Why ACA tax credits for 22 million Americans are at the center of the government shutdown drama

The ongoing U.S. government shutdown is rooted in a dispute over a crucial tax credit that helps 22 million Americans reduce their health insurance costs through the Affordable Care Act’s marketplaces. This subsidy, known as the enhanced premium tax credit, has been instrumental in enabling low- and middle-class households to afford health insurance since its implementation under the American Rescue Plan Act in 2021.

The looming expiration of the enhanced premium tax credit at the end of 2025 has sparked intense negotiations in Washington, D.C. Leading Democratic lawmakers are pushing for an extension of the credit as part of a funding deal to keep the government open. A recent survey by health information group KFF revealed that three-quarters of Americans, including a majority of Republicans, support extending the tax credits.

Experts warn that if the tax credits expire, millions of Americans could face significant financial strain. Insurers are already preparing to notify policyholders of substantial premium increases starting in January 2026. The average premiums for ACA marketplace insurance plans could more than double, rising from $888 in 2025 to $1,904 in 2026, according to a KFF analysis. The Congressional Budget Office estimates that about 4 million people may drop their coverage due to the increased costs.

The premium tax credit targets individuals who earn too much to qualify for Medicaid but cannot afford employer-sponsored health insurance. Eligibility for the credit extends to those earning between 100% to 400% of the poverty level, encompassing families with annual incomes up to $128,600. Policyholders across the country have already received notices of impending premium hikes, with some insurers proposing increases of up to 50%.

Insurers are planning significant premium increases for 2026, with a median hike of 18% among ACA marketplace plans, driven by rising medical costs and the expiration of the premium tax credits. The proposed rate hikes vary by insurer, ranging from 4.6% to 39.9%. These increases are likely to prompt healthier individuals to drop coverage, leading to higher insurance costs for those who remain insured.

The prospect of soaring insurance costs comes at a time when many Americans are grappling with financial challenges. Rohit Chopra, former director of the Consumer Financial Protection Bureau, highlighted the potential impact on households with chronic illnesses, who may face difficult choices due to the increased expenses. As inflation persists and costs continue to rise, the expiration of the premium tax credits could exacerbate financial fragility for many individuals and families across the country. As the economy continues to face challenges, signs of increasing financial stress among consumers are becoming more apparent. Recent data has shown a rise in credit card delinquencies and balances creeping higher, indicating that many individuals are struggling to manage their finances effectively. This trend is concerning, especially as the expiration of enhanced premium tax credits under the Affordable Care Act (ACA) approaches.

A survey conducted by the Kaiser Family Foundation (KFF) revealed that a significant number of Americans are unaware of the impending expiration of the ACA’s enhanced premium tax credits. This lack of awareness could have serious implications for individuals who rely on these subsidies to afford health insurance coverage. In light of this information, experts are urging consumers to take proactive steps to safeguard their financial well-being.

Louise Norris, a health policy analyst at Healthinsurance.org, emphasized the importance of preparation in the face of these challenges. She advised consumers to explore their options on the health insurance marketplaces and consider enrolling in Health Savings Plans to set aside funds for medical expenses. By being proactive and researching different plans available to them, individuals can minimize the risk of encountering unexpected financial burdens.

It is crucial for consumers to stay informed and educated about their financial situation, especially during times of economic uncertainty. By taking proactive measures to manage their finances effectively, individuals can navigate through potential challenges and ensure their long-term financial stability. As the expiration of the ACA’s enhanced premium tax credits looms closer, it is essential for consumers to stay vigilant and proactive in safeguarding their financial health.

The Associated Press contributed to this report.

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.