A looming “cliff” in federal health insurance subsidies may discourage some people from working to save thousands of dollars on annual premiums, policy experts and financial planners say.
Enhanced subsidies for health plans purchased in the Affordable Care Act marketplace are set to expire at the end of 2025, a policy issue at the center of the recent government shutdown. Federal subsidies, also known as the Enhanced Premium Tax Credit, reduce recipients’ out-of-pocket premiums in advance or in a lump sum at tax time.
Approximately 22 million Americans, or approximately 92% of those who purchase insurance on the ACA marketplace, currently receive these enhanced subsidies. If benefits are not renewed, recipients’ annual health insurance premiums are expected to more than double next year, on average.
Policy experts say households with incomes above a certain threshold (400% of the federal poverty line) are most at risk.
They will no longer receive any subsidies and will pay full premiums for unsubsidized ACA health plans.
This is the so-called subsidy cliff.
Experts say the cliff creates an incentive for households with some income flexibility, such as hourly workers and the self-employed, to reduce their work hours and fall below that threshold.
“This is unfortunately a disincentive to work,” said Cynthia Cox, vice president and director of the Affordable Care Act program at KFF, a nonpartisan health policy research group.
“For some families, especially if they really need health insurance,[working less]makes economic sense,” she says.
Democrats are calling for an expansion of ACA subsidies that have been in place since 2021 under the COVID-19 relief package.
As part of talks to end the government shutdown, Republicans have vowed to hold a vote by mid-December on a plan to expand and extend subsidies. But policy experts say such a bill has a long chance of success in a Republican-controlled Congress. The White House said it would unveil a framework to address ACA premium increases as soon as this week, but the proposal was reportedly delayed due to pushback in Congress.
If the enhanced subsidies expire, the ACA premium tax credit would return to pre-pandemic levels.
Under this policy, households were not eligible for premium subsidies if their income exceeded 400% of the federal poverty level. This system has been in place since 2013.
Millions of households are about to reach the 400% threshold.
An analysis of federal data by the Bipartisan Policy Center, a nonpartisan think tank, found that 7% of ACA enrollees, or about 1.8 million people, had incomes between 300% and 400% of the federal poverty line in 2025. A further 3%, or 725,000 people, were found to have incomes between 400% and 500%.
The majority, about 82%, have incomes below 300% of the federal poverty line, according to the analysis.
In 2025, ACA enrollment will total approximately 24 million people.
“Literally quit your job.”
The potential financial hit from income ranges and the subsidy cliff varies depending on factors such as household size.
For example, single-person households with incomes of $62,600 or more in 2026 would lose all of their ACA subsidies, also known as premium tax credits. For a family of four, that threshold is $128,600.
Below is an example of financial calculations for an average 45-year-old couple with two children, ages 10 and 12, who earn $132,000 a year.
With the enhanced subsidies, families will pay $11,220 in annual health insurance premiums for a baseline silver tier plan in 2026, or $935 per month, equivalent to 8.5% of their annual income, according to KFF’s cost calculator.
Without subsidies, people would pay about $25,900 in annual premiums for the same plan, or about $2,160 a month, or nearly 20% of their income, according to KFF.
In this case, cutting your labor income by about $4,000 would save you about $14,700 in health insurance premiums next year.
“Anyone who ends up going over the $5,000 cliff should literally quit their job,” said Jeffrey Levin, a St. Louis-based certified public accountant and certified financial planner.
Of course, the inhibiting effect may be stronger or weaker depending on the particular household.
For example, without enhanced subsidies, the average 45-year-old with an annual income of $65,000 would have to pay about $8,470 in annual ACA premiums for a benchmark silver tier plan in 2026, up from $5,530 with subsidies, according to KFF.
Therefore, if this person reduced their labor income by more than $2,400, they would save about $2,940 in health insurance premiums, resulting in a net savings of only about $540.
Jonathan Birx, executive vice president for economic and health policy at the Bipartisan Policy Center, said people just above the income threshold typically see a “meaningful” loss of federal health benefits, but it’s unclear how much of an overall decline in work incentives.
Medicaid and food stamps also have benefit cliffs.
Birx said the ACA subsidy cliff is not the only example of means-tested benefits that can affect consumers’ willingness to work.
For example, federal programs such as Medicaid and the Supplemental Nutrition Assistance Program (formerly known as food stamps) each have their own benefit cliffs, he said.
Birx said conservative-leaning economists have generally scrutinized these federal programs to determine whether they discourage people from working. He said the real-world economic evidence on that is “mixed.”
He said most benefit cliffs will affect programs aimed at low-income people, but the ACA subsidy cliff will affect higher-income households to some extent.
In general, Birx said, from a policy perspective, it would be ideal to gradually reduce incomes over time, with federal payments to households tapered off gradually as incomes rise. But federal budget constraints generally make such policy design more difficult, he said.
“For means-tested programs, there is always the challenge of how to deal with eligibility criteria in ‘borderlands,'” he said.
