In the coming months, work will begin on setting 2026 premiums for over 20 million people covered through the Affordable Care Act (ACA) Health Insurance Marketplace. Without Congressional action, the premium tax credits—the subsidies that make such coverage more affordable for most Marketplace enrollees—will be lowered, resulting in net premium cost for eligible enrollees spiking 25 percent to 100 percent higher, 4 million people becoming uninsured, and a destabilization of the ACA Marketplace. As time to act runs out, debate over preserving the larger premium credit has intensified.
To inform this debate, this commentary aims to examine if the increase and expansion of eligibility for premium tax credit effectively achieved its goals. In short, the enhanced tax credit has achieved its goals—and has done so efficiently and effectively. The enhanced tax credits compared to a system without them is estimated to yield:
- 43 percent more people enrolled in the Marketplace: 6.9 million people;
- 23 percent to 100 percent reduction in health insurance premiums paid by eligible enrollees; and
- 11 percent to 13 percent fewer uninsured Americans: 3.4 to 4.0 million people.
These tax credit changes should be made permanent and serve as the basis of filling in gaps caused by some states’ failing to expand Medicaid and making health coverage for all workers affordable.
What Is At Stake: Whether to End or Continue Premium Tax Credit Changes
The ACA created the Marketplace to offer private health plans to individuals and families who do not otherwise have access to affordable health coverage. In addition to ensuring that such plans meet standards for quality and benefits, the Marketplace exclusively offers financial assistance in the form of advanced premium tax credits (APTC). Generally, these tax credits are based on individuals’ projected income for the next year, are advanced to health insurers to lower the amount they collect from enrollees, and are reconciled through the tax system with actual income after the year is over. As originally designed in the ACA, APTCs are set so that the amount eligible people with a projected income between 100 percent and 400 percent of the federal poverty level (FPL) pay for a benchmark plan is no higher than a sliding-scale percent of that income. They can apply this fixed, age-adjusted credit to lower- or higher-premium plans with different levels of cost sharing, including plans with cost sharing reductions that minimize access barriers for low-income enrollees.
President Obama among others expressed concerns that the value of and eligibility for Marketplace financial assistance as originally included in the ACA was too limited to make health coverage and care truly affordable. In recognition of this, the American Rescue Plan Act (ARPA) and Inflation Reduction Act (IRA) temporarily increased the generosity of and eligibility for APTCs from January 2021 through December 2025.
A long-standing critic of the ACA’s approach to financial assistance recently released an analysis claiming that the ARPA and IRA tax credit boost should be discontinued due to fraud. This analysis asserts that more people enrolled in coverage in 2024 than are eligible and that some people misreported their income to get larger tax credits, resulting in wasteful spending. The methodology behind this analysis has been criticized for not accurately comparing income data; minimizing the impact of the post-pandemic end of continuous Medicaid coverage; and attributing to the temporary policy other program impacts and contextual factors that skew the recommendations.
Without Congressional action, the premium tax credits will be lowered, resulting in net premiums for eligible enrollees spiking by 25 to 100 percent, 4 million people becoming uninsured, and a destabilization of the ACA Marketplace.
A better approach to determining whether to continue the premium tax credit change is to consider a typical program evaluation framework to answer key questions. Parsing out the specific changes to health coverage and costs attributable to the ARPA and IRA premium tax credit boost is challenging. The increased tax credit occurred at an unusually volatile time that included historically wide swings in unemployment, inflation, and health care use due to the pandemic and its aftermath, and other policy changes—most specifically, the Medicaid continuous coverage requirement that started phasing out in April 2023. That said, information is available from estimates of its impact with and without the change as well as the difference in key metrics from the time before the change took effect to the present. The answers below, while not an in-depth evaluation, shed light on the value of this policy and present a case for preserving it.
Was the Change in Premium Tax Credits Implemented Effectively and Efficiently?
The enhanced financial assistance in the Health Insurance Marketplace was enacted in ARPA in March 2021 and was implemented in that year, for 2021, and for calendar year 2022. While mid-year updates tend to be challenging, neither the federally facilitated Marketplace nor state-based Marketplaces experienced significant problems making the ARPA changes. Because the value of APTC is annually updated, negligible additional costs were incurred to update educational information, cost calculator tools, and other system elements. The same would be true of a permanent extension.
