Marketplace health insurance may get more expensive — unless Congress extends this tax break

If you buy health insurance via the federal marketplace, your premiums could increase significantly after 2025 — unless Congress takes action.

The premium tax credit makes health insurance purchased via the marketplace more affordable. Participants can use the credit to lower insurance premiums upfront or claim the tax break when filing their return.

The credit was temporarily enhanced via the American Rescue Plan Act during the Covid-19 pandemic. The legislation covered plans in 2021 and 2022, but the Inflation Reduction Act extended that benefit through 2025.

If the benefits sunset after 2025, “virtually everybody would face higher premiums,” according to Gideon Lukens, senior fellow and director of research and data analysis for the Center on Budget and Policy Priorities, who wrote about the expirations this month.

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The White House in January reported record-high enrollment in marketplace plans for 2024, with more than 21 million participants.

In his fiscal 2025 budget request, President Joe Biden proposed making the premium tax credit expansion permanent. He briefly plugged the program’s benefits for communities of color during the first presidential debate on Thursday.

However, making the program permanent would increase the federal budget deficit by $335 billion from 2025 to 2034, according to the Congressional Budget Office and Joint Committee on Taxation.

Former President Donald Trump’s campaign did not respond to CNBC’s request for comment on the program.

Without an extension from Congress, marketplace premiums will increase for Americans across the income spectrum, with an effect in mid-2025 when health insurers begin releasing rates, the Center on Budget and Policy Priorities report found.   

For example, a typical family of four making $60,000 would see monthly premiums jump from $100 to $326, or about $2,700 more per year. By comparison, the same-size family earning $125,000 would see monthly premiums rise from $885 to $1,525, which adds about $7,700 annually.       

“The expiration of the expansion is going to have an impact on just about everyone,” said Andrew Lautz, associate director for the Bipartisan Policy Center’s economic policy program.

The tax credit has reduced costs for all enrollees, even those ineligible for the tax break because “additional enrollment has improved the nongroup market risk pool,” according to the Urban Institute.

Until 2021, the credit was only available for households with income between 100% and 400% of the federal poverty level. But the American Rescue Plan Act removed those limits and capped premiums at 8.5% of income.

The premium tax credit is based on the difference between a benchmark premium — the cost of the second-lowest-cost silver plan available in an area — and a maximum contribution based on a percentage of income. The tax break is adjusted over time.