How would state actions or Medicaid expansion changes interact with ACA subsidy changes after 2026?
Executive summary
If Congress allows the enhanced ACA premium tax credits to expire at the end of 2025, federal subsidies will revert to the pre‑ARP rules in 2026 — reinstating the 400% FPL income cap and much higher required household premium shares (for example, required contribution caps would rise from about 4.56% to 8.87% in illustrative calculations) — and insurers have already proposed large gross premium increases (median ~18% across filings) that interact with subsidy changes to push many consumers’ out‑of‑pocket premiums sharply higher (KFF and Peterson‑KFF analyses) [1] [2] [3]. State Medicaid choices and any state‑level mitigation (state subsidies, reinsurance, or expansion decisions) will shape who bears these increases and how many people lose coverage, because Medicaid expansion status determines whether low‑income adults move to Marketplace subsidies and because state fiscal or program actions can blunt or amplify federal subsidy changes [4] [5] [3].
1. How the federal subsidy rules change in 2026 and why that matters
Under current law the temporary ARPA/IRA enhancements expire at end of 2025 and subsidies would revert to the ACA’s original sliding scale and eligibility rules in 2026 — including reinstating the 400% FPL cutoff and smaller percent‑of‑income caps that make subsidies much smaller for many households (examples: “limit the premium…to 2% of income at 100% FPL up to 9.96% at 300–400% FPL” in some CBO‑style illustrations) — a shift that KFF and other analysts say would more than double average out‑of‑pocket premium payments for current subsidy recipients (average increase ~114%) if Congress does nothing [1] [6] [7] [8].
2. Insurer pricing and the feedback loop to subsidies
Insurers’ 2026 rate filings show large proposed premium hikes (median ~18% across 312 insurers), and insurers said they priced partly anticipating enrollment declines among healthier people if enhanced subsidies disappear; because federal premium tax credits are tied to pre‑subsidy benchmark premiums, higher sticker prices raise federal subsidy dollars for eligible enrollees even as many consumers see much higher net costs if enhancements are ended [2] [9]. Analysts note this creates complex fiscal effects: higher premiums push up federal subsidy spending for those still eligible, while rising out‑of‑pocket costs push some people out of coverage [2] [9].
3. The role of state Medicaid expansion in the mix
States that expanded Medicaid already cover adults up to ~138% FPL; in non‑expansion states people below that threshold remain uninsured unless they gain Marketplace subsidies. If enhanced Marketplace subsidies shrink, that transition becomes more fraught: people in the 100–138% FPL range in expansion states remain on Medicaid, while in non‑expansion states they could face higher Marketplace costs or fall into gaps — meaning state expansion decisions materially alter how many people suffer premium shocks or lose coverage [4] [3] [5]. KFF and other trackers show nearly all states have adopted expansion, but pockets of non‑expansion mean uneven impacts geographically [10] [4].
4. What states can — and are already — doing to blunt shocks
Some states can use their own funds to provide wraparound subsidies or reinsurance, and several states have historically adopted such measures to moderate marketplace premiums; state fiscal capacity, political choices, and the presence of Medicaid expansion all determine whether a state will offset federal subsidy cuts or let market and enrollment shocks play out (available sources discuss states using reinsurance or state subsidies but do not provide a uniform list of 2026 actions) [11] [12]. Analysts warn that if Congress delays decisions into open enrollment, consumers may see unaffordable premiums early and not return later, amplifying enrollment declines [3].
5. Coverage losses, fiscal tradeoffs and political constraints
Non‑extension carries clear tradeoffs: analysts estimate millions could become uninsured (Urban Institute and CBO estimates vary across pieces cited by news outlets), and the Congressional Budget Office has projected that permanently extending the enhanced credits would cost roughly $350 billion over a decade while increasing coverage [13] [14] [7]. Policy choices ahead are therefore political: extensions with tighter rules, short extensions, or state mitigation differ in cost and who benefits [15] [13].
6. Uncertainties, hidden assumptions and what to watch next
Key uncertainties include congressional action timing and shape (full extension, targeted limits, or no action), insurer behavioral responses beyond initial filings, and state decisions on Medicaid policy and state subsidies; analysts caution that published averages mask major local differences by age, income and geography [2] [1] [7]. Available sources do not detail every possible state mitigation plan or the full distributional impact by county — follow state exchanges, KFF tracking, and CMS updates for state‑by‑state details as enrollment unfolds [2] [10] [1].
Bottom line: federal subsidy rollback would raise nominal premiums and out‑of‑pocket costs for millions; whether states absorb, offset, or amplify those effects depends on Medicaid expansion status, state subsidies/reinsurance choices and political decisions in Congress — all of which are already shaping insurers’ 2026 pricing and consumers’ enrollment choices [2] [1] [4].