What is the impact of Inflation Reduction Act Health Insurance Subsidies and what happens if they run out?

As a candidate in 2020, President Biden campaigned on the Affordable Care Act (ACA) by increasing the amount of financial assistance available to people purchasing health insurance through the ACA Marketplaces. The temporary subsidies were originally enacted as part of the American Recovery and Reinvestment Act (ARPA) in 2021, which included two years of expanded subsidies (2021 and 2022). The Inflation Reduction Act (IRA), enacted in 2022, extended these enhanced subsidies for an additional three years ending after 2025.

Expanded IRA and ARPA health insurance subsidies increase the amount of financial assistance available to those already eligible for assistance under the ACA, as well as expand subsidies for middle-income individuals (with incomes at four times the poverty level, $103,280 for a family of three in 2024), many of whom were previously uninsured. These subsidies, combined with increased funding for outreach and marketing, have resulted in record high enrollment in the ACA Marketplaces program.

By the time the expanded subsidies expire at the end of next year, they will have been an integral part of the ACA Marketplaces system for 5 years, nearly twice as long as the ACA Marketplaces system has existed. Millions of members rely on the expanded subsidies, with more people receiving Marketplace insurance coverage since President Biden took office than signed up for ACA Marketplaces when the markets first opened in 2014. If the expanded subsidies expire, nearly all ACA Marketplace enrollees will face steep premium increases in 2026. However, these subsidies come at a high cost to taxpayers: the CBO projects that permanently extending the subsidies would cost $335 billion over the next ten years.

The charts below show how these subsidies have impacted coverage and premium payments, as well as the potential impact if the enhanced subsidies were discontinued. This analysis shows that:

• Most of the recent growth in ACA Marketplace enrollment has come from low-income people: since 2020, enrollment among people with incomes above 2.5 poverty levels has increased 115%.
• Expanded subsidies have reduced premium payments by 44% ($705 per year) for enrollees receiving premium tax credits. If the subsidies expire, premiums will increase substantially for most enrollees.
• Without these expanded subsidies, premiums would double or increase on average for subsidized enrollees in the 12 states using Healthcare.gov.

Although the extended subsidies expire at the end of 2025, insurers and regulators will want to know early whether the subsidies will be extended or discontinued in order to accurately determine premiums for 2026.

Since 2020, the year before the expanded subsidies went into effect, the number of people with coverage in the ACA marketplace has increased 88 percent, from 11.4 million to 21.4 million.

Over the past four years, the number of Marketplace enrollees has increased primarily due to people receiving an advance payment of the premium tax credit. Subsidy enrollment increased 106% from 9.6 million people (84% of total Marketplace enrollment) in 2020 to 19.7 million people (92% of total Marketplace enrollment). If the expanded subsidies in the Inflation Reduction Act expire, the Congressional Budget Office (CBO) expects a sharp decline in ACA Marketplace enrollment from 22.8 million in 2025 to 18.9 million next year. CBO projects that enrollment will continue to fall in subsequent years, reaching 15.4 million in 2030.

Due to the availability of plans with no premiums or very low premiums, often with very low deductibles, made possible by expanded subsidies, the majority (83%) of ACA Marketplaces enrollees from 2020 through 2024 are low-income (with incomes up to 2.5 times the federal poverty level). While these plans with minimal or no premiums are available nationwide, they are available to a larger share of ACA Marketplace enrollees in the ten states that have not expanded Medicaid.

While most of the recent growth in enrollment has come from low-income individuals, there has been significant growth in all population groups. From 2020 to 2024, the number of Marketplace participants with incomes below 2.5 poverty levels increased 115%, while the number of participants with incomes between 2.5 and 4 poverty levels increased 36% and the number of participants with incomes above 4 poverty levels increased 57%.

ACA Marketplace program participants with incomes just above the federal poverty level (up to 2.5 times the poverty level) are eligible for cost-sharing reductions (CSRs) that reduce deductibles and other costs. From 2020 to 2024, the number of program participants receiving cost-sharing reductions increased 91%, from 5.6 million to 10.6 million participants.

The Inflation Reduction Act's enhanced subsidies make reduced cost-sharing plans more affordable. For example, silver plans with 0 premiums and very low deductibles are available to the lowest income participants (those with incomes at or below 1.5 times the poverty level), whereas before the enhanced subsidies, these participants would have had to pay about 2-4% of family income for a plan with reduced deductibles.

The Inflation Reduction Act's enhanced subsidies reduce net premium costs by an average of 44% for program participants receiving premium tax credits, although the amount of savings varies from person to person. In 2024, the average annual premium payment would have been $1,593, but instead it was $888 thanks to the Inflation Reduction Act subsidies, which average $705 per participant.

On average, the total annual premium in 2024 ($7,320) would be the same as in 2020 ($7,132), but the federal government would pay a larger share of the total premium (a subsidy of $6,432 or 88% of the average annual premium in 2024, compared to a subsidy of $5,942 or 83% of the average annual premium in 2020).

The increased subsidies work by reducing the amount a patient must pay for a benchmark silver plan. Under the Inflation Reduction Act, the amount that enrollees must pay as a monthly premium for a silver plan varies by income, on a sliding scale, with low-income enrollees paying up to $0 and high-income enrollees paying up to 8.5% of their household income.

Without enhanced subsidies, a participant earning just above the poverty level would have to pay about 2% of their income for a benchmark silver plan. However, with enhanced subsidies, most participants with income near the poverty level would be eligible for benchmark silver plans at zero cost. Similarly, without the enhanced subsidies, a plan participant with income just above 400% of the poverty level would have to pay the full cost of the monthly premium (because they would not be eligible for financial assistance), but with the enhanced subsidies, they would pay no more than 8.5% of their family income.

