Explaining the Muddle on ACA Tax Credits
As Labor Day fades in the rear-view mirror, many of us in health still have last week’s purge at the CDC on the brain. It can only further damage public health and trust in government. But it’s also the time to look forward to the health policy issues that still lie ahead.
The biggest health policy decision still to play out this year is whether or not the ACA enhanced tax credits will be allowed to expire or will be extended in some form. As of now, there is vague talk about a compromise at the end of the year, but there are still mixed signals and conflicting priorities on both sides of the aisle about how to proceed, or whether to proceed at all, and any deal on the tax credits is far from a slam dunk. What hangs in the balance is the affordability of the health coverage that 24 million people now get in the federal and state marketplaces.
The enhanced credits were established by Democrats during Covid under the American Rescue Plan, which increased the amount of ACA tax credits and expanded eligibility to households with an annual income over 400% of the federal poverty limit ($103,280 for a family of three signing up for coverage in 2025), capping their out-of-pocket premiums for a benchmark plan at 8.5% of income. After the introduction of the enhanced premium tax credits, enrollment in the ACA Marketplaces soared, more than doubling from 11.4 million people in 2020 to 24.3 million people in 2025. The enhanced premium tax credits were originally set to expire at the end of 2022 but were extended as part of the Inflation Reduction Act. Republicans correctly say they were temporary, meant to sunset in 2026. Democrats counter that was the best they could do to improve coverage at the time, leveraging a crisis, and in any event the influx of more than 10 million people into the Marketplaces has created a changed situation. Democrats had also advocated increasing the credits before Covid hit.
The consequences of allowing the credits to lapse will be serious: An increase of more than 75% in premiums on average for enrollees; a 90% increase in many rural areas; about 4 million more uninsured people, according to CBO, and as much as a 50% decline in Marketplace enrollment, according to the actuaries at Wakely, when combined with the other changes to the ACA made in the budget and spending law. The magnitude of the impact is one reason why some refer to this as a “partial repeal” of the ACA, although other important provisions of the law, such as protections for pre-existing conditions, remain intact. You can check out the KFF tax credit calculator to see how enrollees at different income levels across the country will be affected.
You would think this would be enough to rivet the attention of Democrats, Republicans and the media, but it has not, at least, not yet.
Democrats haven’t decided what their legislative priorities are for the rest of the year or when to push for them. Some may also see the expiration of the credits as a hammer they can use against Republican candidates in the midterms in tight races. Or they may see this as the Republicans’ problem to solve (even if they won’t solve it). Paying for extending the credits with offsetting savings is an issue for both sides (the estimates, which aren’t public yet, are close to $350 billion over 10 years, suggesting a compromise on a more limited extension). Some seem to favor bargaining for undoing some of the Medicaid cuts first, on the theory that the issue already has traction with voters. All these are plausible but conflicting priorities, although the Medicaid cuts phase in over 10 years with most hitting after the midterms and some after 2028, and Democrats will have future bites at that apple. The biggest change—the work requirements—are superficially popular, and almost certainly not negotiable.
By contrast, not extending the tax credits takes a much bigger bite out of the ACA and crucially, would hit voters next year before the midterms. It would also directly affect working people—the voters Democrats are trying to win back. With so much of the ACA on the line, it would seem likely that the ACA tax credits would emerge as the top priority for Democrats, but that has not happened, at least yet. President Obama also has not forcefully called out the issue.
For their part, Republicans can’t decide how much they care. Paying for the extension is a big issue for many Republicans. Letting the credits expire merely returns the ACA to where it was before Covid, many argue. Many Marketplace enrollees will still receive government subsidies, just less generous support, they also argue. More broadly, while they no longer want to be tarred with repealing the ACA, they are fine with disassembling significant parts of it. They also know that the credits expire automatically at the end of the year without them having to vote for an unpopular bill to make it happen. But some, particularly those in vulnerable districts, worry they will take a hit in the midterms when millions feel the pain of higher premiums, including in red states that did not expand Medicaid, such as Texas and Florida. Many might be ok with a short term or modified expansion.
The media too has been less than fully focused on the issue although coverage has picked up recently. Because the tax credit extension was not part of the tax and spending bill, it did not receive much coverage compared to Medicaid, even though, from the start, not extending the credits was very much a part of the larger plan and overall set of policy changes to roll back federal health spending and the federal role in health that would impact coverage and drive up the number of uninsured. Washington thinks committee by committee and bill by bill, and the media often follows what politicians say and do, even when there was clearly a larger plan to be explained to the public and other dominos still to fall. The ACA provisions in the bill also received scant coverage (save for this notable Washington Post editorial). Those provisions were technical but consequential, and a lot was wrapped into the fast-moving bill, which is a different challenge for news organizations. The result: the ACA, previously the hot issue, was largely ignored while Medicaid, historically under-covered but targeted for cuts in the “One Big Beautiful Bill,” got much more attention.
Taken together, the conflicting Democratic priorities, Republican ambivalence about, and opposition to, extending the credits, and early media inattention, has generated confusion and lack of focus on one of, if not the biggest, single health policy decisions of the year. Extending the credits is a heavy lift and the issue would need to move to the top of the list for the credits to be extended—for Democrats because they decide it belongs there, and for Republicans to avoid punishment at the polls. It remains to be seen if that will happen, if the media will focus, and when and if the public will engage. There is no other health decision currently pending that will affect the health coverage of so many people.
