As the end of 2025 approaches, the future of enhanced premium subsidies for Affordable Care Act (ACA) Marketplace coverage remains uncertain. These subsidies, extended by the Inflation Reduction Act (IRA), are set to expire December 31, 2025. Without congressional action, millions of Americans will face a sudden and significant increase in out-of-pocket premium costs, reintroducing the “subsidy cliff” and raising the percentage of income that they will need to direct toward health insurance premiums. More than 16 million consumers who now receive subsidies will be affected, making this a critical issue for policymakers, payers, and consumers.
A new white paper from Wakely, an HMA Company, offers a timely and detailed analysis of the potential impacts and strategic considerations for stakeholders navigating this uncertain terrain.
How ACA Subsidies Are Calculated: The Mechanics Behind Premiums
The white paper explains that advance premium tax credits (APTCs) are designed to cap a household’s health insurance premium contribution at a specific percentage of income. The calculation is based on household income, size, the cost of the benchmark Second Lowest Cost Silver Plan (SLCSP), and age. The expiration of enhanced subsidies will revert contribution percentages to higher levels, increasing costs for all income brackets.
Premium Shock: Quantifying the Impact of Subsidy Expiration
Wakely’s analysis shows that the expiration of enhanced subsidies will result in a substantial increase in monthly premium contributions. For example, a hypothetical single 40-year-old at 150 percent of the federal poverty level (FPL) will see monthly premiums jump from $0 to $81.97 in order to keep the same plan.
Mitigation Strategy: Buying Down to the Lowest Cost Silver Plan
Consumers may offset part of the premium increase by switching from the SLCSP to the Lowest Cost Silver Plan (LCSP). The difference in premiums between these two plans translates directly into monthly savings, independent of income. In Raleigh, NC, a hypothetical 40-year-old could save $53.03 per month by buying down, mitigating about two-thirds of the premium shock. For older consumers, the savings are even greater; however, in highly competitive markets like Charlotte, NC, the premium gap—and the savings—will be much smaller, offsetting only a modest portion of the increase.
Consumer Savings
After applying the buy-down strategy, the net premium increase for a hypothetical single 40-year-old at 150 percent of the FPL in Raleigh will be $28.94 per month rather than $81.97 without mitigation. Depending on age and location, consumers can offset 37‒100 percent of the premium increase in less competitive markets, but only 7‒28 percent in highly competitive ones.
Market Dynamics: Why Local Competition Matters
The effectiveness of mitigation strategies depends on local market dynamics and competition. In markets with fewer carriers and larger premium gaps, consumers have greater opportunities to offset premium increases. In competitive markets, options are more limited. The paper notes that the 2026 landscape may shift due to carrier exits and price changes, underscoring the need for ongoing monitoring and adaptive strategies.
Recommendations for Payers, Regulators, and Brokers
- Payers should consider product design strategies that create meaningful premium gaps between Silver plans, where actuarially justified, to maximize consumer savings.
- Regulators can collaborate with insurers to support these strategies and, in state-based Marketplaces, may play an active role in limiting Silver offerings that erode premium gaps.
- Brokers and Carriers may want to market Bronze plans as a last-resort coverage option, as some consumers can access Bronze plans for free, which is preferable to going uninsured.
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Wakely is experienced in all facets of the healthcare industry—from carriers to providers to government agencies. Wakely actuarial and policy experts continually monitor and analyze potential changes to inform healthcare organization strategies and advance effective solutions to propel their success.
For questions about this analysis or to discuss strategies for navigating the post-subsidy cliff, contact our expert below.
