Enhanced Premium Tax Credit Expiration: Frequently Asked Questions

Enhanced Premium Tax Credit Expiration: Frequently Asked Questions

Enhanced Premium Tax Credit Expiration: Frequently Asked Questions

December 4, 2024

Congressional Research Service

https://crsreports.congress.gov

R48290

Congressional Research Service

SUMMARY

Enhanced Premium Tax Credit Expiration: Frequently Asked Questions

Although the premium tax credit (PTC) has been available since 2014, there is increased congressional interest in the federal subsidy due to the impending expiration of a provision that enhanced the PTC.

The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) established the PTC to help eligible households lower their payments toward premiums for qualified health plans offered through health insurance exchanges. The American Rescue Plan Act of 2021 (ARPA; P.L. 117-2) expanded eligibility for and the amount of the PTC for tax years 2021 and 2022. The budget reconciliation measure known as the Inflation Reduction Act (IRA; P.L. 117-169) extended the ARPA provision for three additional tax years, 2023 to 2025.

In general, the enhanced PTC provision allowed more households to become eligible for the credit and provided larger subsidies to all eligible households, compared with ACA-only rules. As a result, federal expenditures for the PTC were larger under ARPA/IRA rules than under ACA-only rules.

If the enhanced subsidies are allowed to expire, the Congressional Budget Office (CBO) estimates a decrease in enrollees with subsidized exchange coverage resulting in a reduction in federal expenditures. CBO also estimates that expiration of the enhanced PTC would contribute to a rise in the uninsured rate.

If the enhanced subsidies were permanently extended, CBO and the staff of the Joint Committee on Taxation estimate an overall increase in exchange enrollment leading to an increase in the federal budget deficit.

R48290

December 4, 2024

Bernadette Fernandez Specialist in Health Care Financing

Enhanced Premium Tax Credit Expiration: Frequently Asked Questions

Congressional Research Service

Contents

Introduction ..................................................................................................................................... 1 Frequently Asked Questions ............................................................................................................ 1

What Is the ACA Subsidy? ........................................................................................................ 1

Who Is Eligible for the Subsidy? .............................................................................................. 1 What Does It Mean That the Subsidy Is Enhanced? ................................................................. 2 Does the Expiration Mean the Subsidies Will End After 2025? ............................................... 3 What Has Been the Impact of the Enhanced Subsidies? ........................................................... 3

Federal Budgetary Effects ................................................................................................... 3

Impact on Coverage ............................................................................................................ 4

What Might Happen If the Enhanced Subsidies Are Allowed to Expire? ................................. 5

What Might Happen If the Enhanced Subsidies Are Extended? ............................................... 5

Contacts

Author Information .......................................................................................................................... 6

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Introduction

Certain individuals and families without access to subsidized health insurance coverage may be eligible for a federal subsidy: the premium tax credit (PTC).¹ The PTC, authorized under the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended), applies toward the cost of purchasing specific types of health plans offered by private companies participating in ACA exchanges (marketplaces). The PTC is refundable, allowing individuals to claim the full credit amount when filing their income taxes even if they have little or no federal income tax liability. The credit also is advanceable, so individuals may choose to receive advanced payments of the credit (or APTC). APTCs are provided on a monthly basis to coincide with the payment of insurance premiums, which automatically reduces consumer costs associated with purchasing applicable insurance through the exchanges.

Although the PTC has been available since 2014, there is increased congressional interest in the subsidy due to an impending expiration of the expanded and enhanced subsidy. This report provides answers to frequently asked questions about the PTC. ²

Frequently Asked Questions

What Is the ACA Subsidy?

ACA subsidy is a common phrase used to refer to the PTC, a federally financed subsidy that helps eligible households lower their payments toward premiums to enroll in (or continue enrollment in) qualified health plans offered through exchanges.³

The subsidy amount (the PTC) is determined by a formula that requires households to contribute a portion of the premium, based partly on household income and size. As household income increases, the PTC amount generally decreases, requiring households to contribute a larger portion of their income toward the premium.

Who Is Eligible for the Subsidy?

