What the ACA Subsidy Expiration Means and Why It Matters for Employers and Plan Sponsors

The Affordable Care Act’s (ACA) enhanced premium tax credits for low-income earners needing individual coverage were first expanded under the American Rescue Plan Act (ARPA) of 2021 and extended through 2025 under the Inflation Reduction Act (IRA). These subsidies are now set to expire on December 31, 2025. This has been a hotly debated issue and was in part what Congress and the President were fighting about, which led to the government shutdown. Objectively, these enhanced credits have lowered premiums and broadened eligibility, including to middle-income households above 400% of the federal poverty level. Their expiration will take effect for coverage beginning in January 2026, and if they lapse, millions of Americans may face substantially higher marketplace premiums or lose eligibility for financial aid. Analysis indicates that without these credits or a replacement solution, premium contributions for many in the individual markets could more than double in 2026.

Why It Matters to Group Health Plans

The expiration of ACA marketplace subsidies has implications for employer-sponsored and other group health plans. Here’s why:

1. Competitive Pressure on Employer Plans: Higher individual market premiums could push some workers toward employer coverage, altering risk pools and potentially raising costs for group plans, especially smaller employers that compete with ACA markets for enrollees. It may also alter the effectiveness of ICHRA plans that some employers are considering. A destabilized individual market could undercut the practicality of ICHRAs.

   • COBRA and Retiree Decisions: Individuals who temporarily rely on ACA plans (e.g., early retirees or employees in COBRA) may no longer find marketplace coverage affordable, increasing pressure on employers to provide robust retiree benefits.

   • Labor Market Effects: Rising individual market costs could influence employment decisions, wage negotiations, and benefits strategies as jobseekers weigh total compensation offers that include healthcare.

   • State Policy Responses: Some states may create supplemental state subsidies to offset federal cuts, affecting the design and cost of both marketplace and employer plans (and may impose tax increases on consumers and businesses to pay for it).

     
     

What Congressional Democrats Want

Democrats in Congress have primarily advocated for a clean extension of the enhanced premium tax credits. Proposed Democratic legislation would continue the level of subsidy assistance for multiple years, maintaining income-based caps and marketplace affordability for the roughly 20 million Americans enrolled in subsidized plans under the Affordable Care Act. One proposal backed by Democrats would extend the subsidies for three years, though it would increase the federal deficit. In the Senate, a Democratic bill to extend the enhanced credits failed this past week after falling short of the 60 votes required to overcome a filibuster. Despite some public support for extension, partisanship and opposing healthcare policy priorities have blocked passage.

What Congressional Republicans and President Trump Want

Republican approaches vary but generally do not extend the enhanced ACA premium tax credits in their current form. They propose alternative mechanisms that include:

1. House GOP Proposals: Recent Republican healthcare packages would allow the enhanced subsidies to expire and shift focus to other reforms, such as expanding association health plans, increasing PBM oversight, and modifying cost-sharing reduction payments, but do not include renewed ACA premium subsidies.

2. Senate GOP Alternatives: Senate Republicans, including Senators Bill Cassidy and Mike Crapo, have proposed replacing some of the subsidy value with direct federal contributions into health savings accounts (HSAs) for individuals, particularly those in high-deductible or bronze plans, rather than continuing the existing premium credits. These HSA-oriented ideas aim to give recipients more control over expenses but would not directly offset marketplace premium increases.

3. Trump Administration Position: President Trump and aligned GOP leaders have promoted the idea of sending money directly to individual consumers through flexible accounts or other mechanisms rather than continuing ACA tax credits, reflecting a broader preference for consumer-driven healthcare solutions.

   
   

Both the House and Senate Republican proposals have faced internal dissent and insufficient support to advance legislation, and in recent Senate votes, neither the Democratic subsidy-extension bill nor the Republican alternatives received the 60 votes needed to proceed. If no new law is enacted before year-end, the enhanced tax credits will expire at the end of 2025, likely triggering higher premiums and reduced marketplace affordability in 2026, and creating uncertainties for both individual purchasers and employers managing benefits strategies.

Bottom Line

As of this date, there is no clear-cut plan that both Democrats and Republicans support, so here’s where we’re at:

1. Temporary ACA premium subsidies enacted during COVID (ARPA) and extended by the IRA are set to expire December 31, 2025.

2. Their expiration would make coverage more expensive for millions who buy individual coverage, increase marketplace premiums, and reshape individual versus group plan dynamics.

3. Democrats want to extend the subsidies to maintain affordability while Republicans favor alternative frameworks (HSAs, consumer-driven plans).

4. No legislative consensus has been reached, leaving the subsidy’s future uncertain and premiums likely to rise if Congress does not act.

   
   

Conner Strong & Buckelew is closely monitoring these important developments and will provide updates as they become available.

What the ACA Subsidy Expiration Means and Why It Matters for Employers and Plan Sponsors -.

Download • 944KB