ACA-enhanced subsidy debate centers on affordability

As a critical enrollment deadline approaches, Democrats and Republicans appear to be at an impasse over whether and how to extend enhanced premium subsidies for health insurance purchased on the Affordable Care Act Marketplace. Policy experts say affordability is central to that fight.

John Graves, a professor of health policy and medicine at Vanderbilt University, said the political standoff appears to be a kind of “proxy debate” over the rising and rising costs of health insurance and health care in the United States.

“The crux of this discussion is where does our country stand in terms of how we should help people get health insurance,” Graves said.

Two dueling health measures were rejected in the Senate on Thursday, raising the possibility that enhanced subsidies will expire as planned at the end of the year, raising the possibility that health care will become a key political issue in the run-up to next year’s midterm elections.

According to KFF, a nonpartisan health policy research group, ACA enrollment has increased nationwide since 2020, but it is concentrated in states won by President Donald Trump in the 2024 election, accounting for 88% of the increase in enrollment over the past five years. Enrollment has tripled in Texas, Mississippi, West Virginia, Louisiana, Georgia and Tennessee.

Democrats proposed extending for three years enhanced subsidies that lower premiums for ACA members.

In 2025, approximately 22 million people, or approximately 92% of all subscribers, received these subsidies. KFF estimates that without the subsidy, premiums for subsidy recipients would more than double by 2026.

Republicans proposed eliminating the enhanced subsidy and instead paying up to $1,500 into consumers’ health savings accounts.

Neither bill received enough votes, but four Republicans (Sen. Susan Collins of Maine, Sen. Josh Hawley of Missouri, and Sens. Lisa Murkowski and Dan Sullivan of Alaska) voted in favor of the Democratic version.

“It is hard to see how a bill could be assembled and passed by this time next week, when Congress is scheduled to adjourn for the rest of the year,” Chris Krueger, a strategist at Washington Research Group, which provides policy analysis to investors, said in a research note Thursday.

“Thus, we will begin 2026 with the threat of a government shutdown at the end of January without addressing the core issue of the 43-day government shutdown, the ACA subsidies/credits,” he added.

The ACA, also known as Obamacare, established a market for private health insurance as a kind of last resort for people who cannot obtain insurance elsewhere, perhaps through their employers or public programs such as Medicaid or Medicare.

In 2025, approximately 24 million people purchased insurance through the ACA Marketplace, including small business owners, early retirees, gig workers, freelancers, and more

Its share is small compared to other channels.

According to the Centers for Medicare and Medicaid Services, approximately 68 million people were covered by Medicare Parts A and/or B in 2024, and 82 million were covered by Medicaid and the Children’s Health Insurance Program.

Most people obtain insurance through their employer.

According to KFF, approximately 154 million people under the age of 65 had employer-sponsored health insurance in 2025.

Gerald Anderson, a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health, said workers with employer-sponsored health insurance typically receive subsidized coverage, as do ACA members who receive premium deductions.

The average annual premium for employer-paid family coverage was about $27,000 in 2025, according to KFF. Coverage for a family of four.

However, workers do not pay the full amount. They contributed just $6,850, or about 25%, of the total premium, according to KFF. Employers subsidized the rest, paying an average of about $20,000.

By comparison, if the enhanced ACA subsidies expire next year, an average family of four with an income of $130,000 would pay the full unsubsidized premium for a marketplace policy.

Their annual premiums would jump to about $23,900, more than double the subsidized cost of $11,050 and an increase of almost $12,900, according to the Center on Budget and Policy Priorities.

“If you put ACA people in the same position as most of us, enhanced subsidies make a lot of sense,” Anderson said. “They’re making it very similar to (people) who have private insurance through our employers.”

Most workers with employer-provided insurance also receive other subsidies.

The federal government typically excludes workers’ health insurance premiums from their taxable income and payroll taxes. That’s true for about 90% of workers with employment-based insurance, according to 2022 data from the Congressional Budget Office.

According to the CBO, this is one of the federal government’s largest tax expenditures. The tax cuts would cost the federal government $3.9 trillion over the next 10 years, or $5.9 trillion when payroll tax losses are taken into account, according to an October analysis by the Tax Foundation.

A 10-year extension of the current ACA’s enhanced insurance premium tax credits is estimated to cost approximately $350 billion from 2026 to 2035. This is in addition to $1 trillion in insurance premium tax credits over the next 10 years, according to the Tax Foundation.

ACA subsidies, also known as premium tax credits, have been available since 2014, during the early days of Obamacare.

Congress has proposed stronger subsidies starting in 2021 under the Biden administration as part of the COVID-19 relief package. Democrats extended it to 2025 the following year.

The enhanced subsidies have made it available to more households, and the maximum out-of-pocket premiums have been set at 8.5% of household income. Previously, recipients’ out-of-pocket costs were limited to about 9.5% of their income.

“The United States during the pandemic essentially entered into a temporary social contract,” Graves said. “And that contract says that through the design of these enhanced subsidies, no American will have to pay more than a certain percentage of their income for health insurance.”

Households earning more than 400 percent of the federal poverty line (about $62,600 for a single person and $128,600 for a family of four) were previously ineligible for any aid. The enhanced subsidies provided support to these middle- and above-income earners for the first time.

Nick Fabrizio, a health policy expert and associate professor at Cornell University’s Jeb E. Brooks School of Public Policy, said allowing the subsidy to lapse would expose families to the “full force” of premiums.

Premiums vary widely depending on factors such as age, income, and region.

Without enhanced subsidies, the average person’s annual out-of-pocket premiums would jump from nearly $900 in 2025 to about $1,900 in 2026, according to KFF.

People above 400% of the poverty line would lose access to premium tax credits entirely. In other words, they will pay the full unsubsidized premium.

“If the government doesn’t fund it, they have to fund it, but they don’t have the money to fund it,” Fabrizio said.

Consumers have a Dec. 15 deadline to select a health plan on the ACA Marketplace to ensure coverage begins in early 2026. Those who registered between December 16th and January 15th will not start receiving coverage until February.

Fabrizio said the subsidy extension is “necessary” to protect people from a spike in premiums next year, as Congress has little time to develop and adopt an alternative plan.

But Fabrizio also said such measures would be “incomplete” because they would do nothing to address the structural problems in the health system that continue to cause prices to rise rapidly.

“We’re really in a catch-22 situation,” he said. “It’s like putting a Band-Aid on a really big wound.”

Fabrizio said the Republican idea of ​​giving money directly to consumers in the form of HSA payments is a “brilliant” one aimed at taking power away from insurance companies. But it also has its drawbacks, he says.

For example, HSAs are only available to people with high-deductible health plans. Consumers typically incur high upfront costs before insurance pays for medical care.

“Many Americans don’t have that luxury,” Fabrizio said. “It is also not suitable for people with chronic conditions such as diabetes, heart disease, or cancer.”