As we look ahead to the future of health insurance premiums, there is a looming threat that premiums could increase significantly after 2025 if Congress does not take action. The premium tax credit currently plays a key role in making health insurance purchased via the federal marketplace more affordable. Participants have the option to use the credit to lower their insurance premiums upfront or claim the tax break while filing their return. The credit was temporarily enhanced through the American Rescue Plan Act during the COVID-19 pandemic, covering plans in 2021 and 2022. However, the Inflation Reduction Act extended this benefit through 2025.
According to Gideon Lukens, senior fellow and director of research and data analysis for the Center on Budget and Policy Priorities, if the benefits sunset after 2025, virtually everybody would face higher premiums. The White House reported record-high enrollment in marketplace plans for 2024, with over 21 million participants. In response, President Joe Biden proposed making the premium tax credit expansion permanent in his fiscal year 2025 budget request. However, making the program permanent could increase the federal budget deficit by $335 billion from 2025 through 2034, as estimated by the Congressional Budget Office and Joint Committee on Taxation.
Without an extension from Congress, marketplace premiums are expected to increase for Americans across the income spectrum. This impact is projected to be felt in mid-2025 when health insurers begin releasing rates. For instance, a typical family of four earning $60,000 could experience monthly premiums soaring from $100 to $326, equating to about $2,700 more per year. On the other hand, a family of the same size earning $125,000 might see monthly premiums rise from $885 to $1,525, resulting in an additional cost of about $7,700 annually.
Andrew Lautz, associate director for the Bipartisan Policy Center’s economic policy program, emphasized that the expiration of the expansion will have a significant impact on most individuals. The tax credit, which has reduced costs for all enrollees, has led to an improvement in the nongroup market risk pool. Until 2021, the credit was restricted to households with income between 100% to 400% of the federal poverty level. However, the American Rescue Plan Act removed those limits and capped premiums at 8.5% of income.
The future of health insurance premiums remains uncertain, with potential premium increases on the horizon post-2025. It is evident that the expiration of the current benefits could result in higher premiums for a vast number of Americans, pushing the affordability of health insurance further out of reach. As policymakers grapple with these challenges, finding sustainable solutions to ensure accessible and affordable health care for all will be crucial in the coming years.
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