The Enhanced Health Insurance Premium Tax Credits

The federal government is currently shut down due to the failure by Congress to pass fiscal year 2026 spending bills. The House of Representatives has passed a short-term bill to continue funding at levels previously passed by Congress — known as a continuing resolution — but the Senate has repeatedly failed to invoke cloture and allow a vote on the bill. Most Democratic Senators have voted against cloture, essentially utilizing the filibuster, because they want to use that leverage to negotiate concessions by Republicans. Publicly, Democrats have suggested that they are seeking an extension of the enhanced premium tax credits for health insurance plans purchased through the Health Insurance Marketplace. But what exactly are these tax credits and why are they important? I have been purchasing my family's health insurance through the District of Columbia's health care exchange, DC Health Link, since it opened in 2014. My family has benefited from the enhanced premium tax credits beginning with their introduction in mid-2021. Therefore, I can discuss this topic not only from a theoretical point of view, but based on personal experience as well.

The Affordable Care Act, or what is generally referred to as Obamacare, was signed into law in 2011. It is a massive law that had a tremendous impact on the American healthcare system. One provision of the ACA was the creation of health insurance marketplaces. Americans most commonly receive health insurance through their employer. Large employers are able to negotiate competitive prices with health insurance companies. Individuals and small employers, however, are generally at a disadvantage and face high costs. The authors of Obamacare saw health insurance marketplaces as creating a competitive environment through which individuals and small businesses could combine their purchasing power and encourage competition among health insurance companies. States could either create their own exchanges, such as D.C. did, or rely on the federal government's exchange, HealthCare.gov.

The launch of the health insurance exchanges in 2014 allowed me to quit the job I had at the time and begin working on D.C. Urban Moms and Dads full-time. The exchange, and other Obamacare provisions, ensured that we could purchase a high-quality, affordable insurance plan, regardless of any preconditions. We have purchased our family's health insurance through DC Health Link every year since. Over the years, I've encountered considerable misunderstanding about the health insurance exchanges. Many individuals appear to be under the impression that "Obamacare" is a single plan similar to Medicare. In reality, exchanges offer a range of plans with different features, and many of the plans are comparable to, or even better than, the plans offered by employers. Initially, DC Health Link mostly met its expectations. For individuals, four different insurance companies offered plans. These, like all marketplace plans, were divided between bronze, silver, gold, and platinum plans, depending on their benefits. There were enough options to allow choosing a set of benefits that fit our family's needs at a cost we were willing to pay.

The ACA provided health insurance premium tax credits for households with incomes between 100% and 400% of the Federal Poverty Level (FPL). These were refundable tax credits that lowered the monthly health insurance premiums for those who were eligible. My family was not eligible, but initially it was not a problem. We were able to purchase a plan comparable to the employer-provided plan I had previously at an affordable price. As the years went by, however, the competition on DC Health Link decreased. Two of the original four insurance companies dropped out, leaving only Blue Cross and Keiser. In addition, costs increased. At some point, we were forced to switch to a lower-level plan that had less costly premiums, but higher deductibles. Then, in 2021, the American Rescue Plan Act introduced a new formula for premium tax credits. The new credits were referred to as enhanced premium tax credits and are what Democrats are fighting to continue now. Under the American Rescue Plan Act formula, the second lowest cost silver plan became a benchmark. Income limits were dropped. Instead, households were expected to pay the cost of the second lowest cost silver plan up to 8% of their income. A tax credit would be provided for any difference above that. In other words, if the cost of the second lowest cost silver plan was X and 8% of a family's income was Y and X > Y, tax credits would be provided for the difference between X and Y, which we can call Z. Consumers were not limited to the second lowest cost silver plan, however. Z could be applied to a cheaper plan to make it even cheaper, or to a more expensive plan to make it affordable. In practice, my family was able to upgrade from the lower-level plan we had resorted to earlier to a plan comparable to what we had had initially.

The American Rescue Plan Act only provided for the enhanced premium tax credits to run for 2021 and 2022. However, the Fiscal Year 2022 Budget Reconciliation Law extended the enhanced credits until the end of 2025. Trump's One Big Beautiful Bill Act did not extend the credits further, and as a result, they will end this year. The loss of the premium credits will be financially very difficult for many families, including mine. If we keep our current plan and its price stays the same, our premiums would increase from 8% of our annual income to over 17%. However, prices are almost certain to increase, and we can probably expect to pay close to 20% of our income, if not more, for our current plan. Obviously, we will have to switch to a lower-cost plan. Many other families, however, will be in much worse situations. We are lucky that we can afford insurance even under the most arduous scenario. Others can't. A Washington Post article published today says that if the enhanced credits are discontinued, "4.8 million will become uninsured".

While the health insurance marketplaces were at times controversial, they proved fairly popular with individuals and small businesses. The Washington Post article says that "Nearly half of the adults on ACA marketplace plans are self-employed, small-business owners, or small-business employees, according to an analysis from KFF, an independent health policy research organization." The article also notes that "Almost everyone who got their health insurance through an ACA marketplace in 2025 received the enhanced premium tax credit". The marketplaces have been particularly popular among those who are self-employed, a group that also receives the enhanced subsidies. The article states that "At least a quarter of chiropractors, musicians, real estate brokers, farmers, dentists, and manicurists currently benefit from the tax credit." The Post says that 8 percent of the country receives the enhanced tax credits. While that doesn't seem like many, they tend to be concentrated in certain mostly Republican states. "Twenty-four percent of Floridians under 65 benefit from the tax credit, as do 14 percent of Georgians." Initially, members of Congressional staffs were required to purchase their health insurance through a healthcare exchange, generally DC Health Link, and, as far as I know, are still required to do so. Therefore, they also probably have a vested interest in this topic.

Obviously, I have a personal interest in seeing the enhanced tax credits extended. But politically, I wonder why the Democrats seem hellbent on protecting the Republicans from themselves. Wouldn't it be better, politically if not morally, to allow the enhanced credits to expire and leave it to the Republicans to deal with their upset constituents? This seems like a bomb ready to go off in the Republicans’ face. Republican Representative Marjorie Taylor Greene, who has heard from her adult children about the price increases they will face, has broken with Republicans and urged that the enhanced credits be extended. But short of her, most Republicans don't appear to be too interested in the topic. Republican Senate Majority Leader John Thune and Vice President JD Vance have both suggested the topic of an extension could be discussed once the government is reopened, but that is not good enough for the Democrats. Greene has suggested that Republican Senators implement the nuclear option and do away with the filibuster and pass the continuing resolution. While I think she is right about the politics of the enhanced credits, I don't think she has thought this one through. If the Republicans pass the CR without Democratic votes (or maybe only 2 or 3) and then the enhanced credits expire, they will completely own that fiasco. That would be a gift for which the Democrats can only dream.

Letters will soon go out to those who have health insurance policies purchased on ACA exchanges. The letters will indicate the price increases that those consumers will face. Those prices will reflect not only normal annual price increases, expected to be 18% this year, but also the loss of credits. When these families see their premiums more than double, members of Congress will get an earful. If the government is still closed at that time, the Democrats would be wise to give up their current demands for an extension of the enhanced tax credits — Republicans will probably be begging to provide that — and, instead, make other demands. Just waiting long enough may result in the Democrats having their cake and eating it too. Republicans will rush to extend the credits while still suffering the anger of their constituents. But, make no mistake about it, if Republicans fail to act, the ramifications are going to be extremely bad with a significant increase in uninsured and underinsured Americans.