What options do states have to replace federal ACA subsidies after 2026 ends?
Executive summary
States facing the scheduled expiration of the enhanced ACA premium tax credits at the end of 2025 can either rely on Congress to extend them or pursue state-level actions such as creating state-funded premium subsidies or using waivers to redesign assistance — but those paths are politically and financially constrained [1] [2]. Federal rule changes would revert subsidy calculation to pre-ARP levels in 2026, raising average marketplace premiums by roughly 114% for current recipients and risking millions losing coverage unless states or federal lawmakers act [3] [4].
1. Federal vs. state authority: who controls the cash and the rules
The premium tax credits are federal tax provisions; Congress set the enhanced credits to sunset Jan. 1, 2026, and absent new federal legislation the statutory subsidy formula will revert to lower, ACA-era caps — meaning states cannot simply “extend” the federal tax credit on their own without federal action [1] [2]. States can, however, design complementary programs that provide payments or tax relief to residents, but those are paid from state coffers rather than substituting for the federal credit [2].
2. Option: state-funded premium assistance programs (direct subsidies)
Several states in previous years have created state-funded programs that top up or replace federal subsidies; under this approach a state appropriates money to provide premium assistance directly to residents who buy marketplace plans. This is a technically straightforward remedy but requires significant budget commitment — Congress estimated that fully extending the federal enhancement would cost $350 billion over a decade, illustrating the scale states would face if they tried to mimic the federal level of help [2].
3. Option: waivers and program redesigns (Section 1332–style flexibility)
States can seek federal waivers to redesign how assistance is delivered — for example, using Section 1332-like authorities to test alternative ways to subsidize consumers or restructure marketplaces — but such waivers must receive federal approval and generally cannot increase the federal deficit (available sources do not mention specific 1332 approvals for post-2025 replacement in current reporting; p1_s7). Republican proposals discussed in national reporting also contemplate allowing states greater latitude to replace federal premium tax credits with alternatives such as HSA-style accounts, but those would require congressional or federal rule changes to implement at scale [5].
4. Option: replace subsidies with account-based approaches (HSAs or “freedom accounts”)
Some GOP proposals in Congress envision converting subsidy funding into deposits to health savings accounts or “Trump Health Freedom Accounts,” letting states or individuals use account dollars to buy coverage or pay care. These proposals would fundamentally change the subsidy architecture — shifting from actuarial premium support to savings-account deposits — and would likely alter incentives, coverage levels, and risk pools [5]. Whether states could adopt such an approach on their own is not described in the available reporting and would probably require federal statutory change (available sources do not mention unilateral state implementation of HSA-replacement without federal action; p1_s5).
5. Option: encourage alternative, lower-cost coverage markets
If subsidies shrink, states can expand access to lower-cost alternatives: authorize association health plans, permit short-term limited-duration plans, or endorse fixed-indemnity products — all of which some private actors and consumer guides are promoting as post-subsidy options [6] [7]. These alternatives vary widely in benefits and consumer protections; several sources stress trade-offs between lower premiums and narrower coverage or higher out-of-pocket risk [6].
6. The political and budgetary reality states face
Federal agencies, insurers, and analysts warn that letting the enhanced credits expire would double average premium payments for many enrollees and could leave up to roughly 4–5 million people uninsured — outcomes that would pressure state budgets through uncompensated care and safety-net spending [8] [3]. States weighing state-funded backstops must confront steep fiscal costs or choose more limited, targeted subsidies that help fewer people [8] [2].
7. Consumer-level options and state roles in navigation help
Beyond financial programs, states can invest in enrollment assistance, outreach, and navigator programs to help consumers shop smarter — switching to lower-premium plans, adjusting household income estimates, or pairing coverage with supplemental products — measures repeatedly recommended by consumer groups and insurers preparing for subsidy changes [9] [10] [6].
8. Bottom line: practicable choices, trade-offs, and timing
States have three practical levers: push for federal extension (political), spend state dollars on premium assistance (expensive), or retool markets and consumer options (less costly but riskier for coverage adequacy). Each choice carries trade-offs between fiscal burden, coverage continuity, and regulatory complexity; available reporting shows no single easy substitute for the scale of the federal enhanced credits and stresses that timely legislative or appropriation action will determine outcomes for 2026 [1] [3] [4].