The premium tax credit is instrumental in making health insurance more affordable for those who purchase it through the federal marketplace. This credit allows participants to lower their insurance premiums upfront or claim a tax break when filing their return. The American Rescue Plan Act temporarily enhanced this credit during the COVID-19 pandemic, covering plans in 2021 and 2022. However, the Inflation Reduction Act extended this benefit through 2025.
According to Gideon Lukens, senior fellow and director of research and data analysis for the Center on Budget and Policy Priorities, if the benefits of the premium tax credit sunset after 2025, virtually everyone would face higher premiums. In fact, a report from the Center on Budget and Policy Priorities found that marketplace premiums will increase for Americans across the income spectrum in mid-2025 when health insurers begin releasing rates.
For example, a typical family of four making $60,000 would see their monthly premiums jump from $100 to $326, resulting in an additional cost of about $2,700 per year. Similarly, a family earning $125,000 would experience a rise in monthly premiums from $885 to $1,525, adding approximately $7,700 annually. This significant increase in premiums would put additional financial strain on families already struggling to make ends meet.
President Joe Biden has proposed making the premium tax credit expansion permanent in his fiscal year 2025 budget request. This move is aimed at ensuring that the benefits of the credit continue beyond 2025 and prevent a significant increase in health insurance premiums for marketplace participants. However, making the program permanent would come at a cost, increasing the federal budget deficit by $335 billion from 2025 through 2034, according to the Congressional Budget Office and Joint Committee on Taxation.
Andrew Lautz, associate director for the Bipartisan Policy Center’s economic policy program, emphasized that the expiration of the premium tax credit expansion would have a widespread impact on individuals from all walks of life. The tax credit has been successful in reducing costs for all enrollees, even those who are ineligible for the tax break. The increased enrollment due to this credit has also improved the nongroup market risk pool, according to the Urban Institute.
The expiration of the premium tax credit after 2025 could lead to a significant increase in health insurance premiums for marketplace participants. Families and individuals across different income levels would be affected by this change, facing higher monthly premiums and increased financial burdens. It is essential for Congress to take action to prevent this scenario and ensure that health insurance remains affordable for all Americans.