Open Season Nears: Advanced Premium Tax Credits And Potential Paths Forward

Highlights

• The federal government is in the midst of a shutdown that is centrally focused on a dispute regarding the level of financial assistance that should be provided to individuals and families purchasing health insurance plans on state-based marketplaces.
• This Holland & Knight alert provides an overview of these marketplaces, the nature of the dispute and some of the practical challenges that will be presented when and if the U.S. Congress and president agree on a compromise solution.

The federal government is in the midst of a shutdown that is centrally focused on a dispute regarding the level of financial assistance that should be provided to individuals and families purchasing health insurance plans on state-based marketplaces.

This Holland & Knight alert provides an overview of these marketplaces, the nature of the dispute and some of the practical challenges that will be presented when and if the U.S. Congress and president agree on a compromise solution.

Background on Affordable Care Act Health Marketplaces

The Affordable Care Act (ACA) made foundational changes to the U.S. healthcare system with the goal to reduce the number of patients without health insurance. Two major structural reforms in the legislation were an expansion of the number of beneficiaries covered by Medicaid – the state-federal program for low-income individuals – and the creation of state-based healthcare marketplaces through which individuals and families who do not qualify for Medicaid but lack other insurance options, such as insurance provided by an employer, may enroll in coverage.

Currently, 29 states have delegated the administration of their marketplaces to the U.S. Department of Health and Human Services (HHS), and 21 states administer their own marketplaces. On an annual basis, each state marketplace reviews and qualifies insurance plans proposed to be offered to consumers with regard to whether they meet requirements under the ACA related to coverage, cost-sharing, actuarial value and other issues. The process by which a health insurance company develops a qualifying offering and determines its cost involves complex actuarial calculations. Because offerings are state-regulated insurance products, their proposed rates must also be reviewed and approved by the appropriate state regulatory agency to determine that they are adequate to cover expected claims but not unreasonable or excessive.

How the Marketplaces Function

The annual health insurance marketplace process is generally as follows:

1. Health insurers that wish to offer plans on a state marketplace develop their proposed offerings and, per the ACA, are required to file rates with state regulators annually as well as justify whether proposed rate increases are reasonable. Their offerings are reviewed for compliance with ACA requirements, and proposed rates are reviewed and modified/approved by the relevant state agency, usually by September each year.
2. On Nov. 1 (in almost all states), an open enrollment period (OEP) commences during which consumers may review and compare plans, obtain premium and cost sharing information, calculate the value of their premium tax credit and enroll in a plan (or decline to do so). Though insurance agents or marketplace employees can facilitate this process, it often occurs through accessing a state internet website and completing these steps electronically. It is important to note that currently enrolled individuals may be subject to auto-renewal processes if they do not affirmatively opt out.
3. The OEP ends on Jan. 15, with individuals who enrolled by Dec. 15 covered effective Jan. 1. Individuals who enroll in or change plans after Dec. 15 through Jan. 15 will be covered effective Feb. 1. Individuals who enroll after the conclusion of the OEP generally may do so only if they experience a qualifying life event (e.g., loss of employer-provided coverage) that allows them to enroll during a special enrollment period (SEP).

Advanced Premium Tax Credits: Background and Current Landscape

Since its inception, the ACA has provided income-based Advanced Premium Tax Credits (APTCs) to help defray the cost of health coverage for individuals and families who choose to enroll in a plan through the marketplaces. The APTCs were calculated to cap the percentage of annual income that an individual or family had to pay toward the cost of coverage on a graduated basis between 150 percent and 400 percent of the federal poverty level (FPL). At the time of enrollment, the estimated tax credit would be calculated and transferred to the health insurer, and the otherwise-required premium would be reduced accordingly. In year-end tax filings, any discrepancy in the advanced credit due to a difference between projected and actual income would be reconciled.¹

As part of the American Rescue Plan Act of 2021, Congress revised the APTCs to make them more generous for three years, both in the size of subsidy and expanding those qualified to receive them. These "enhanced" advance premium tax credits (EAPTCs) were also graduated and applied below 150 percent of FPL and extended above the 400 percent FPL cut-off. The new enhanced subsidies were later extended to the end of 2025 by the Inflation Reduction Act (IRA). The enhanced subsidies fueled year-over-year growth in enrollment, with approximately 24 million individuals enrolled as of 2025 – more than double the number prior to enactment of the EAPTCs Of the individuals covered by plans through the ACA, the vast majority receive some amount of premium tax credit, with the average monthly premium after application of the APTC being $113. During the last OEP, 42 percent of consumers selected a plan for $10 or less per month after application of the EAPTC.

