ACA subsidy cliff could cause health insurance premiums to rise

Millions of Americans are bracing for big increases in health insurance premiums next year and are worried about the financial stress that will come with these additional costs, as the expiration of enhanced subsidies triggers an aid “cliff.”

Ashley Thompson, of Austin, Texas, said her husband and wife are considering whether to stop paying for health insurance next year and only insure their two children to help make ends meet.

Based on market estimates, without enhanced federal aid that expires at the end of the year, a family’s current monthly premium for health insurance in the Affordable Care Act marketplace could triple from $1,200 a month this year to about $3,553 in 2026.

Mr. Thompson, 49, a potter and physical trainer, said his expenses amount to about $43,000 a year, or more than a third of his household income, and that’s before insurance.

“It’s frightening, frankly,” she said.

Thompson and her family are among the 22 million Americans receiving enhanced subsidies that make health insurance cheaper. Overall, this group represents 92% of the 24 million people enrolled in ACA Marketplace plans.

The tightening of insurance premium subsidies is at the epicenter of the political fight over what is now the longest federal government shutdown in U.S. history.

Democrats are pushing for an extension of the aid as part of a deal to reopen the government, but Republicans say they want to negotiate the aid separately.

Senate Majority Leader Chuck Schumer on Friday proposed extending existing subsidy enhancements for a year as part of a deal to reopen the government. The agreement would also establish a bipartisan commission to continue negotiations on long-term reforms to address health care affordability issues.

More than half (57%) of ACA Marketplace enrollees live in Republican congressional districts, according to a recent analysis by KFF. About 80% of this year’s premium tax credits, or $115 billion, went to ACA Marketplace enrollees in states won by President Trump in last year’s election, according to KFF research.

Political commentators have cited affordability as a key issue that helped New York Mayor-elect Zoran Mamdani and other Democrats win Tuesday’s election.

Without enhanced subsidies, the average recipient’s annual premium would jump 114% from $888 in 2025 to $1,904 in 2026, according to KFF, a nonpartisan health policy research group.

“On average, to keep the same plan, people currently receiving subsidies will pay twice as much in premiums next year,” said Cynthia Cox, vice president and Affordable Care Act program director at KFF.

Some people, like Americans, pay even more if their income exceeds a certain threshold. Due to the so-called “subsidy cliff,” they will not be able to receive any additional subsidies.

For example, for a 60-year-old couple with an annual income of $85,000, this is slightly above the threshold. Their annual premiums will rise by an average of nearly $23,000 in 2026, according to KFF.

The political battle over the enhanced subsidies enacted in 2021 under the Biden administration is unfolding during the ACA marketplace, where prospective enrollees choose their health plans for 2026.

You must do so by December 15th to receive compensation at the beginning of the new year.

“The public offering has already started with this big question mark,” Cox said.

According to health policy experts, rising medical insurance premiums are likely to have a large impact on household budgets.

The Congressional Budget Office estimates that about 4 million more people will become uninsured over the next 10 years if enhanced subsidies are removed.

Cox said that won’t happen soon. He said more than 1 million people could lose their insurance next year if they decide they can’t afford the premiums.

Others may choose to purchase lower-tier plans with lower upfront premiums, she says. These plans typically have much higher deductibles and households end up paying higher bills if they need to use the insurance, Cox said.

Cox said some of these members may grow tired of the program and the high costs later in life and quit their insurance.

Other enrollees, like Beth Keenan, said they plan to keep their current health plans and absorb the higher costs by cutting other expenses.

Keenan, 62, an early retiree who lives in Pittsburgh, is using an ACA Marketplace insurance plan as a bridge to Medicare benefits when he turns 65.

She pays $589 a month in premiums after factoring in a $302 monthly federal subsidy, also known as the premium tax credit. Based on state market estimates, Keenan’s estimated net premiums would jump 81% to $1,065 if the enhanced subsidies expire.

Keenan’s annual pension and Social Security income totals about $80,000, which would be too high to qualify for aid.

“You get a tax credit for private planes,” said Keenan, who retired at age 60 from a 30-year career as a county court administrator. “Why shouldn’t I get a tax break?”

Keenan said she doesn’t expect the extra $500 a month to be a financial hardship. But that amount will likely force her to forego certain living expenses, such as travel, she says.

The uncertainty surrounding the availability of subsidies into the future is worrying, especially given that insurers could raise premiums again in 2027, she said.

For example, according to KFF, insurers increased premiums by an estimated 26% on average in 2026, exacerbating the loss of enhanced subsidies.

“We know what we’re going to do next year, but after that we have a year before Medicare benefits start,” Keenan said. “My premiums are going to go up (another) 20%? So where else can I get insurance?”

Once the enhanced subsidy is gone, some participants will still be eligible for reduced credits, but participants with incomes above 400% of the federal poverty level will no longer be eligible for the subsidy.

This is the so-called “subsidy cliff.”

The threshold varies depending on the number of people in the household. For example, in 2026, it will be $62,600 for a one-person household and $128,600 for a four-person household.

From 2021, households with incomes above this amount will also be able to receive expanded subsidies. The upper limit for annual insurance premiums has also been set at 8.5% of household income.

Once the enhanced subsidies expire, the income limit will no longer apply, meaning anyone earning even $1 above the 400 percent poverty line will not be eligible for the premium tax credit. According to KFF, this will affect approximately 1 in 10 enrollees in ACA Marketplace plans.

Matthew Espinoza, 46, is at the breaking point of his income.

The San Francisco resident, who works as a fitness instructor and restaurant clerk, expects to earn about $60,000 to $65,000 next year, depending on the hours he works.

Espinoza, who is also a full-time nursing student, said if the enhanced subsidies were to go away, it would make a big difference financially depending on where her income ended up.

He’s paying $324 a month in subsidized ACA premiums this year.

If he earns $60,000 a year, his subsidized premium would rise to about $461 a month in 2026, according to estimates from Covered California, a state marketplace. But he will no longer be eligible for aid, so his premiums will jump to $818 a month on an income of $65,000.

“I didn’t have to dip into my savings when I started school, but if I’m forced to pay $818 in premiums, that’s probably going to be the first big hit,” Espinoza said.

Espinoza said he will be very conscious of his income in 2026, and if his income exceeds the 400% poverty threshold, he may try to limit his work hours to qualify for insurance premium credits.

KFF’s Mr Cox said the subsidy cliff was “unfortunately a disincentive to work”. “For some families, it makes a lot of economic sense, especially if they really need health insurance.”

Thompson, who lives in Austin, doesn’t want to give up her health insurance.

But even the lower-tier high-deductible plans available through the ACA Marketplace would cost a family of four at least $3,000 a month, based on estimates through the Marketplace, she said.

“We’re not bankrupt, but that would put us in that position,” she said. “The bill is much more than that.”

She said they are also considering various options, including insuring just their two children and using health insurance coinsurance for Ms. Thompson and her husband. (Such services are not technically health insurance and may involve various risks.)

“People think it’s the wrong people to receive subsidies,” Thompson said. “But it’s just the neighbors, the average person.”