The American Rescue Plan Act, which was implemented during the COVID-19 pandemic, temporarily enhanced the premium tax credit for health insurance purchased via the marketplace. This act has benefitted more than 21 million participants in 2021 and 2022. However, the Inflation Reduction Act extended these benefits through 2025. After this point, without further action from Congress, there is a potential for a significant increase in premiums for participants in the federal marketplace.
According to Gideon Lukens, a senior fellow at the Center on Budget and Policy Priorities, if the benefits of the premium tax credit expire after 2025, virtually all participants will face higher premiums. For example, a typical family of four with an income of $60,000 could see their monthly premiums increase from $100 to $326, resulting in an additional cost of about $2,700 per year. Similarly, a family earning $125,000 could experience a rise in premiums from $885 to $1,525, adding approximately $7,700 annually.
President Joe Biden has proposed making the premium tax credit expansion permanent starting from 2025 in his fiscal year budget request. This measure aims to ensure that Americans across the income spectrum can continue to afford health insurance premiums purchased via the marketplace. However, making the program permanent would also lead to an increase in the federal budget deficit by $335 billion from 2025 through 2034, according to the Congressional Budget Office and Joint Committee on Taxation.
Former President Donald Trump’s campaign did not provide any comments on the potential extension of the premium tax credit program. However, experts like Andrew Lautz, associate director for the Bipartisan Policy Center’s economic policy program, have highlighted that the expiration of the premium tax credit expansion would have a significant impact on all participants, including those who were previously ineligible for the tax break.
The expiration of the premium tax credit expansion could lead to an increase in marketplace premiums for all participants. This impact is expected to be felt by mid-2025 when health insurers start releasing new rates. The Urban Institute noted that the tax credit has helped reduce costs for all enrollees and improved the overall market risk pool, even for those who were not eligible for the tax break before.
The future of health insurance premiums in the U.S. remains uncertain post-2025. While there is a proposal to make the premium tax credit expansion permanent, it comes with a significant cost to the federal budget. The impact of the potential expiration of the benefits could lead to higher premiums for millions of Americans, making it crucial for Congress to take action to address this issue.