While failing to continue the change in tax credit value would not result in major technology changes, it would require significant consumer outreach and assistance, since over 80 percent of Marketplace enrollees rely heavily on the credit to make their premiums affordable and thus would receive notices of significantly larger net premiums in 2026 and would likely seek to change plans, find alternative sources of coverage outside the Marketplace, or become uninsured altogether. Their plan options would likely shrink because of fewer and higher-risk enrollees in the Marketplace.
Has the Premium Tax Credit Change Been Effective at Achieving Its Goals?
The primary goal of the Health Insurance Marketplace and its financial assistance is to provide affordable, comprehensive health coverage and care to people for whom cost is a barrier, especially those who historically were disproportionately likely to be uninsured and lack access to care. Information on the experience with the enhanced affordability policy suggests it has contributed to this goal.
Marketplace Enrollment Increased
Health Insurance Marketplace enrollment increased both compared to what it would have been at a point in time without the change and over time. The nonpartisan Urban Institute and Congressional Budget Office (CBO) each conducted analyses in 2024 on the impact of the tax credit change compared to the baseline without the change, looking at coverage and costs within the same year. Both found that the change will significantly increase Marketplace enrollment: 7.2 million more in 2025 and 6.9 million more Marketplace enrollees on average from 2025 to 2034 respectively. According to CBO, this represents a 43 percent increase in average enrollment over the next decade. (See Figure 1.)
Figure 1
After being relatively steady between 2017 and 2020, Marketplace enrollment increased by 88 percent between 2020 and 2024, from 11.4 million to 21 million, according to the U.S. Department of Health and Human Services (HHS), with nearly 20 million of the 21 million enrollees receiving premium tax credits. (See Figure 2.) This included 1.4 million people made newly eligible by the policy’s extension of the APTC to individuals with income above 400 percent of FPL in 2024. The Urban Institute estimates a similar number (1.5 million) of newly eligible compared to baseline in 2025. CBO projects that this number would be higher, 3.5 million on average from 2025 through 2034, if tax credit changes are made permanent. (See Figure 3.) Given the structure of the policy, it is likely that these individuals are older and lack access to employer coverage—potentially because they are self-employed, semi-retired, or work for a small business that struggles to offer health coverage.
Figure 2
Figure 3
The diversity of Marketplace enrollees also increased after the affordability policy was implemented as described in a HHS report. Between 2020 and 2023, plan selections for Black enrollees increased by 95 percent, for Latino enrollees by 103 percent, and for American Indian and Alaskan Native enrollees by 59 percent—with the share of Marketplace enrollees who are Black rising to 13.9 percent and who are Latino rising to 28.2 percent in 2023. (See Figure 4.)
Figure 4
Uninsured Rate Fell
Both the Urban Institute and CBO estimate a similar number of uninsured covered by the policy: 4.0 million in 2025 and 3.4 million on average from 2025 to 2034 respectively. Relative to CBO’s projected baseline projections of uninsured Americans, this is a decrease of 11 percent. (See Figure 5.) The Urban Institute projection represents a 13 percent reduction in the number of uninsured Americans. The Urban Institute estimates that in 2025, the uninsured rate will drop by the greatest percentage in Alabama, Arkansas, Ohio, and Tennessee.
Figure 5
The uninsured rate in the United States also fell over time. It hit a record low in both 2022 and 2023. According to the National Health Interview Survey (NHIS), the uninsured rate was 7.6 percent in 2023, down from a rate of 9.7 percent in 2020, before the premium tax credit policy took effect, and less than half of the16 percent rate in 2010, the year the ACA was signed into law. (See Figure 6.)
Figure 6
Since the enhanced affordability policy was in effect at a similar time as the Medicaid continuous eligibility policy (which ended in April 2023), it is hard to separate their effects. That said, the NHIS report shows that the uninsured rate for nonelderly adults with income less than 100 percent of FPL—those most likely to be eligible for Medicaid—did not change between 2022 and 2023. However, the uninsured rate fell from 22.3 percent to 19.1 percent for those with income between 100 percent and 199 percent of FPL, and from 14.2 percent to 11.5 percent for those with income between 200 percent and 400 percent of FPL—the income groups targeted by the tax credit policy.
