ACA subsidy cliff may trigger higher health insurance premiums

Millions of Americans are bracing for a sharp increase in their health insurance premiums next year as expiring enhanced subsidies trigger a “cliff” on aid — and they are worried about the financial stress tied to those extra costs.

Ashley Thompson of Austin, Texas, said she and her husband are weighing whether to drop their health coverage next year and insure only their two children to make the financials work.

Premiums for the family’s current health plan on the Affordable Care Act marketplace could triple, to about $3,553 a month in 2026 from $1,200 this year, without the enhanced federal subsidies set to expire at year’s end, based on marketplace estimates.

That expense, almost $43,000 a year, would account for roughly a third or more of their household income — and that’s before even using the insurance, said Thompson, 49, who is a ceramic artist and physical trainer.

“Quite frankly, it’s terrifying,” she said.

Thompson and her family are among the 22 million Americans who receive enhanced subsidies that make health premiums cheaper. Overall, that group accounts for 92% of the 24 million people enrolled in an ACA marketplace plan.

The enhanced premium subsidies are at the epicenter of the political fight around the federal government shutdown, now the longest in U.S. history.

Democrats are pushing to extend the subsidies as part of a deal to reopen the government, while Republicans have said they want to negotiate the subsidies separately.

Senate Majority Leader Chuck Schumer on Friday proposed a one-year extension of the existing enhanced subsidies as part of a deal to reopen the government. The deal would also establish a bipartisan committee to continue negotiations on long-term reforms to address the issue of health-care affordability.

More than half, 57%, of ACA marketplace enrollees live in Republican congressional districts, according to a recent KFF analysis. This year, about 80% of all premium tax credits, or $115 billion, went to ACA marketplace enrollees in states won by President Trump in last year’s election, KFF found.

Political pundits have cited affordability as a key issue that drove Democrats like New York City Mayor-elect Zohran Mamdani to victories in Tuesday’s elections.

Without enhanced subsidies, the average recipient’s annual insurance premium will jump 114%, to $1,904 in 2026 from $888 in 2025, according to KFF, a nonpartisan health policy research group.

“On average, to keep their same plan, people getting a subsidy now will see their premium payments double next year,” said Cynthia Cox, vice president and director of KFF’s program on the Affordable Care Act.

Some, like Americans whose incomes exceed a certain threshold, will pay much more. They’d be ineligible for any premium assistance due to the so-called “subsidy cliff.”

Take a 60-year-old couple earning $85,000 a year, for example, which is just over the threshold: Their annual premiums would rise by almost $23,000 in 2026, on average, according to KFF.

The political fight around enhanced subsidies, which were enacted in 2021 under the Biden administration, is playing out during the ACA marketplace’s open enrollment, when would-be enrollees are picking their health plans for 2026.

They must do so by Dec. 15 to be covered at the start of the new year.

“Open enrollment is already starting with this big question mark,” Cox said.

Swelling health insurance premiums will likely have many consequences for households, according to health policy experts.

The Congressional Budget Office estimates about 4 million more people will join the ranks of the uninsured over the next decade if the enhanced subsidies disappear.

That likely wouldn’t happen immediately, Cox said. More than a million may drop coverage next year if they decide insurance premiums are unaffordable, she said.

Others may opt to buy lower-tier plans with smaller upfront premiums, she said. Those plans typically have much higher deductibles, meaning households would be on the hook for a hefty bill if they need to use their insurance, Cox said.

In later years, some of these enrollees would likely drop their coverage, too, if they grow weary of the system and higher costs, Cox said.

Other enrollees, like Beth Keenan, say they intend to keep their current health plan and absorb the higher costs by cutting other expenses.

Keenan, 62, an early retiree who lives in Pittsburgh, is using her ACA marketplace insurance plan as a bridge to Medicare benefits at age 65.

She pays $589 a month in premiums, after accounting for a $302 monthly federal subsidy, also known as a premium tax credit. If the enhanced subsidies expire, Keenan’s estimated net premium would jump to $1,065, up 81%, based on estimates from the state marketplace.

Keenan’s annual pension and Social Security income, totaling about $80,000, would be too high to qualify for aid.

“You get tax credits for private airplanes,” said Keenan, who retired at 60 from her job as a county court administrator, a post she held for three decades. “Why shouldn’t I get a tax break?”

Keenan expects the extra $500 or so per month won’t cause financial hardship, she said. But the sum will likely force her to pull back on certain lifestyle expenses like travel, she said.

The uncertainty around the availability of subsidies into the future is unnerving, especially knowing that insurers might raise premiums again for 2027, she said.

Insurers raised premiums an estimated 26% for 2026, on average, for example, according to KFF, exacerbating the loss of enhanced subsidies.

“I know what I’m doing [for] next year, but I have one year after that” before Medicare benefits start, Keenan said. “Are premiums going up [another] 20%? And then where else do you get insurance?”

While certain enrollees would still qualify for a lesser tax credit if the enhanced subsidies disappear, those with incomes above 400% of the federal poverty level would no longer qualify for assistance.

This is the so-called “subsidy cliff.”

That threshold varies by household size. It’s $62,600 for a one-person household and $128,600 for a four-person household in 2026, for example.

Since 2021, the enhanced subsidies have been available to households that earn more than that. Annual premiums were also capped at 8.5% of household income.

If the enhanced subsidies expire, that income cap would disappear, and those who earn even $1 above the 400% poverty line would be ineligible for premium tax credits. This would impact about 1 in 10 enrollees in an ACA marketplace plan, according to KFF.

Matthew Espinoza, 46, is right on the cusp of that income threshold.

The San Francisco resident, who works as a fitness instructor and restaurant server, expects his income to be roughly $60,000 to $65,000 next year, depending on how many hours he works.

Where his income ultimately falls would make a big financial difference if the enhanced subsidies disappear, said Espinoza, who is also a full-time nursing student.

He pays $324 a month for subsidized ACA insurance premiums this year.

Those subsidized premiums would rise to about $461 per month in 2026 if his annual income is $60,000, according to estimates through Covered California, the state marketplace. However, that premium would jump to $818 a month with a $65,000 income, since he’d no longer qualify for assistance.

“I haven’t had to cut down on savings when I started school, but that’d probably be the first thing that took a major hit” if forced to pay the $818 premium, Espinoza said.

Espinoza said he’d be hyper-aware of his income in 2026 and, if it flirts with the 400% poverty threshold, he may try to limit his work hours to ensure eligibility for a premium tax credit.

The subsidy cliff “is an unfortunate disincentive to work,” said KFF’s Cox. “For some families, it totally makes financial sense, especially if they really need the health insurance.”

Thompson, the Austin resident, doesn’t want to drop her health coverage.

But even lower-tier plans with high deductibles available on the ACA marketplace would still cost at least $3,000 a month for her family of four, she said, based on estimates via the marketplace.

“We are not broke, but this would put us in that position,” she said. “It’s not the only bill.”

They’re also looking into various options, such as insuring only their two children and using a cooperative health share for Thompson and her husband, she said. (Such services aren’t technically health insurance, and may come with various risks.)

“People think it’s people who are undeserving that get subsidies,” Thompson said. “But it’s just neighbors, regular people.”