Author: Kim Berard
As you may have heard, the federal government is currently shut down, although for many federal workers (those deemed “essential”) that just means they continue to work but don't get paid (in fact, some may never get paid). The reason is that Congress failed to pass a budget, as is now standard. As often happens in these situations, the House did pass a continuing resolution (CR) to keep the government open for seven weeks, and Senate Republicans were willing to go along with it, but Senate Democrats were hesitant. While they are usually the ones advocating for a “clean” CR, this time they insisted on including some other legislative fixes. Their key demand: Continue to expand the ACA premium tax credit.
I'm a little confused as to why they're willing to shut down the government on this mountain.
Let's back it up. When the ACA was passed in 2010, a key component was subsidies to help low-income people afford ACA coverage (as well as subsidies for cost-sharing features like deductibles). Subsidies are critical to the survival of the ACA market. These subsidies come in the form of premium tax credits.
If you remember the dismal individual health insurance market before the ACA, individuals couldn't get coverage unless they passed medical coverage, and even then, pre-existing condition exclusions applied. As a result, there are very few qualified people and everyone is complaining. The ACA eliminated medical coverage and pre-existing condition exclusions, but the only way to ensure that enough healthy people join the risk pool is to generously subsidize their coverage, just as employers do with employment-based health insurance. Hence the premium tax credit.
This trade-off lasted for nearly a decade. Approximately 10 million people are covered through the exchange. Then the pandemic hit. People need insurance more than ever, but many people have seen their incomes plummet. As a result, Congress passed an “enhanced” premium tax credit in 2021 as part of the American Rescue Plan Act. They increased credit lines and extended them to some higher-income households. As part of the Inflation Reduction Act, these expanded credit terms were extended through the end of 2025.
Those expanded premium tax credits are about to expire. Original credits will be retained. Things will go back to how they were pre-pandemic (of course, premiums are higher now due to inflation). This was more of a setback than a disaster.
The expanded tax credit really made a huge difference. Enrollment increased from about 10 million to more than 24 million, 22 million of whom received expanded credit. So if they expire, it's definitely a big deal. KFF expects average premiums to double in 2026.
Still, the Congressional Budget Office estimates that the loss of expanded credit will cause about 3.8 million people to lose coverage, a far cry from the 14 million people who have gained coverage since its implementation.
I'm not sure if the CBO is overly optimistic or if the ACA has taught people to appreciate their reporting.
Everyone in Congress knows or should know that these tax credits are expiring this year.
Congress could have ensured they lasted longer when they extended them as part of the IRA. Congress could extend the bill as part of HR1, the so-called “Big, Beautiful Act.” But none of that happened, so here we are.
House and Senate Republicans have expressed willingness to extend the deadline, though not as a condition of ending the shutdown, but appear to be in no rush. Speaker Mike Johnson only saw an end date for the expanded credit line of Dec. 31, saying: “We actually have three months to negotiate. In the White House and in the halls of Congress, it feels like an eternity.”
Of course, this ignores that open enrollment begins on November 1st, and insurance companies are already preparing materials, so whether to offer the expanded tax credit appears to be an important factor in anyone making such a decision.
This is not primarily a Democratic issue. Most people with ACA insurance live in Republican districts. More than three-quarters of Americans believe the tax credit should be extended — including 59% of Republicans. Even 57% of self-identified MAGA supporters want the deadline extended. Margorie Taylor Greene, a staunch supporter of MAGA, has been outspoken about the need to extend these deadlines. So you have to think that they're probably going to be extended anyway.
So why let the government shut down because of them?
Democrats are likely to take issue with many other issues, such as Medicaid cuts. HR1's cuts to Medicaid are estimated to result in more than twice as many people losing Medicaid coverage as ACA coverage, not to mention the massive impact on state Medicaid budgets due to the loss of provider tax revenue. But reversing these Medicaid cuts would cost far more than the Affordable Care Act’s premium tax credits, would require Republicans to abandon favorite policy positions like work requirements, and would largely not affect people immediately after the premium tax credits. Additionally, job requirements may increase on their own due to administrative difficulties. Democrats have mentioned reversing Medicaid cuts as part of negotiations, but don't appear to have included that as part of their red lines.
Or Democrats could insist that Congress reassume its constitutional responsibilities for controlling federal spending or setting tariffs rather than handing those responsibilities over to the administration, but finding enough congressional Republicans who care more about the Constitution than risk angering Trump might be a fool's errand. So it's a premium tax credit.
Look, I think the subsidy should be extended. Too many people now rely on them to take them away, especially without attracting any attention. What's more, I think they probably will; the risk of a backlash in swing Republican districts is too great for Republicans to ignore the issue. But I think Republicans are more likely to wait for Democrats to withdraw, betting on knocking out five more Democratic senators to pass CR. They can then process the tax credits later in the year and be damned what it does to the registration process.
If anything, the outrage over subsidies highlights a core flaw of the Affordable Care Act: its focus on expanding coverage rather than reforming our health care system. As a result, costs continue unabated, making subsidies even more important. But this is not a sustainable approach. At some point, we are going to have to rationalize what we pay for health care and what we should be paying. But, alas, we are far from that point.
Kim is a former electronics marketing executive for a large blues program and editor of The Late and Regretful tincture.ionow a regular THCB contributor