However, the EAPTCs expire at the end of this year unless Congress acts to extend them. If the EAPTCs are not extended, they revert back to the pre-existing, less generous APTCs. To date, Congress has yet to pass legislation to extend the EAPTCs, which is why their expansion has become a focal point of the current government shutdown. Democrats in Congress and some Republicans are pushing for the EAPTCs to be extended. However, most congressional Republicans either oppose any further extension or will not support an extension without significant changes.

Expiration of the EAPTCs: Impact on Premiums, Financial Assistance and Enrollment

As open season begins on Nov. 1, it is anticipated that premiums will be higher than last year, largely due to the potential loss of EAPTCs but also in conjunction with other factors leading to upward pressure on prices. In developing proposed rates for their 2026 marketplace offerings, many health insurers accounted for the potential expiration of the EAPTCs in their rate offerings. In some states, insurers were permitted to submit two sets of rates: one assuming expiration of the EAPTCs and one assuming their renewal.

Rates assuming expiration of the EAPTCs anticipate fewer enrollees, including patients who elect to decline coverage rather than pay for more expensive monthly premiums, as well as a more expensive "risk pool" due to remaining enrollees having more chronic conditions or comorbidities. As a result, premium costs are expected to increase both in the ACA marketplace.

Rising healthcare costs have added to the uncertainty. Several major insurers have signaled in investor calls and annual profit forecasts that proposed rates would increase as a result of a confluence of factors, including inflation, increased healthcare costs and higher utilization of drugs and other healthcare services.

Various organizations have estimated that the severity of price increases will be sizable, including a projection that premium payments in 2026 will more than double. Estimates from over the summer, based on premium increases requested by insurers who participate in the ACA marketplaces, showed a median increase of 25 percent over the previous year – the largest premium increases in more than five years. Other estimates are more sanguine about the impacts, projecting that "most exchange enrollees will face moderate increases in out-of-pocket costs in dollar terms," such as a potential increase of $62.50 per month.

One early "real world" data point comes from Idaho, whose open enrollment period began Oct. 15. The executive director of the Idaho Marketplace has indicated that, on average, the net premium (the amount consumers pay after their tax credit is applied) has increased about 75 percent, or about $1,200 per year.

Congress' scorekeeping body – the Congressional Budget Office (CBO) – has estimated that approximately 10 million fewer individuals will be covered by insurance at the end of the next decade if the enhanced credits are allowed to expire, with 3 million to 4 million consumers dropping coverage in 2026 alone. This reduction in covered individuals is distinct from the 10 million beneficiaries the CBO projected would become uninsured over a 10-year period following the implementation of provisions related to Medicaid, which were included in H.R.1, the One Big Beautiful Bill Act (OBBB).

Is a Fix Possible?

If the federal government was to enact an extension of the EAPTCs in coming weeks, a number of complications could ensue:

• Marketplace computer systems would need to be modified to reflect updated arrangements. For example, the algorithms that calculate assistance based on income and family composition would need to be quickly rewritten for the 21 state-run exchanges, as well as marketplaces run by the federal government.
• After the OEP begins, some individuals may have already decided not to enroll in or elected to cancel the renewal of an existing plan. Communicating to these individuals that there has been a change in the level of financial assistance they would receive and encouraging them to take a "second look" could be a difficult undertaking, similar to the consumer outreach process that most states undertook during the unwinding of extended Medicaid coverage following the end of the COVID-19 public health emergency.
• Conversely, individuals who elect to enroll in a plan but under less generous terms would need to have their arrangements modified to reflect higher levels of financial assistance. This might require granting them an opportunity to re-enroll or reconcile the premium tax credit on their 2026 income tax return.
• Recalculating and reapproving insurer rates would be exceptionally difficult or impossible given the difficulty of revising forecasts in light of numerous uncertainties.
• If changes are not enacted until after the commencement of coverage starting Jan. 1, 2026, the complexities would multiply, potentially necessitating a new OEP and making retroactive adjustments to assessed premiums.

Next Steps on APTCs

The next several days will be crucial, as there is less than one week before the beginning of the OEP. Despite this deadline, Congress remains at a stalemate regarding a path forward. President Donald Trump has yet to weigh in to provide his approval of any specific approach. President Trump's approval of a path forward or compromise solution is something many Republicans will wait to see – or hear – before determining whether they will be supportive.

The emergence of an agreement – or lack thereof – will have wide-ranging impacts on stakeholders across the healthcare industry, from patients to physicians to hospitals. Either scenario is likely to be complicated by demands for a real, comprehensive focus on potentially major healthcare reforms to address the rising cost of care across the nation.

Footnote

1. Some lower-income individuals also qualify for additional financial assistance in the form of reductions in their required cost-sharing amount.