Extending Enhanced Premium Tax Credits Will Make Health Care More Expensive

The federal government shutdown centers on a debate about health care costs. More specifically, enhanced premium tax credits—built into the Affordable Care Act (ACA) during the COVID-19 pandemic—will expire by the end of 2025, and members on both sides of the aisle want to renew them.

Pennie, Pennsylvania’s healthcare exchange, has warned its recipients that they will see their premiums increase by an average of 82 percent if federal lawmakers allow these enhanced premium tax credits to expire.

Yet, these tax credits—better classified as subsidies—have distorted the price of health care and are long past their expiration date.

Over the long term, reducing the subsidies paid by taxpayers can help lower health insurance costs. Premium subsidies are inherently inflationary. As premium prices rise, the amount of subsidies an insurer gets also increases. So, naturally, insurers are encouraged to raise premiums. This is just one of many ways the ACA is making health care unaffordable.

Pennie plans are subsidized through advanced premium tax credits and limits on cost-sharing. Those subsidies remain. However, beginning in 2021, the federal government offered another subsidy, enhanced premium tax credits, which slashed the out-of-pocket cost for Pennie plans and, in some cases, brought premiums to zero.

In 2021, Independence Blue Cross advertised that two out of three of its members paid $0 premiums. In 2023, Pennie advertised that 14 percent of their members pay less than $1 a month for coverage.

No wonder enrollment in Pennie plans soared, increasing by about 160,000 between 2021 and 2025. Interestingly, Pennie projects the end of pandemic-era subsidies will result in an enrollment decline of 150,000.

Could it be that these plans are simply not worth their premiums?

Forcing taxpayers to shoulder most of the monthly premium and, in many cases, all of the premium encourages waste and fraud. A Paragon Institute analysis found taxpayers covered about 68 percent of the premium for a 50-year-old patient with an income at 200 percent above the federal poverty line in 2014. By 2025, the taxpayer’s share surged to 93 percent.

The Paragon Institute notes that, by 2025, an estimated 6.4 million exchange enrollees were improper, meaning the reported income was incorrect. Rising improper enrollment coincided with lax eligibility processes and an increasing number of “ghost enrollees,” or people who did not file a single medical claim. In 2024, about 25 percent of Pennie or exchange enrollees in Pennsylvania posted no claims, making the pandemic-era subsidies look more like a naked handout to health insurance companies.

Fifteen years later, the ACA proves to be anything but affordable. Insurers providing Pennie plans are requesting a 19 percent increase in premiums for 2026. In the private sector, Mercer expects per-employee costs to increase by 6.5 percent, the highest since 2010.

Nine in ten members with Pennie-insured plans are receiving taxpayer subsidies. And these subsidies have created the illusion that the ACA is working. Allowing the pandemic-era subsidies to expire is the first step in unwinding the maze of government interventions that make health care too expensive.