To be eligible to receive the PTC, individuals currently must

• be U.S. citizens, U.S. nationals, or lawfully present individuals;

• not be incarcerated (except for individuals in custody pending the disposition of charges);

• not have access to subsidized health coverage (with exceptions); and

1 Access to these forms of subsidized coverage generally will make an individual ineligible for the premium tax credit (PTC) (with exceptions): Medicare; Medicaid; the State Children’s Health Insurance Program; Tricare; a health care program administered by the Department of Veterans Affairs; coverage provided through the Peace Corps program; any government plan (local, state, federal), including the Federal Employees Health Benefits Program; an employer- sponsored health plan; and other coverage (e.g., a state high-risk pool) recognized by the Secretary of the Department of Health and Human Services (HHS).

2 For a comprehensive discussion about the PTC, see CRS Report R44425, Health Insurance Premium Tax Credit and Cost-Sharing Reductions.

3 For a comprehensive discussion about the exchanges, see CRS Report R44065, Overview of Health Insurance Exchanges.

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• have annual household income that meets or exceeds the minimum threshold equivalent to 100% of the federal poverty level (FPL) (with exceptions).⁴

An individual may be eligible for the PTC even if a member of his or her household is not eligible. For example, one spouse may have access to affordable employer health benefits, which would make that individual ineligible for the PTC. However, the rest of the household may only have access to employer benefits that are not affordable; in this case, the rest of the household may receive a PTC, as long as they meet the eligibility criteria.⁵

What Does It Mean That the Subsidy Is Enhanced?

The PTC statute includes a temporary provision that expanded eligibility and enhanced subsidy amounts for tax years 2021 through 2025.

Individuals must meet income (and other) criteria to be eligible for the PTC. Also, the formula for calculating the credit amount is based, in part, on income. Specifically, the PTC formula incorporates a premium contribution for the household receiving the subsidy. That premium contribution is the product of multiplying the household’s income by a specified percentage (applicable percentage).

As enacted under the ACA, the following rules applied:

• income eligibility was limited to households whose annual incomes were at or above 100% of the federal poverty level (FPL) but not more than 400% of FPL, and

• the applicable percentages initially were specified in statute and adjusted annually through guidance issued by the Internal Revenue Service (IRS). (The annual adjustment to applicable percentages is sometimes referred to as indexing.)

As part of relief legislation enacted in response to the Coronavirus Disease 2019 pandemic and related economic disruption, Congress passed the American Rescue Plan Act of 2021 (ARPA; P.L. 117-2). Among the act’s provisions was one that expanded eligibility for the PTC and enhanced credit amounts.⁶ For tax years 2021 and 2022, ARPA temporarily

• eliminated the maximum income limit (400% of FPL) for PTC eligibility purposes, leaving only the minimum income threshold (100% of FPL), and

• reduced applicable percentages and eliminated indexing, which resulted in larger subsidy amounts (compared with ACA-only rules).

4 The guidelines that designate the federal poverty level (FPL) are used in various federal programs for eligibility purposes. The poverty guidelines vary by family size and by whether an individual resides in the 48 contiguous states and the District of Columbia, Alaska, or Hawaii. See HHS, Office of the Assistant Secretary for Planning and Evaluation, Frequently Asked Questions Related to the Poverty Guidelines and Poverty, https://aspe.hhs.gov/ frequently-asked-questions-related-poverty-guidelines-and-poverty#programs.

5 This eligibility scenario and other subsidized coverage exceptions are discussed in the “Not Eligible for Minimum Essential Coverage” section of CRS Report R44425, Health Insurance Premium Tax Credit and Cost-Sharing Reductions.

6 For a summary of the American Rescue Plan Act of 2021 (P.L. 117-2) provision, see “Section 9661: Improving Affordability by Expanding Premium Assistance for Consumers” in CRS Report R46777, American Rescue Plan Act of 2021 (P.L. 117-2): Private Health Insurance, Medicaid, CHIP, and Medicare Provisions.

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These changes were extended for three additional tax years, 2023 through 2025, under the budget reconciliation measure known as the Inflation Reduction Act (IRA; P.L. 117-169).⁷ The sunset date established under the IRA for the enhanced PTC provision is January 1, 2026.

Does the Expiration Mean the Subsidies Will End After 2025?

The PTC will continue after 2025. There is no sunset provision applicable to authorization for the credit itself.

The expiration applies only to the temporary provision that expanded income eligibility and enhanced subsidy amounts described above. Without an additional extension of the ARPA provision, the maximum income limit of 400% of the FPL would be reinstated and the applicable percentages would revert to higher levels resulting in lower subsidy amounts.

What Has Been the Impact of the Enhanced Subsidies?

