During the ongoing government shutdown, Democrats have explained their unwillingness to support a short-term funding extension by pointing to an impending health care crisis linked to the potential expiration of enhanced COVID-era premium tax credits.
This situation is somewhat odd, considering that Democrats previously passed two budget reconciliation bills—without Republican support—under President Joe Biden that designated these enhanced credits as “temporary.”
But what would actually change policy-wise if these credits, often serving as direct subsidies to insurance companies, were to expire?
Original Credits vs. Enhanced Credits
It’s crucial to differentiate between the premium tax credits established by the Affordable Care Act during Barack Obama’s presidency and the enhancements introduced under Joe Biden, which expanded eligibility and benefits for higher earners.
Sen. Patty Murray, D-Wash., has urged Republicans to “Save the [Affordable Care Act] tax credits.”
However, it’s worth noting that all recipients, except for those at the highest income levels who benefited from a 2021 Democrat party-line bill, will continue receiving tax credits.
According to Maine’s coverme.gov website, “Nothing is changing with Advance Premium Tax credits. Most people qualify for these savings and will continue to save—period.”
The website also discusses enhanced premium tax credits separately.
“If Congress extends Enhanced Premium Tax Credits, costs will barely change,” it states, explaining that the enhancements are additional savings layered over the Advance Premium Tax Credits.
House Freedom Caucus Chairman Andy Harris, R-Md., a figure in the fiscally conservative wing of the House, has critiqued media outlets for not making this distinction clear and noted that the baseline Obamacare credits are already quite generous.
“The media is being … I think, purposefully ambiguous,” Harris remarked recently. “Before the COVID-era enhancement, the average subsidy was 80% of the premium. That’s good for those on the Obamacare plan. With the Biden enhancements, it rose to around 95%.”
Harris has consistently opposed the enhancements, asserting, “We need to eliminate the hundreds of billions in corporate welfare to insurance companies, which have blatant fraud and abuse due to $0 premium plans. There’s no income limit for enhanced subsidies. It’s all quite concerning.”
Rep. Keith Self, R-Texas, has echoed that the original Obamacare credits remain intact whether Congress acts on the expiration of Biden-era enhancements or not.
“Here’s the truth: Taxpayers will still pay 80% of premiums for credit recipients after the subsidies expire,” Self commented on social media. “Don’t buy into the Democrats’ scare tactics.”
What’s the Cost?
Now, what about the fiscal implications of a clean extension?
The Congressional Budget Office (CBO), which provides budgetary impact forecasts for legislation, projects that extending these credits could add $350 billion to the deficit from 2026 to 2035.
In September, Democrats requested an analysis from the Joint Committee on Taxation (JCT) regarding revenue losses tied to extending the enhanced credits. The JCT indicated that a significant portion of the revenue loss would stem from higher earners eligible for the policy.
The estimated net revenue loss from a one-year extension is over $27 billion in 2026, with about a third attributed to households earning between $100,000 and $500,000.
Over the course of ten years, more than $60 billion in revenue would be lost for extending the policy for those earning above $100,000 annually.
With the expiration of the enhanced credits, those higher earners currently eligible for the tax credit would lose it altogether.
Many of the Democrats’ alarmist claims about rising premiums have centered on these higher-income subsidized individuals. Self-employed recipients of the premium tax credit could still deduct their premium costs on their tax returns.
Those at the lowest income levels who receive the credit currently have $0 premiums, but they could face paying up to 4.19% of their income for premiums should the enhanced credit end.
Do Republicans Want to Extend The Credits?
Recently, White House Deputy Chief of Staff James Blair mentioned in an interview that former President Donald Trump is concerned about rising health care costs and aims to improve premium and prescription drug affordability. He also attributed the subsidy expiration to Democrats who made it temporary.
“Yes, [Trump] does want to holistically address health care costs,” Blair stated. “It’s a focus for us. The Democrats have created a diversion from bigger issues they aren’t addressing, and they set up this time bomb.”
Harris indicated that he could envision a compromise, but it would require serious cost-cutting health care reforms and a plan to phase out the boosted subsidies.
“We aren’t willing to discuss a clean extension; that’s not a negotiation, it’s a demand,” Harris explained. “If we talked about negotiating a winding down of these subsidies and included eliminating fraud potential, we might find some package worth discussing, but it’s not going to happen quickly.”
A straightforward, long-term extension appears unlikely among most Republicans, and they have held firm against acceding to Democratic demands to pass a short-term funding extension.
Rep. Mike Flood, R-Neb., chair of the House’s Main Street Caucus—comprising primarily Republicans from swing districts—expressed some interest in extending the boosted credits, albeit with reforms, stating, “We understand the fraud and want to address it.”
Rep. Jen Kiggans, R-Va., from Flood’s caucus, has introduced a bill for a one-year credit extension.
Nevertheless, Republicans remain united in their refusal to negotiate the issue amid a shutdown.
“This subsidy matter is an end-of-the-year policy decision. Building consensus will require significant effort, if any reform scenario even allows for that; it’s impossible to predict the outcomes,” House Speaker Mike Johnson, R-La., recently mentioned.
Meanwhile, Senate Majority Leader John Thune, R-S.D., has offered Democrats a vote on the subsidy issue if they first vote to reopen the government, but he hasn’t committed to any final decisions regarding the subsidies in return for passing a short-term funding bill.
