Expiration of Enhanced ACA Premium Tax Credits Risks Higher Costs for Small Business-Linked Enrollees

The enhanced premium tax credits, initially established under the American Rescue Plan Act (ARPA) and later extended through the Inflation Reduction Act (IRA), have substantially decreased premiums for millions of individuals enrolled in Affordable Care Act (ACA) Marketplaces. These subsidies have played a significant role in increasing Marketplace enrollment, which is projected to more than double to 24.3 million enrollees by 2025. Currently, 92% of Marketplace enrollees benefit from at least some amount of premium tax credits.\n\nIf these enhanced tax credits expire at the end of 2025, the majority of individuals and families purchasing coverage through the ACA Marketplaces could see out-of-pocket premiums increase by over 75%. Insurers are also proposing an approximate 18% increase in gross premiums before tax credits are applied, partly due to risk pool changes linked to the expiration of the subsidies. This increase will have implications for both government spending on tax credits and the affordability of coverage for enrollees not receiving premium assistance.\n\nWhile discussions about the ACA Marketplaces typically focus on individual and family coverage, a significant portion of enrollees are connected to small businesses or are self-employed. Analysis shows that 38% of adult individual market enrollees under age 65 with incomes over 400% of the federal poverty line (FPL) are self-employed, a rate considerably higher than the 7% national average for similar income adults. Expiration of enhanced premium tax credits would eliminate eligibility for those above 400% FPL, exposing them to full premium costs.\n\nFurther analysis based on the 2024 Current Population Survey estimated that nearly half (48%) of adults under 65 enrolled in direct purchase individual market coverage are employed by small businesses with fewer than 25 employees, are self-employed entrepreneurs, or small business owners. This is noteworthy given that only 16% of all adults under 65 nationally fall into these employment categories. For many of these workers and entrepreneurs, the individual market serves as the primary source of comprehensive health insurance, as small businesses are less likely than larger firms to provide health benefits.\n\nThe potential expiration of enhanced premium tax credits threatens to increase premium costs significantly for this demographic, impacting affordability and market stability for small business-affiliated enrollees. The findings emphasize the distinct role of the individual market in supporting health coverage for small business employees and self-employed individuals, highlighting regulatory and market considerations for policymakers.\n\nThe data derives from KFF's analysis of the 2024 Current Population Survey Annual Social and Economic Supplement, considering adults under age 65 who purchase insurance directly and are not students. Employment status was determined by self-reporting, with employer size measured based on the primary job held in the previous year, which may have changed by survey time.