Net Marketplace Premiums Fell and Plan Choices Increased
In addition to people becoming insured through the Marketplace, people already in it received some benefit that helped with affordability in a challenging economic time. HHS estimated that, in 2023, the enhanced APTC provided 15 million people with more than $800 annually in additional assistance. Compared to what they would have been without the change, the Urban Institute estimates that, in 2025, net premiums for enrollees will be lower by 23 percent for enrollees with income between 300 percent and 400 percent of FPL, 50 percent lower for enrollees with income between 200 percent and 300 percent of FPL, and 80 to 100 percent lower for those with income below 200 percent of FPL. For enrollees with income above 400 percent of FPL who do not qualify for tax credits under current law, the tax credit policy reduces premiums by an estimated 45 percent. (See Figure 7.)
Figure 7
In both 2023 and 2024, 80 percent of Marketplace consumers could find a plan at HealthCare.gov for $10 or less per month compared to only 36 percent of APTC-eligible enrollees in 2020, the year before the time-limited policy took effect.
The increased enrollment from the affordability enhancement likely contributed to an increase in the choice of health insurers in the Marketplace. The percent of HealthCare.gov enrollees with a choice of three or more plans is 96 percent in 2024 and was 93 percent in 2023, according to HHS. This compares to 68 percent with such choices in 2020. (See Figure 8.) Research suggests that competition in the Marketplace lowers overall premiums, which in turn reduces the federal costs of the tax credits and premiums for enrollees not eligible for them.
Figure 8
Cost Sharing for Marketplace Enrollees Dropped
The design of the ACA is to set the premium tax credit to a benchmark plan and then allow eligible people to choose the plan whose monthly premium and cost sharing works best for them. The additional financial assistance for premiums increased the ability of eligible people to reduce their deductibles, copayments, and coinsurance for service use, if they chose to do so. Many have done so. The Urban Institute examined the combination of premiums and cost sharing. It estimates that the total spending for an enrollee with income below 150 percent of FPL will be $619 lower under the tax credit change due to lower premiums, switching to lower cost sharing plans, and lower cost sharing as more healthy people join the Marketplace. Looking over time, one analysis of Marketplace data found that, among people who selected a plan on HealthCare.gov, median individual deductibles dropped by almost half, from $750 to $400, between 2021 and 2023. (See Figure 9.) The number of Marketplace enrollees getting cost sharing reductions rose by 91 percent between 2020 and 2024.
Figure 9
Access to Health Care Improved
National Health Interview Survey data analyzed by the Urban Institute showed improved access to care for people eligible for the increased and expanded premium tax credits between 2019 and 2022. For example, the percent of nonelderly adults with income between 138 percent and 249 percent of FPL who reported delaying or foregoing needed medical care in the past year declined from 18.4 percent to 14.9 percent. Similarly, for the same group, the share of nonelderly adults who reported that they did not get needed medications or did not take medications as prescribed due to cost dropped from 13.7 percent to 10.5 percent. Skipping medications also fell for those with income above 400 percent of FPL who were newly eligible for tax credits, from 4.8 percent to 3.8 percent.
Has the Premium Tax Credit Change Been Cost Effective?
Much of the criticism of the larger tax credit (and the tax credit itself) characterizes it as a wasteful use of the government/taxpayers’ money. But a close look at estimates from the nonpartisan Congressional Budget Office (CBO) and other sources suggest that the federal cost of people newly covered due to the premium tax credit change is consistent with federal subsidies for comparable sources of coverage.
Public Cost of the Enhanced Financial Assistance Is Relatively Low
CBO projects that the vast majority (89 percent) of the federal budget cost of the permanent extension would be for new enrollees in the Marketplace, with 11 percent going to increased credits for those already in the Marketplace. It estimates that the average annual financial assistance per new enrollee of a permanent extension would be $5,370 (less than $450 per month) over the 2025 to 2034 budget window—including the original and extra amount, and not counting the premium that enrollees pay.
