Dive Brief:
Allowing more generous federal assistance for health plans on the Affordable Care Act marketplaces to lapse at the end of the year could weaken state economies and lead to job losses — especially in the healthcare sector, according to a report published Monday by the Commonwealth Fund and the George Washington University Milken Institute School of Public Health.
Total state gross domestic products would decline by about $34 billion in 2026 if the enhanced premium tax credits expire, according to the analysis. Additionally, economic output would fall by $57 billion as insurance becomes more expensive, Americans lose coverage and providers receive lower payments.
Employment would decline by 286,000 jobs next year if the subsidies lapse, including 130,000 lost roles in the healthcare industry due to reductions in care delivery and pharmacy services.
Dive Insight:
During the COVID-19 pandemic, the federal government began offering higher tax credits to beneficiaries who bought their coverage through the ACA exchanges as well as allowing some enrollees with higher incomes to receive subsidies when they were previously ineligible.
The Inflation Reduction Act extended the enhanced premium tax credits through the end of 2025, and the subsidies will expire at the end of the year absent congressional action. Republicans have argued the increased subsidies are expensive and create new opportunities for fraud, suggesting they could allow the enhanced tax credits to expire.
Still, cutting the subsidies could be politically challenging, given the number of people in red districts who’ve benefitted from the assistance, experts say.
Plus, allowing the higher tax credits to lapse could have wider consequences for state economies and the healthcare ecosystem, according to the Commonwealth analysis.
As the premium tax credits expire, insurance would likely become more expensive for beneficiaries, causing some to shift to other plans or lose coverage entirely. The number of uninsured will increase by 3.8 million each year on average from 2026 through 2034 without the tax credits, according to a December estimate by the Congressional Budget Office.
Insurers won’t be collecting the tax credits or other payments from these beneficiaries, likely resulting in them cutting reimbursements to providers, according to Commonwealth. Those providers will have to cut jobs, resulting in less healthcare access even for those who remain insured, according to the report.
“As a primary care physician, I can’t help but think about what this will mean for patients — those who will lose insurance and access, and all those who will still have insurance but less access,” Commonwealth President Joseph Betancourt said in a statement. “There’s no doubt that those who lose coverage will use the emergency room as their primary source of care, overtaxing an already stressed system, with hospitals that are over capacity and a diminishing, demoralized health care workforce.”
Reduced incomes and economic activity would also mean lower tax revenue. The analysis predicts federal tax revenues would decline by $5.4 billion in 2026, while state and local tax revenues could fall by $2.1 billion — making it harder for states to balance their budgets and pay for critical services.
The economic impact would hammer states that haven’t expanded Medicaid, according to the report. In these 10 states — Alabama, Florida, Georgia, Indiana, Mississippi, South Carolina, Tennessee, Texas, Wisconsin and Wyoming — residents are more heavily dependent on enhanced premium tax credits due to their limited access to Medicaid.
About 195,000 of the 286,000 total job losses would come from these states, including 90,000 roles in the healthcare industry. Non-expansion states’ gross domestic products would decline by $23 billion, and their governments would lose $1.3 billion in state and local tax revenue.
