What options do states have to stabilize premiums if federal tax credits lapse in 2026?
Executive summary
States facing a federal rollback of enhanced ACA premium tax credits in 2026 can use a narrow set of tools: state-funded premium subsidies, decisions about Medicaid expansion/eligibility and outreach, regulatory levers (rate review and insurer filing frameworks), and market-design tactics such as dual-rate filings or promoting HSA-eligible lower-premium plans. Estimates show the federal pullback would reduce federal marketplace funding by about $31 billion and could leave roughly 4.8–5 million people uninsured in 2026 absent action, which is driving some states to prepare contingency plans such as dual insurer rate filings and state subsidies [1] [2] [3].
1. States can create their own premium subsidies — but it’s costly and politically fraught
States may choose to use their budgets to replicate at least some of the lost federal aid by establishing state-funded premium tax credits or reinsurance programs; several states previously have used such measures to stabilize markets, and some states prepared contingency plans for 2026 by modeling both scenarios and filing “dual” insurer rates to reflect whether enhanced federal credits remain in place [3]. Implementing broad state subsidies requires legislative action and significant dollars: national analyses project a $31 billion federal funding decline in 2026 if enhanced credits lapse, implying large state fiscal pressure to offset those losses [1].
2. Medicaid and eligibility choices can blunt coverage losses — where politically possible
States that have expanded Medicaid already reduce the number of people most exposed to marketplace premium shocks; Urban Institute modeling projects 4.8 million people could lose coverage in 2026 if enhanced credits expire, with some states — Georgia, Louisiana, Mississippi, Oregon, South Carolina, Tennessee, Texas, and West Virginia — seeing their subsidized Marketplace enrollment fall by more than half [2]. Expanding Medicaid or easing enrollment and retention rules would lower marketplace exposure, but such moves face political and budget trade-offs and do not directly help higher‑income enrollees (those above 400% FPL) who gained eligibility under the enhanced credits [2].
3. Regulators and insurers can use rate design, dual filings and market assumptions to reduce shock
States and state-based marketplaces can require or encourage insurers to file dual rates (one assuming enhanced credits continue, one assuming they expire) and to incorporate morbidity and enrollment assumptions that smooth premium volatility; insurers in some states already filed dual rates for 2026 and several states posted filings that explicitly attribute a portion of proposed increases to the expected expiration [3] [4]. Such regulatory preparation can avoid administrative chaos and give consumers clearer comparisons, but it doesn’t change the underlying economics that would raise out‑of‑pocket premiums for many enrollees [4].
4. Reinsurance and market stabilization programs can lower premiums without matching federal dollars
States can reintroduce or expand reinsurance programs to lower premiums by shielding insurers from high-cost claims; this reduces premiums for all enrollees and can be less politically visible than direct subsidies. While the provided sources document states filing dual rates and preparing system changes, they do not give a detailed catalog of specific new state reinsurance actions for 2026 — available sources do not mention individual new state reinsurance programs aimed at offsetting the 2026 tax-credit lapse [3] [4].
5. Administrative, outreach and enrollment strategies can limit coverage loss cheaply
States can invest in outreach, simpler enrollment and plan-choice tools to retain and enroll people quickly during open enrollment. CMS and states moved to give consumers longer windows or notifications in 2026, and many state exchanges sent notices to enrollees about higher premiums [5]. Such steps won’t replace lost dollars but can reduce unintended uninsured spikes by keeping eligible people connected to subsidies that remain and by steering consumers to lower-premium plan types [5].
6. Promote alternative plan designs (HSAs, bronze/catastrophic) — limited relief, uneven protection
For 2026, HealthCare.gov and some policy changes expanded HSA-eligible bronze and catastrophic options and allowed hardship exemptions to access catastrophic plans for some individuals who would no longer qualify for tax credits; these options can lower monthly premiums but raise out‑of‑pocket risk and do not suit people with frequent care needs [6]. Several advocacy groups and policy shops note states and insurers are emphasizing such plan types as part of 2026 preparations, but they offer a narrower safety valve than restoring federal credits [6] [3].
7. Numbers matter: the magnitude of the problem drives state responses
Analysts estimate average marketplace premium payments would more than double nationally if enhanced credits expire (114% increase on average), and KFF and Urban Institute projections underscore steep premium and enrollment impacts [7] [2]. Commonwealth Fund places the federal funding loss at about $31 billion and projects major state economic impacts that make aggressive state action politically and financially consequential [1].
Limitations and trade-offs — States face an immediate choice: spend scarce dollars to blunt a federal withdrawal and protect coverage, or accept higher uninsured rates and premium pain. Sources show some states already prepared dual insurer rate filings and consumer notices, but implementing broad state subsidies or market rescue programs would require sustained legislative and budget commitments not documented in the materials reviewed [3] [5].