CBO estimates that about half of the 6.9 million net new enrollees were previously uninsured, with a small number having had individual insurance outside of the Marketplace. Given that 80 percent of uninsured people are in households with income below 400 percent of FPL, the newly insured enrollees’ average annual premium tax credit is probably closer to CBO’s estimate of $7,510 for new Marketplace enrollees with income below 400 percent of FPL. For comparison, CBO projects that, for the same time period, the average federal per-capita cost of Medicaid for the expansion group (which is most comparable to enrollees in the Marketplace) will be $9,930—suggesting that the tax credit spending for newly insured people is reasonable.
The other half of new enrollees, according to CBO, come primarily from employers that no longer offer coverage due to the permanent enhanced financial assistance policy. CBO explains that people affected by the change in employer-based coverage tend to have higher income than other Marketplace enrollees. CBO’s projected average premium tax credit for new Marketplace enrollees with income above 400 percent of FPL is $3,271. This compares to CBO’s estimates of $4,350 in annual tax benefit provided for employer coverage for those moving from it to the Marketplace. Unlike APTC, the employer coverage tax benefit increases with income. A critic of this policy notes that the tax break would be $7,333 for a worker with a typical family policy at the 33 percent tax bracket in 2021. The employer tax break has no rules for eligibility, benefits, or the quality of coverage, unlike APTC. Again, this suggests a relatively reasonable public cost of coverage under the enhanced premium tax credit policy for those moving from employer coverage. (See Figure 10.)
Figure 10
Urban Institutes’ projections found similar effects of making the increased financial assistant permanent and put these numbers into context. They estimate that the reduction in the uninsured rate would be 13 percent under an extension—over four times their estimate of the reduction in the percent of people with employer-sponsored insurance, which would remain the predominant source of coverage.
Employer Coverage Has Not Eroded
A longstanding concern about expanding health coverage through the Marketplace is that it will “crowd out” employer-based coverage. While the Urban Institute and CBO analyses estimate a small percent reduction relative to the baseline, actual trends over time show that employer-based coverage did not erode either after the launch of the Marketplace in 2014 or in 2022 and 2023 when the additional tax credits were fully implemented. The percentage of nonelderly Americans with employer-sponsored coverage has remained steady between 2009 (57.2 percent) and 2022 (57.5 percent). (See Figure 11.) The percentage of workers at firms that offer some type of health benefit has also been steady: 92 percent in both 2008 and 2023.
Figure 11
Conclusion: Make Permanent and Build on the ACA Affordability Improvements
This review of the effects of the increased and expanded eligibility for Advanced Premium Tax Credits (APTC) for the Health Insurance Marketplace suggests it has worked well. It was easy to implement and could be extended with little effort. It contributed to higher and more diverse Marketplace enrollment, reduced uninsurance, lower premiums, and lower cost sharing. Its cost per enrollee has been reasonable relative to other benchmarks and it has not resulted in significant disruption of employer coverage. Problems such as instances of agents and brokers fraudulently enrolling people in Marketplace plans should—and are—being addressed by the Biden–Harris administration’s actions and Congressional proposals, but can be done so in a targeted way without ending the tax credit policy. Letting the policy expire would effectively cut financial assistance for millions, with wide-scale disruption.
The National Association of Insurance Commissioners have urged Congress to act by the end of 2024 to continue the tax credit policy. Failing to do so, the commissioners explain, would “roil insurance markets.” In addition to the effects previously described, they anticipate higher premiums will drive out younger enrollees, raising premiums for older enrollees and those no longer qualifying for premium tax credits with income above 400 percent of FPL—yielding a smaller, worse risk pool. Exacerbating this would be lower state reinsurance funding, further raising premiums. They also note that the impact will extend to health care providers—hospitals, physicians, nurses, and pharmacies—since more Americans will become uninsured.
This review not only suggests that the temporary financial assistance policy should be continued and made permanent, but that the Health Insurance Marketplace could serve as a platform for further health system improvements. As has been suggested in other legislation, it could fill in the Medicaid gap in states that do not act to do so. It could become a more efficient source of coverage for small businesses. And its tax credit structure could be a model for reforming employer-sponsored insurance. In short, the recent Marketplace changes have improved the health system and could continue to do so with an extension and expansion.