In general, the enhanced PTC provision allowed more households to become eligible for the credit and provided larger subsidies to all eligible households, compared with ACA-only rules.⁸ As a result, federal expenditures for the PTC were larger under ARPA/IRA rules than under ACA- only rules.

Federal Budgetary Effects

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) estimated the ARPA provision that expanded PTC eligibility and enhanced subsidy amounts for tax years 2021-2022 would increase outlays by approximately $22 billion and reduce revenue by more than $12 billion for FY2021-FY2030 (relative to the February 2021 baseline).⁹

For the IRA, CBO and JCT estimated that extending the enhanced PTC for three additional years (tax years 2023-2025) would increase outlays by over $33 billion and reduce revenue by more than $31 billion for FY2022-FY2031 (relative to the July 2021 baseline).¹⁰

JCT incorporated the temporary PTC changes in its most recent committee print on federal tax expenditures for FY2023-FY2027. JCT estimated the net revenue loss attributable to the total PTC would be

• $79.8 billion in FY2023;

7 For a summary of the provision in the budget reconciliation measure known as the Inflation Reduction Act (P.L. 117- 169), see the “Premium Tax Credits” section in CRS In Focus IF12203, Selected Health Provisions of the Inflation Reduction Act.

8 For an illustrative example of the difference in subsidy amounts under different eligibility and formula rules, see Figure 4 in CRS Report R48034, Illustrative Examples of Premium Tax Credit Variation Among Hypothetical Households.

9 Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT), Table 9 (Detailed Tables), in Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021, March 10, 2021, https://www.cbo.gov/publication/57056. Because the PTC is refundable, eligible individuals may receive credit amounts that exceed their tax liability. For budget purposes, the credit amount that reduces tax liability is considered a revenue reduction. The credit amount that exceeds that liability is considered an outlay. Together, the revenue reductions and outlays constitute total federal expenditures for the PTC.

10 CBO and JCT, Table 1, in Estimated Budgetary Effects of H.R. 5376, the Inflation Reduction Act of 2022, August 3, 2022, https://www.cbo.gov/publication/58366.

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• $96.1 billion in FY2024;

• $105.7 billion in FY2025;

• $86.5 billion in FY2026; and

• $79.5 billion in FY2027.¹¹

These estimates are based on federal tax provisions enacted through August 31, 2023, including expiration of the enhanced PTC provision at the end of tax year 2025.

Impact on Coverage

In CBO’s most recent update to its baseline projections for health insurance subsidies, the agency stated that “average annual enrollment through the marketplaces over the period [2024-2033] is 3.2 million more than previously estimated.”¹² CBO attributes this increase, in part, to “availability of enhanced marketplace subsidies.”¹³

In addition, administrative exchange data reveal steady increases in subsidized enrollment from 2020 to 2024.¹⁴ The Centers for Medicare & Medicaid Services (CMS) attributes the “growth and popularity of the HealthCare.gov Marketplaces” to the availability of “enhanced tax credits.”¹⁵

The count of individuals with effectuated subsidized exchange enrollment has increased year to year following availability of the enhanced PTC.¹⁶ (The CMS data also provided the percentage of subsidized enrollment over total exchange enrollment.)

Subsidized exchange enrollment by year (as of February) was as follows:

• 2020: 9.2 million (represented 86% of all individuals enrolled in exchanges)

• 2021: 9.7 million (86%)

• 2022: 12.5 million (90%)

• 2023: 14.3 million (91%)

• 2024: 19.3 million (93%)

Overall, subsidized exchange enrollment more than doubled between 2020 and 2024, increasing by 109% during this time period. At the state level, all but two states (Kentucky and

11 See “Subsidies for Insurance Purchased Through Health Benefit Exchanges” in Table 1 of JCT, Estimates of Federal Tax Expenditures for Fiscal Years 2023-2027, December 7, 2023 (JCX-59-23), https://www.jct.gov/publications/2023/ jcx-59-23/.

12 CBO, “CBO Publishes New Projections Related to Health Insurance for 2024 to 2034,” CBO Blog, June 18, 2024, https://www.cbo.gov/publication/60383. Hereinafter, CBO, “CBO Publishes New Projections.”

