KBRA Releases Research – ACA Subsidy Expiration: A Patchwork of State Responses Emerges

NEW YORK--(BUSINESS WIRE)--KBRA releases research discussing state responses to the expiration of enhanced premium tax credits.

Earlier this year, KBRA discussed the expected impacts of enhanced premium tax credits expiring at year-end 2025. These tax credits were first introduced under the American Rescue Plan Act of 2021 and later continued through 2025 under the Inflation Reduction Act. KBRA identified potential negative credit implications for hospitals and knock-on pressures for states already facing budgetary constraints stemming from the One Big Beautiful Bill Act (OBBBA). An enhanced premium tax credit is a refundable credit that helps offset the cost of health insurance premiums for eligible individuals purchasing coverage through the Affordable Care Act (ACA) marketplace. Once the enhanced premium tax credits expired, this effectively reverted eligibility and benefit levels to their pre-pandemic framework, including the reinstatement of the 400% federal poverty level income cap.

At the time, the Congressional Budget Office (CBO) estimated that the expiration of enhanced premium tax credits at the end of 2025 would increase the number of uninsured Americans by about 4.2 million by 2034 relative to a permanent extension of the credits. KFF notes that effectuated ACA marketplace enrollment for February 2026 was 19.2 million as of May 5, 2026, down from the record 21.8 million in 2025. This represents a 12% decline in enrollment year-over-year, suggesting greater uncertainty around future declines and how states will address the associated increase in fiscal pressure.

Key Takeaways

• ACA marketplace enrollment has declined following the expiration of enhanced premium tax credits, increasing the potential for coverage losses and uncompensated-care pressure on health care providers.
• State responses to the expiration of the enhanced premium tax credits have varied, with some taking actions to make insurance more affordable, but coverage gaps remain.
• New Mexico stands apart from other states in the scale of its response, using Health Care Affordability Fund (HCAF) resources to offset the loss of enhanced federal premium assistance for eligible marketplace enrollees. Its state-funded response has been the most comprehensive to date.
• State efforts to offset lost federal assistance create recurring rather than one-time budgetary commitments, adding another expenditure pressure for states that opt to maintain these programs.
• State-based reinsurance is another affordability tool in the individual market. However, rather than providing a subsidy directly to consumers, a reinsurance program reimburses insurers for a portion of eligible high-cost claims, reducing the portion of claims costs borne by insurers, which drives premiums lower for the individuals purchasing coverage.

Click here to view the report.

Related Publication

• ACA Subsidy Rollback: A Broader Credit Story for Public Finance

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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