Tags: affordable care act, tax credits, expanding coverage
Enhanced ACA Marketplace Tax Credits Worked—And Shouldn’t Be Eliminated
In the coming months, work will begin on setting 2026 premiums for over 20 million people covered through the Affordable Care Act (ACA) Health Insurance Marketplace. Without Congressional action, the premium tax credits—the subsidies that make such coverage more affordable for most Marketplace enrollees—will be lowered, resulting in net premium cost for eligible enrollees spiking 25 percent to 100 percent higher, 4 million people becoming uninsured, and a destabilization of the ACA Marketplace. As time to act runs out, debate over preserving the larger premium credit has intensified.
To inform this debate, this commentary aims to examine if the increase and expansion of eligibility for premium tax credit effectively achieved its goals. In short, the enhanced tax credit has achieved its goals—and has done so efficiently and effectively. The enhanced tax credits compared to a system without them is estimated to yield:
These tax credit changes should be made permanent and serve as the basis of filling in gaps caused by some states’ failing to expand Medicaid and making health coverage for all workers affordable.
What Is At Stake: Whether to End or Continue Premium Tax Credit Changes
The ACA created the Marketplace to offer private health plans to individuals and families who do not otherwise have access to affordable health coverage. In addition to ensuring that such plans meet standards for quality and benefits, the Marketplace exclusively offers financial assistance in the form of advanced premium tax credits (APTC). Generally, these tax credits are based on individuals’ projected income for the next year, are advanced to health insurers to lower the amount they collect from enrollees, and are reconciled through the tax system with actual income after the year is over. As originally designed in the ACA, APTCs are set so that the amount eligible people with a projected income between 100 percent and 400 percent of the federal poverty level (FPL) pay for a benchmark plan is no higher than a sliding-scale percent of that income. They can apply this fixed, age-adjusted credit to lower- or higher-premium plans with different levels of cost sharing, including plans with cost sharing reductions that minimize access barriers for low-income enrollees.
President Obama among others expressed concerns that the value of and eligibility for Marketplace financial assistance as originally included in the ACA was too limited to make health coverage and care truly affordable. In recognition of this, the American Rescue Plan Act (ARPA) and Inflation Reduction Act (IRA) temporarily increased the generosity of and eligibility for APTCs from January 2021 through December 2025.
A long-standing critic of the ACA’s approach to financial assistance recently released an analysis claiming that the ARPA and IRA tax credit boost should be discontinued due to fraud. This analysis asserts that more people enrolled in coverage in 2024 than are eligible and that some people misreported their income to get larger tax credits, resulting in wasteful spending. The methodology behind this analysis has been criticized for not accurately comparing income data; minimizing the impact of the post-pandemic end of continuous Medicaid coverage; and attributing to the temporary policy other program impacts and contextual factors that skew the recommendations.
A better approach to determining whether to continue the premium tax credit change is to consider a typical program evaluation framework to answer key questions. Parsing out the specific changes to health coverage and costs attributable to the ARPA and IRA premium tax credit boost is challenging. The increased tax credit occurred at an unusually volatile time that included historically wide swings in unemployment, inflation, and health care use due to the pandemic and its aftermath, and other policy changes—most specifically, the Medicaid continuous coverage requirement that started phasing out in April 2023. That said, information is available from estimates of its impact with and without the change as well as the difference in key metrics from the time before the change took effect to the present. The answers below, while not an in-depth evaluation, shed light on the value of this policy and present a case for preserving it.
Was the Change in Premium Tax Credits Implemented Effectively and Efficiently?
The enhanced financial assistance in the Health Insurance Marketplace was enacted in ARPA in March 2021 and was implemented in that year, for 2021, and for calendar year 2022. While mid-year updates tend to be challenging, neither the federally facilitated Marketplace nor state-based Marketplaces experienced significant problems making the ARPA changes. Because the value of APTC is annually updated, negligible additional costs were incurred to update educational information, cost calculator tools, and other system elements. The same would be true of a permanent extension.
