How sunsetting ARP’s subsidy enhancements would affect ACA subsidy amounts

ACA subsidy rules prior to ARP

When the subsidy enhancements sunset at the end of 2025, the rules will revert – starting in 2026 – to the subsidy rules set by the ACA. Here’s how the ACA premium subsidy rules worked prior to the ARP: ⁸

• Subsidies were available if household income was at least 100% of the federal poverty level (FPL), or more than 138% FPL in states that had expanded Medicaid eligibility under the ACA. However,
• Subsidies were not available if household income was more than 400% FPL, regardless of the percentage of income a household would have to spend to buy coverage. This resulted in a subsidy cliff at 400% FPL.
• For subsidy-eligible enrollees, the subsidy amount was based on the enrollee having to pay a certain percentage of their household income for the benchmark plan (second-lowest-cost Silver plan). That percentage varied with household income, and ranged between roughly 2% and 9.5% of household income. (This is called the “applicable percentage” and the range was indexed each year by the IRS.)⁹

Temporary subsidy enhancements under the ARP and IRA

Now let’s take a look at how the ARP temporarily changed these rules, and how the IRA extended those changes through 2025:

• Elimination of the subsidy cliff. But the 400% FPL cap on subsidy eligibility was temporarily eliminated, so we haven’t had a subsidy cliff for the last few years. Instead, people with household income over 400% FPL are eligible for subsidies if the cost of the benchmark plan is more than 8.5% of their household income. (This assumes they meet other subsidy eligibility requirements, including not having access to Medicaid, premium-free Medicare Part A, or an employer’s plan that’s considered affordable and provides minimum value.)
• Bigger subsidies for everyone who’s subsidy-eligible. For subsidy-eligible enrollees, the percentage of household income that the enrollee has to pay for the benchmark Silver plan has been reduced across the board. Instead of ranging from 2% to 9.5% of household income, it now ranges from 0% to 8.5% of household income.⁶ And again, that now applies to households with income above 400% FPL.
• No change to lower-income eligibility. The lower income threshold for premium subsidy eligibility did not change.

So the ARP subsidy enhancements, extended by the IRA, had two major effects:

• They allow Marketplace enrollees with household income above 400% FPL to potentially qualify for premium subsidies.
• They reduced the percentage of income that people pay for the benchmark plan at all income levels.

For example, under the original ACA rules, a person earning 150% FPL would pay 4% of their income for the benchmark plan,⁹ and their subsidy would cover the rest. But under ARP rules, a person earning 150% FPL pays 0% of their income for the benchmark plan. Their subsidy covers the entire cost of the premium.¹⁰ We won’t know the 2025 FPL numbers (used to determine subsidy eligibility in 2026) until early 2025. And we also don’t yet know what the exact applicable percentage range would be for the 2026 plan year when the ARP subsidy enhancements sunset, as the IRS will have to calculate and publish those numbers. But it will be roughly in the range of 2% to 9.5%, with subsidies ending altogether at above 400% FPL. (To clarify: from 2015 through 2020, the range had increased four times and decreased twice. As of 2020, it stood at 2.06% to 9.78%.)¹¹

Subsidies disappear for people with household incomes over 400% FPL

The return of the subsidy cliff would be particularly significant for older enrollees, since full-price premiums are based on age. (In almost all states, a 53-year-old will pay roughly twice as much as a 21-year-old, and a 64-year-old will pay three times as much as a 21-year-old.)¹², ¹³, ¹⁴ It would also be particularly significant in areas where health insurance is more expensive than average. since the full premium would have to be paid by enrollees if their household income is over 400% FPL. (The national average pre-subsidy Marketplace premium in 2024 was about $603/month,¹⁵ but as we’ll discuss in a moment, some states have much higher averages.) To illustrate this, let’s look at the ten states where average full-price Marketplace premiums were the highest for plan year 2024.¹⁶ We’ll consider a 55-year-old in each of those states, earning 405% of the 2024 FPL, which is used to determine subsidy eligibility for 2025. These enrollees are eligible for significant premium subsidies in 2025,¹⁷ as shown in the table below:¹⁸

State	Unsubsidized monthly premium for a 55-year-old. Without ARP subsidy enhancements, this would be paid in full by an enrollee earning more than 400% FPL. 19	2025 after-subsidy monthly benchmark plan premium for a 55-year-old earning 405% FPL20	Percentage of Marketplace enrollees in the state who earn more than 400% FPL21
AK	$1,786	$557	19%
WV	$1,636	$432	10%
WY	$1,432	$431	18%
CT	$1,298	$435	21%
VT	$1,275	$431	19%
AL	$1,032	$432	4%
DE	$931	$431	15%
NY	$881	$432	14%
ME	$880	$433	16%
LA	$824	$432	6%

When the ARP subsidy enhancements sunset at the end of 2025, these individuals would not be eligible for any premium subsidies starting in 2026, assuming their 2026 household income is more than 400% of the 2025 FPL. So they could potentially go from receiving hundreds of dollars per month in subsidies in 2025 to receiving no subsidies at all in 2026. To continue to have coverage, they would have to pay the full premium amount. These enrollees are not hypothetical. Across all Marketplace enrollees nationwide, the 55-64 age group has the highest total enrollment, with 5.1 million enrollees in 2024. And the next-closest age group is 45-54, with 4.1 million enrollees.²² And out of the 21.4 million people who selected Marketplace plans during the open enrollment period for 2024 coverage, 1.5 million reported incomes above 400% FPL.²³ The chart above illustrates the percentage of enrollees in each state whose income is over 400% FPL. In eight of the ten states, this population accounts for at least 10% of Marketplace enrollment.

For everyone else, subsidies would get smaller

In addition to the return of the subsidy cliff for households earning more than 400% FPL, it’s important to understand that a return to the pre-ARP ACA subsidy rules would also result in smaller subsidies for everyone who continues to be subsidy-eligible. This is because at all income levels, people would have to pay a larger percentage of their income to purchase coverage. Let’s consider a 45-year-old in Chicago who earns about $45,000 in 2025, or about 300% FPL. If this person enrolls in 2025 Marketplace coverage under the current enhanced subsidy rules they will qualify for a subsidy of $227/month, and will have to pay $224/month in after-subsidy premiums to purchase the benchmark Silver plan.²⁴ Their after-subsidy premiums amount to about 6% of their household income, as called for in the ARP applicable percentage table.²⁵ But if the pre-ARP ACA subsidy rules were in place for 2025 instead, this person would have to pay roughly 9.5% of the household income for the benchmark plan. (Without the ARP subsidy enhancements extended by the IRA, the applicable percentage would have been indexed by the IRS, but it would have been close to 9.5%.)⁹ That would have amounted to about $356/month in after-subsidy premiums, instead of the $224/month that the aforementioned Chicagoan is paying under the ARP subsidy enhancements. The Biden-Harris administration has noted that the ARP subsidy enhancements, and their extension by the IRA, resulted in not only record-high enrollment, but also an increase in the number of people who upgraded their Marketplace coverage from Bronze to a higher metal level.²⁶ This makes sense, since the larger subsidies allowed people to buy more expensive coverage without increasing their net premiums. Without the ARP subsidy enhancements, the Congressional Budget Office projects that Marketplace enrollment will drop from 22.8 million in 2025 to 18.9 million in 2026.²⁷ And while millions of people will continue to have Marketplace coverage, it stands to reason the plan upgrades in response to the subsidy enhancements could reverse, with people opting to downgrade their coverage to keep the premiums affordable.²⁶

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Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.