The Impact of the Enhanced Premium Tax Credits on Market Stability and Health

The Affordable Care Act’s (ACA) enhanced premium tax credits (ePTCs) are set to expire at the end of 2025. Without them, about 4 million people could lose health insurance, especially early retirees, the self-employed, and small business workers. Many others will face premium hikes averaging 114%, with some up to 300%. There continues to be debate in Congress about ePTCs, but loss of these extended credits could impact the entirety of the health insurance market.

ePTCs were created as an extension of the Affordable Care Act’s (ACAs) regular tax credits during COVID. The tax credits in the ACA help individuals and families afford or improve their insurance coverage on the marketplaces, with eligibility and tax credit amounts based on income level. This extension of the existing credits resulted in an additional 10 million people gaining coverage through the marketplaces while others saw payments on premiums reduced.

Insurance companies set premiums based on multiple factors, including government assistance, the health of the insured population, and competition with other insurance companies. If ePTCs are cut, customers will likely face higher premiums because the government is no longer providing additional assistance in the form of the enhanced premium tax credits. Higher premiums could lead to healthier people opting out of insurance or opting for insurance with less coverage, leaving a sicker and costlier population, further raising premiums. Finally, mounting pressures on insurance companies to raise premiums or lose money may lead to market exits, reducing competition, causing higher prices, and reduced access to care. 

Without insurance, individuals may forgo care due to cost, such as prescriptions or preventative doctor visits, leading them to miss the early signs of a disease. These individuals may end up needing care far costlier than they would have initially needed, especially if they seek treatment in higher-cost facilities such as emergency departments. This will cause hospital prices to rise for everyone, causing an increase in premiums for some individuals with non-marketplace insurance coverage. If hospitals aren’t paid for care, they may need to raise prices for everyone else if they cannot cover the cost with other financial resources. This will especially impact hospitals that are already financially stressed, possibly causing some to close. Fewer hospitals means reduced competition and higher prices that the insurance companies must pay. Some insurers may pass those higher costs onto customers through increased premiums.

The debate over extending the ePTCs in Congress is not just fiscal; it is also about insurance market stability and population health. The ePTCs allow millions access to insurance and reduce costs for everyone, which can promote a healthy population, keeping costs low for all participants in the system. The ePTCs are a critical lever for sustaining both coverage, care quality, market stability, competitiveness, and population health.