While failing to continue the change in tax credit value would not result in major technology changes, it would require significant consumer outreach and assistance, since over 80 percent of Marketplace enrollees rely heavily on the credit to make their premiums affordable and thus would receive notices of significantly larger net premiums in 2026 and would likely seek to change plans, find alternative sources of coverage outside the Marketplace, or become uninsured altogether. Their plan options would likely shrink because of fewer and higher-risk enrollees in the Marketplace.
Has the Premium Tax Credit Change Been Effective at Achieving Its Goals?
The primary goal of the Health Insurance Marketplace and its financial assistance is to provide affordable, comprehensive health coverage and care to people for whom cost is a barrier, especially those who historically were disproportionately likely to be uninsured and lack access to care. Information on the experience with the enhanced affordability policy suggests it has contributed to this goal.
Marketplace Enrollment Increased
Health Insurance Marketplace enrollment increased both compared to what it would have been at a point in time without the change and over time. The nonpartisan Urban Institute and Congressional Budget Office (CBO) each conducted analyses in 2024 on the impact of the tax credit change compared to the baseline without the change, looking at coverage and costs within the same year. Both found that the change will significantly increase Marketplace enrollment: 7.2 million more in 2025 and 6.9 million more Marketplace enrollees on average from 2025 to 2034 respectively. According to CBO, this represents a 43 percent increase in average enrollment over the next decade. (See Figure 1.)
Figure 1
After being relatively steady between 2017 and 2020, Marketplace enrollment increased by 88 percent between 2020 and 2024, from 11.4 million to 21 million, according to the U.S. Department of Health and Human Services (HHS), with nearly 20 million of the 21 million enrollees receiving premium tax credits. (See Figure 2.) This included 1.4 million people made newly eligible by the policy’s extension of the APTC to individuals with income above 400 percent of FPL in 2024. The Urban Institute estimates a similar number (1.5 million) of newly eligible compared to baseline in 2025. CBO projects that this number would be higher, 3.5 million on average from 2025 through 2034, if tax credit changes are made permanent. (See Figure 3.) Given the structure of the policy, it is likely that these individuals are older and lack access to employer coverage—potentially because they are self-employed, semi-retired, or work for a small business that struggles to offer health coverage.
Figure 2
Figure 3
The diversity of Marketplace enrollees also increased after the affordability policy was implemented as described in a HHS report. Between 2020 and 2023, plan selections for Black enrollees increased by 95 percent, for Latino enrollees by 103 percent, and for American Indian and Alaskan Native enrollees by 59 percent—with the share of Marketplace enrollees who are Black rising to 13.9 percent and who are Latino rising to 28.2 percent in 2023. (See Figure 4.)
Figure 4
Uninsured Rate Fell
Both the Urban Institute and CBO estimate a similar number of uninsured covered by the policy: 4.0 million in 2025 and 3.4 million on average from 2025 to 2034 respectively. Relative to CBO’s projected baseline projections of uninsured Americans, this is a decrease of 11 percent. (See Figure 5.) The Urban Institute projection represents a 13 percent reduction in the number of uninsured Americans. The Urban Institute estimates that in 2025, the uninsured rate will drop by the greatest percentage in Alabama, Arkansas, Ohio, and Tennessee.
Figure 5
The uninsured rate in the United States also fell over time. It hit a record low in both 2022 and 2023. According to the National Health Interview Survey (NHIS), the uninsured rate was 7.6 percent in 2023, down from a rate of 9.7 percent in 2020, before the premium tax credit policy took effect, and less than half of the16 percent rate in 2010, the year the ACA was signed into law. (See Figure 6.)
Figure 6
Since the enhanced affordability policy was in effect at a similar time as the Medicaid continuous eligibility policy (which ended in April 2023), it is hard to separate their effects. That said, the NHIS report shows that the uninsured rate for nonelderly adults with income less than 100 percent of FPL—those most likely to be eligible for Medicaid—did not change between 2022 and 2023. However, the uninsured rate fell from 22.3 percent to 19.1 percent for those with income between 100 percent and 199 percent of FPL, and from 14.2 percent to 11.5 percent for those with income between 200 percent and 400 percent of FPL—the income groups targeted by the tax credit policy.
