The Affordable Care Act (ACA) enhanced premium tax credits (PTCs) are set to expire at the end of 2025, absent additional congressional action. Employers may question whether the expiration will impact their group health plans.
Background
Initially enacted in 2014, the PTC was established to help eligible individuals lower their premium payments for plans offered through the health insurance exchanges (marketplace) created under the ACA. The ACA marketplace determines how much enrollees pay for their health insurance premiums at a certain percent of their income, with the federal government covering the remainder in the form of a tax credit. Specifically, the PTC is calculated as the difference between a benchmark premium (the premium for the second-lowest-cost silver plan available in a region) and a maximum contribution per household, calculated as a percentage of household income and adjusted over time.
Originally, the PTC was available to people who met specific criteria, including a modified adjusted gross income between 100% and 400% of the federal poverty line (FPL). Eligibility for the PTC was subsequently expanded by the American Rescue Plan Act (ARPA) of 2021, which was later extended by the 2022 Budget Reconciliation Law. Specifically, the “enhanced” PTC established under ARPA eliminated the maximum income limit (400% of the FPL) for PTC eligibility purposes, while also reducing the cost of monthly insurance premiums. These changes were extended through tax year 2025, with a sunset date of January 1, 2026. However, and importantly, employees are not eligible for the PTC if they receive an offer of affordable, minimum value group health plan coverage from their employer.
Anticipated Impact of Expiration of Enhanced PTCs
The expiration of the enhanced PTC under ARPA is expected to result in an increase in gross benchmark premiums over the next several years, with the Congressional Budget Office (CBO) estimating a 7.9% increase in premiums every year through 2034. This may result in an increase in individuals leaving the marketplace, and a potential increase in premiums for the remaining enrollees, as the marketplace risk pool may include more people with higher health needs. The CBO has also estimated that the enhanced PTC expiration will result in an annual increase of 3.8 million uninsured individuals over the next eight years.
Employer Takeaway
The expiration of the enhanced premium tax subsidies does not have a direct impact on employer-sponsored group health plans. Applicable large employers (ALEs) will still be subject to the ACA employer mandate and potential penalties if they fail to offer affordable minimum value coverage to full-time employees. However, for some employers who fail to offer affordable coverage, the likelihood of a penalty may slightly decrease depending on their employees’ household income, since fewer employees may be eligible for a PTC.
Additionally, the higher marketplace premiums could also result in more individuals seeking to maintain coverage under an employer-sponsored plan. For example, some employees (and dependents) who experience a COBRA qualifying event may choose to elect COBRA coverage with the employer (despite the premium cost) when presented with the alternative of higher premiums for marketplace coverage.
As Congress continues to debate the outcome of the enhanced PTC, and the ensuing government shutdown, employers should be aware of the developments and their possible impact.
Read the Congressional FAQs here: Enhanced Premium Tax Credit Expiration: Frequently Asked Questions.