predicted volatility in the insurance market, adding that “higher insurance premiums and out-of-pocket costs will be especially pronounced in rural areas and states where the cost of care and coverage is higher.”
Becerra called on state insurance regulators to instruct issuers to file two sets of rates for 2026 — much as they did in 2022. The goal, he said is “mitigating the risk of operational difficulties.”
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