Net Marketplace Premiums Fell and Plan Choices Increased
In addition to people becoming insured through the Marketplace, people already in it received some benefit that helped with affordability in a challenging economic time. HHS estimated that, in 2023, the enhanced APTC provided 15 million people with more than $800 annually in additional assistance. Compared to what they would have been without the change, the Urban Institute estimates that, in 2025, net premiums for enrollees will be lower by 23 percent for enrollees with income between 300 percent and 400 percent of FPL, 50 percent lower for enrollees with income between 200 percent and 300 percent of FPL, and 80 to 100 percent lower for those with income below 200 percent of FPL. For enrollees with income above 400 percent of FPL who do not qualify for tax credits under current law, the tax credit policy reduces premiums by an estimated 45 percent. (See Figure 7.)
Figure 7
In both 2023 and 2024, 80 percent of Marketplace consumers could find a plan at HealthCare.gov for $10 or less per month compared to only 36 percent of APTC-eligible enrollees in 2020, the year before the time-limited policy took effect.
The increased enrollment from the affordability enhancement likely contributed to an increase in the choice of health insurers in the Marketplace. The percent of HealthCare.gov enrollees with a choice of three or more plans is 96 percent in 2024 and was 93 percent in 2023, according to HHS. This compares to 68 percent with such choices in 2020. (See Figure 8.) Research suggests that competition in the Marketplace lowers overall premiums, which in turn reduces the federal costs of the tax credits and premiums for enrollees not eligible for them.
Figure 8
Cost Sharing for Marketplace Enrollees Dropped
The design of the ACA is to set the premium tax credit to a benchmark plan and then allow eligible people to choose the plan whose monthly premium and cost sharing works best for them. The additional financial assistance for premiums increased the ability of eligible people to reduce their deductibles, copayments, and coinsurance for service use, if they chose to do so. Many have done so. The Urban Institute examined the combination of premiums and cost sharing. It estimates that the total spending for an enrollee with income below 150 percent of FPL will be $619 lower under the tax credit change due to lower premiums, switching to lower cost sharing plans, and lower cost sharing as more healthy people join the Marketplace. Looking over time, one analysis of Marketplace data found that, among people who selected a plan on HealthCare.gov, median individual deductibles dropped by almost half, from $750 to $400, between 2021 and 2023. (See Figure 9.) The number of Marketplace enrollees getting cost sharing reductions rose by 91 percent between 2020 and 2024.
Figure 9
Access to Health Care Improved
National Health Interview Survey data analyzed by the Urban Institute showed improved access to care for people eligible for the increased and expanded premium tax credits between 2019 and 2022. For example, the percent of nonelderly adults with income between 138 percent and 249 percent of FPL who reported delaying or foregoing needed medical care in the past year declined from 18.4 percent to 14.9 percent. Similarly, for the same group, the share of nonelderly adults who reported that they did not get needed medications or did not take medications as prescribed due to cost dropped from 13.7 percent to 10.5 percent. Skipping medications also fell for those with income above 400 percent of FPL who were newly eligible for tax credits, from 4.8 percent to 3.8 percent.
Has the Premium Tax Credit Change Been Cost Effective?
Much of the criticism of the larger tax credit (and the tax credit itself) characterizes it as a wasteful use of the government/taxpayers’ money. But a close look at estimates from the nonpartisan Congressional Budget Office (CBO) and other sources suggest that the federal cost of people newly covered due to the premium tax credit change is consistent with federal subsidies for comparable sources of coverage.
Public Cost of the Enhanced Financial Assistance Is Relatively Low
CBO projects that the vast majority (89 percent) of the federal budget cost of the permanent extension would be for new enrollees in the Marketplace, with 11 percent going to increased credits for those already in the Marketplace. It estimates that the average annual financial assistance per new enrollee of a permanent extension would be $5,370 (less than $450 per month) over the 2025 to 2034 budget window—including the original and extra amount, and not counting the premium that enrollees pay.
