ACA marketplace health plan enrollees could face 'subsidy cliff' in 2026 — here's how to avoid it

CNBC

7 days ago

Starting in 2026, millions of Americans could see a steep increase in the cost of marketplace health insurance — unless Congress extends a pandemic-era boost that made Affordable Care Act plan premiums more affordable.
This could affect millions of Americans, including students, self-employed or contract workers and younger retirees, who buy marketplace insurance and claim the so-called premium tax credit, which makes coverage cheaper.
The enhanced benefit is set to expire at the end of the year. If it does, some enrollees could face a "subsidy cliff," which eliminates the premium tax credit entirely, once income exceeds certain thresholds, financial experts say.
More from Personal Finance:Trump's 'big beautiful bill' includes these key tax changes for 2025Student loan bills to double for some borrowers as Biden-era relief expiresWhat a Trump, Powell faceoff means for your money
If you pass the threshold by even $1 and lose the credit, "costs could go up by hundreds of dollars a month," said certified financial planner Cathy Curtis, CEO of Curtis Financial Planning in Oakland, California.
But precise income projections can be tricky, said Curtis, who is also a member of CNBC's Financial Advisor Council.
The average ACA enrollee saved roughly $700, about 44%, from the enhanced premium tax credit in 2024, according to November research from the Center on Budget and Policy Priorities, a nonpartisan policy organization.
Enacted in early July, President Donald Trump's "big beautiful bill" made permanent the Republicans' 2017 tax cuts. But it did not extend the enhanced ACA subsidies passed via the American Rescue Plan in 2021. It's unclear whether the GOP-controlled Congress will consider such a measure before year-end.
Here is a breakdown of what to know about the premium tax credit and how to avoid the "subsidy cliff" if enhancements expire after 2025.
If you're eligible for the premium tax credit, you can use it to reduce monthly ACA premiums upfront or claim the credit on your tax return.
The tax break was originally for enrollees earning between 100% and 400% of the federal poverty level. But the American Rescue Plan expanded eligibility above 400%.
For 2025, that threshold was $103,280 for a family of three, according to The Peterson Center on Healthcare and KFF, which are both health-care policy organizations.
For 2025, more than 22 million people — about 92% of enrollees — receive premium tax credits, according to KFF.
That group could be "significantly affected in 2026" if Congress doesn't extend the larger benefit, said Tommy Lucas, a CFP at Moisand Fitzgerald Tamayo in Orlando, Florida.
It's important to run tax projections for 2025 and 2026 if premium tax credit changes may affect you, experts said.
If you're receiving the tax break for 2025 with earnings over 400% of the federal poverty level, you could explore ways to reduce 2026 income, Lucas said.
For example, you may consider accelerating 2026 income into 2025, tax-loss harvesting or claiming a deduction for health savings account contributions, he said.
If the bigger premium tax credit expires for 2026, "we're going to have to monitor [income] on a pretty regular basis, at least quarterly, if not monthly" to avoid the cliff, Lucas said.