Health Insurance Premiums Set to Soar in 2024
Next year, health insurance premiums for Americans are expected to rise sharply as the expiration of the Affordable Care Act (ACA) tax credits looms. These credits were initially implemented to help cope with the financial strain of the Covid-19 pandemic.
A recent analysis from two nonprofit organizations focused on healthcare—Peterson Center for Healthcare and KFF—estimates that individuals enrolled in ACA marketplace plans may see their premiums jump by more than 75% on average. Some state analyses predict even more significant increases.
Why Is This Significant?
Enhanced subsidies have been crucial in making health insurance more affordable for millions. Experts have indicated that the end of these subsidies could become a heavy financial burden for households already managing tight budgets. This situation might even force some to forgo insurance altogether. Additionally, it’s concerning that if healthier individuals opt out of the market, this could drive premiums even higher.
Background Information
The enhanced premium tax credit was part of the American Rescue Plan Act, which President Biden signed into law in early 2021. These provisions aimed to increase financial support for those buying insurance through the ACA and to lower the percentage of income spent on premiums.
While designed as temporary relief, these subsidies were extended through 2025 by the Inflation Reduction Act of 2022, leading to an increase in ACA Marketplace sign-ups from 11.4 million in 2020 to projections of over 25 million by 2025.
However, with the tax credits set to expire at the end of this year, it raises concerns for Republicans in Congress as they work on a budget for the fiscal year 2026.
Beyond the national projections of a 75% rise in premiums, some states anticipate even steeper increases. For instance, HealthSource RI reports that 88% of households registered in the state could face higher premium costs if their tax credits are eliminated.
Low-income households may bear the brunt of this shift, with reports predicting an 85% increase in premiums in 2025. Michael Humphreys, a member of Pennsylvania’s insurance committee, mentioned recently that those enrolled in the state’s health insurance market might see an increase of over 82%.
Jonathan Gruber, a former consultant for the Obama administration and one of the architects of the ACA, noted that the expected changes would raise costs for two main reasons: First, most enrollees will pay higher premiums, and second, many will drop their healthier coverage as costs rise.
“This will create a huge price shock for millions of Americans,” Gruber asserted.
Health economist Benjamin Somers explained that the end of these “generous” credits could result in an average increase of 75-80% for premiums. He also warned that about 3.7 million people might lose their insurance as a result of losing premium tax credits. Somers noted that uncertainty in the insurance market typically leads insurers to raise premiums as a protective measure against potential risks.
Reactions to the Situation
Mark V. Pauly, a professor emeritus of healthcare management at the University of Pennsylvania Wharton School, emphasized that current credits have been reducing premiums below the levels established by the original Obamacare. As these credits phase out, some may choose not to pay for the higher premiums.
Somers previously highlighted that there were sharp premium increases in 2018 during the Trump’s administration due to efforts aimed at restricting funding for cost-sharing reductions. However, he noted that the difference now is that back then, the premium tax credits remained intact, protecting most consumers from financial strain—a safety net that seems absent for 2025.
Looking Ahead
The future of premium tax credits hangs in the balance as Congress continues negotiations on next year’s spending bill. Lawmakers are pressed to finalize these bills by October 1st or to approve a stopgap resolution to prevent government shutdowns. Senate Democrats have proposed permanent extensions of the credits, yet these have been met with resistance from Republicans.