CBO estimates that about half of the 6.9 million net new enrollees were previously uninsured, with a small number having had individual insurance outside of the Marketplace. Given that 80 percent of uninsured people are in households with income below 400 percent of FPL, the newly insured enrollees’ average annual premium tax credit is probably closer to CBO’s estimate of $7,510 for new Marketplace enrollees with income below 400 percent of FPL. For comparison, CBO projects that, for the same time period, the average federal per-capita cost of Medicaid for the expansion group (which is most comparable to enrollees in the Marketplace) will be $9,930—suggesting that the tax credit spending for newly insured people is reasonable.
The other half of new enrollees, according to CBO, come primarily from employers that no longer offer coverage due to the permanent enhanced financial assistance policy. CBO explains that people affected by the change in employer-based coverage tend to have higher income than other Marketplace enrollees. CBO’s projected average premium tax credit for new Marketplace enrollees with income above 400 percent of FPL is $3,271. This compares to CBO’s estimates of $4,350 in annual tax benefit provided for employer coverage for those moving from it to the Marketplace. Unlike APTC, the employer coverage tax benefit increases with income. A critic of this policy notes that the tax break would be $7,333 for a worker with a typical family policy at the 33 percent tax bracket in 2021. The employer tax break has no rules for eligibility, benefits, or the quality of coverage, unlike APTC. Again, this suggests a relatively reasonable public cost of coverage under the enhanced premium tax credit policy for those moving from employer coverage. (See Figure 10.)
Figure 10
Urban Institutes’ projections found similar effects of making the increased financial assistant permanent and put these numbers into context. They estimate that the reduction in the uninsured rate would be 13 percent under an extension—over four times their estimate of the reduction in the percent of people with employer-sponsored insurance, which would remain the predominant source of coverage.
Employer Coverage Has Not Eroded
A longstanding concern about expanding health coverage through the Marketplace is that it will “crowd out” employer-based coverage. While the Urban Institute and CBO analyses estimate a small percent reduction relative to the baseline, actual trends over time show that employer-based coverage did not erode either after the launch of the Marketplace in 2014 or in 2022 and 2023 when the additional tax credits were fully implemented. The percentage of nonelderly Americans with employer-sponsored coverage has remained steady between 2009 (57.2 percent) and 2022 (57.5 percent). (See Figure 11.) The percentage of workers at firms that offer some type of health benefit has also been steady: 92 percent in both 2008 and 2023.
Figure 11
Conclusion: Make Permanent and Build on the ACA Affordability Improvements
This review of the effects of the increased and expanded eligibility for Advanced Premium Tax Credits (APTC) for the Health Insurance Marketplace suggests it has worked well. It was easy to implement and could be extended with little effort. It contributed to higher and more diverse Marketplace enrollment, reduced uninsurance, lower premiums, and lower cost sharing. Its cost per enrollee has been reasonable relative to other benchmarks and it has not resulted in significant disruption of employer coverage. Problems such as instances of agents and brokers fraudulently enrolling people in Marketplace plans should—and are—being addressed by the Biden–Harris administration’s actions and Congressional proposals, but can be done so in a targeted way without ending the tax credit policy. Letting the policy expire would effectively cut financial assistance for millions, with wide-scale disruption.
The National Association of Insurance Commissioners have urged Congress to act by the end of 2024 to continue the tax credit policy. Failing to do so, the commissioners explain, would “roil insurance markets.” In addition to the effects previously described, they anticipate higher premiums will drive out younger enrollees, raising premiums for older enrollees and those no longer qualifying for premium tax credits with income above 400 percent of FPL—yielding a smaller, worse risk pool. Exacerbating this would be lower state reinsurance funding, further raising premiums. They also note that the impact will extend to health care providers—hospitals, physicians, nurses, and pharmacies—since more Americans will become uninsured.
This review not only suggests that the temporary financial assistance policy should be continued and made permanent, but that the Health Insurance Marketplace could serve as a platform for further health system improvements. As has been suggested in other legislation, it could fill in the Medicaid gap in states that do not act to do so. It could become a more efficient source of coverage for small businesses. And its tax credit structure could be a model for reforming employer-sponsored insurance. In short, the recent Marketplace changes have improved the health system and could continue to do so with an extension and expansion.
Tags: affordable care act, tax credits, expanding coverage