13 Ibid.

14 Centers for Medicare & Medicaid Services (CMS), “February Effectuated Enrollment Tables,” July 2, 2024, https://www.cms.gov/marketplace/resources/forms-reports-other#Health_Insurance_Marketplaces. Hereinafter, CMS, “February Effectuated Enrollment Tables.” Additional information and links to related reports are available in Table 2 in CRS Report R46638, Health Insurance Exchanges: Sources for Statistics.

15 CMS, “Affordability and Choice Anchor Biden-Harris Administration’s Launch of Window-Shopping for 12th HealthCare.gov Marketplace Open Enrollment,” press release, October 25, 2024, https://www.cms.gov/newsroom/ press-releases/affordability-and-choice-anchor-biden-harris-administrations-launch-window-shopping-12th.

16 Effectuated enrollment is the number of unique individuals who have been determined eligible to enroll in an exchange plan, have selected a plan, and have submitted the first premium payment for an exchange plan. Effectuated enrollment estimates generally are point-in-time and may change over the plan year. Also, these data represent individuals who received advanced payments of the PTC; however, individuals also may wait until tax filing season (after the plan year has ended) to claim the PTC on their individual income tax forms.

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Massachusetts) experienced growth in the number of individuals with subsidized exchange enrollment from 2020 to 2024.¹⁷

What Might Happen If the Enhanced Subsidies Are Allowed to Expire?

CBO estimates a $21 billion decrease in federal expenditures in the fiscal year following expiration ($129 billion in FY2025 to $108 billion in FY2026), representing a 16% reduction in total PTC expenditures.¹⁸ Overlapping with the decrease in expenditures, CBO estimates a decrease of 5.6 million enrollees with subsidized exchange coverage in the calendar year (CY) following expiration (21.3 million in CY2025 to 15.7 million in CY2026), representing a 26% reduction in those with subsidized exchange coverage, and an increase of 1.7 million enrollees with unsubsidized coverage over the same time period.¹⁹ CBO estimates that expiration of the enhanced PTC would contribute to a rise in the uninsured rate.²⁰

What Might Happen If the Enhanced Subsidies Are Extended?

CBO and JCT provided budgetary and coverage estimates under a permanent extension of the enhanced PTC.²¹ They estimated that direct spending would increase by nearly $275 billion (on net) over the FY2025-FY2034 budget window and that revenues would decrease (on net) by more than $60 billion over the same window. Taken together, the permanent extension would add approximately $355 billion to the budget deficit for that time period. (These estimates are relative to the June 2024 baseline, which incorporates expiration of the enhanced PTC at the end of tax year 2025.)

In addition, CBO and JCT estimated a permanent extension would lead to a “6.9 million net increase in marketplace coverage resulting from an increase in subsidized enrollment of 7.4 million and a decline in unsubsidized enrollment of 600,000.”²² CBO also projected that changes to enrollment in other sources of health coverage (e.g., Medicaid, employment-based health benefits) could occur, reflecting the interaction of public and private sources of coverage with exchange enrollment and PTC eligibility.

17 CRS calculations based on national and state data in CMS, February Effectuated Enrollment Tables.

18 CRS calculation based on Table 2 in CBO, “CBO Publishes New Projections.”

19 CRS calculation based on Table 1 in CBO, “CBO Publishes New Projections.”

20 CBO estimates the “uninsured share of the population will rise over the course of the next decade,” in part due to “expiration of enhanced subsidies available through the Affordable Care Act health insurance Marketplaces.” Jessica Hale et al., “Health Insurance Coverage Projections for the U.S. Population and Sources of Coverage, by Age, 2024– 34,” Health Affairs, vol. 43, no. 7 (July 2024), p. 922, https://www.healthaffairs.org/doi/epdf/10.1377/ hlthaff.2024.00460. For an interactive tool estimating the potential loss of coverage resulting from the expiration of the enhanced PTC, by state, see Jameson Carter et al., Urban Institute, “Who Would Lose Coverage If Enhanced Premium Tax Credits Expire?,” November 14, 2024, https://www.urban.org/data-tools/health-insurance-premium-tax-credit.

21 CBO and JCT, The Effects of Permanently Extending the Expansion of the Premium Tax Credit and the Costs of that Credit for Deferred Action for Childhood Arrivals Recipients, June 24, 2024, https://www.cbo.gov/publication/60437.

22 Ibid., p. 5.

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Congressional Research Service R48290 · VERSION 1 · NEW 6

Author Information

Bernadette Fernandez Specialist in Health Care Financing

Disclaimer

This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material.