The chart above shows the percentage increase in premiums for a 45-year-old person buying a silver plan if the enhanced subsidies were discontinued. (Since data on premiums for 2025 and federal poverty rates have not yet been released, the chart is based on premiums and poverty rates for 2024).

Low-income enrollees would experience the steepest percentage increase in annual premiums if the enhanced subsidies were waived. For a 45-year-old plan participant earning $25,000 (166% of the poverty level), annual premiums would increase by an average of 573%, or $917, for a basic silver plan (an increase from $160 per annual premium with enhanced subsidies to $1,077 without enhanced subsidies). Prior to the enhanced subsidies, plan participants with incomes above 400% of the poverty level were not eligible for premium assistance. Without the enhanced subsidies, for a 45-year-old with an income of $65,000 (432% of poverty), the premium will increase by $941 per year, from $5,525 to $6,466 (the full cost of the basic silver premium).

Prior to ARPA and the Inflation Reduction Act, individuals earning more than 400% of the poverty level were not eligible for premium subsidies in the ACA marketplace and had to pay the full cost of monthly premiums. CMS estimates that in 2024, people with incomes above four times the poverty level in HealthCare.gov states will save an average of $4,248 per year due to the expanded subsidies provided by the Inflation Reduction Act. Without the subsidies provided by the Inflation Reduction Act, ACA Marketplace enrollees with middle income and incomes just above four times the poverty level would have been denied health insurance coverage in many cases. The number of ACA Marketplace enrollees with incomes above four times the poverty level has quadrupled, from about 400,000 in 2021 to 1.5 million in 2024.

Inflation Reduction Act subsidies are available nationwide, but current data on the amount of expanded subsidies is only available in the 32 states that use Healthcare.gov. In those states, 15.5 million people receive an average of $624 per year in expanded subsidies through the Inflation Reduction Act. On an annualized basis, this translates to nearly $10 billion in expanded subsidies through the Inflation Reduction Act that residents of these 32 states will receive in 2024. Among states using Healthcare.gov, the majority (52%) of this federal funding is for residents of Florida ($2.2 billion, or 22%), Texas ($1.5 billion, or 16%), Georgia and North Carolina ($660 million, or 7%, each). All of these states have high populations, but also stand out because most have not expanded Medicaid and therefore have more low-income residents who are eligible for substantial subsidies under the ACA.

The Congressional Budget Office estimates that permanently maintaining expanded subsidies would increase direct spending by $275 billion and reduce revenues by $60 billion, with a net impact on the federal budget of $335 billion over the 10-year period from 2025 to 2034. This amount reflects the increased enrollment caused by the expanded subsidies and projections of rising premiums over time.

If the Inflation Reduction Act's enhanced subsidies expire, premium payments will increase significantly in 2026 for the vast majority of ACA marketplace participants.

The results of the 2024 election will likely play an important role in whether expanded subsidies are extended beyond 2025. The map above shows the number of ACA Marketplace program participants in 2024 by 118th Congressional District. (While some states have changed their district boundaries in anticipation of the 2024 election for the 119th Congress, most states have kept the boundaries the same as they were in the 2022 election for the 118th Congress.)

Overall, Marketplace enrollment by congressional district is highest in the South. At least 10% of the population is enrolled in ACA Marketplace plans in all congressional districts in Florida and South Carolina, as well as most counties in Texas, Georgia, and Utah. Florida has nine congressional districts with at least 20% of the population enrolled in Marketplace plans.

If the Inflation Mitigation Act's expanded subsidies expire at the end of next year, the vast majority of ACA marketplace enrollees will see significant increases in their premiums. However, these increases will vary from state to state because of differences in the income and age of people living in each state, as well as differences in the premiums charged by insurers in each state.

For subsidized enrollees in states using Healthcare.gov, premium payments will average about $672 per year in 2024 ($56 per month). Without enhanced subsidies, the average annual premium payment would increase 93% ($624) to $1,296.

Based on premiums for 2024, if these enhanced premium subsidies were to expire, annual premiums would increase on average by double or more for subsidized marketplace participants in at least 12 states. Because this data is only available for states using Healthcare.gov, there may be other states in which average insurance payments would double. Among states using Healthcare.gov, average annual insurance payments for subsidized enrollees will increase the most in Wyoming (195%, or $1,872), Alaska (125%, or $1,836), and West Virginia (133%, or $1,404). In Texas, annual premium payments would increase by an average of 115%, or $456, for the 3.4 million people receiving premium tax credits if those subsidies were to expire.

If the expanded subsidies expire, marketplace enrollment growth is projected to reverse, and the health of remaining enrollees may be worse, on average, than under the expanded subsidies. If insurers expect to lose healthier participants, they could raise premiums in 2026.

Each year in early spring, insurers prepare and then submit detailed rate filings to state regulators with proposed premium changes for the following year. Regulators evaluate insurers' justifications for premium increases, provide them with feedback, and ask for changes or additional justifications if they deem it necessary. This process stretches into the summer of each year.

For 2026, when the Inflation Mitigation Act subsidies expire, insurers will be required to submit their premium proposals and justifications in early 2025 and finalize premiums by August 2025, prior to the open enrollment period for 2026, which begins November 1, 2025.

Because of this lengthy process, insurers, as well as state and federal regulators, will want to know whether the enhanced subsidies will expire or be extended well in advance of the expiration or extension. In anticipation of the Inflation Mitigation Act, uncertainty about whether the expanded subsidies will be extended has caused some insurers to raise premiums. In April 2022, the National Association of Insurance Commissioners sent a letter to Congress, signed by regulators from Idaho, Missouri, Connecticut, and North Dakota, urging Congress to "act by July of this year to extend the extended premium tax credits beyond their expiration date," which at that time was at the end of 2022.