States Diverge on ACA Subsidy Expiration Response

Affordable Care Act (ACA) marketplace enrollment has declined following the expiration of enhanced premium tax credits at the end of 2025, as states take varying approaches to address coverage losses and affordability, according to research from KBRA.

The enhanced premium tax credits were introduced under the American Rescue Plan Act of 2021 and extended through 2025 under the Inflation Reduction Act. The refundable credits helped eligible individuals offset health insurance premiums for coverage purchased through the ACA marketplace.

Their expiration returned eligibility and benefit levels to the pre-pandemic framework, including reinstatement of the income cap at 400 percent of the federal poverty level.

The Congressional Budget Office previously estimated that expiration of the enhanced credits would increase the number of uninsured Americans by about 4.2 million by 2034 compared with permanently extending them.

Kaiser Family Foundation reported that effectuated ACA marketplace enrollment for February 2026 totaled 19.2 million as of May 5, down from a record 21.8 million in 2025, a 12 percent year-over-year decline.

KBRA said declining enrollment increases the potential for coverage losses and uncompensated-care pressure on healthcare providers. The ratings agency previously identified potential negative credit implications for hospitals and additional pressure on states already facing budget constraints related to the One Big Beautiful Bill Act.

The effects of reduced federal marketplace assistance could be more consequential in states that have not expanded Medicaid because more low-income residents depend on marketplace coverage, according to KBRA. Nonexpansion states generally have not replaced the expired enhanced credits with state-funded subsidies.

States that have responded with additional assistance have taken different approaches. New Mexico appropriated $22.3 million for marketplace affordability programs and an additional $17.3 million during a special session to reduce premiums and cost sharing. KBRA called New Mexico's state-funded response the most comprehensive to date.

Massachusetts is providing approximately $250 million in additional support for ConnectorCare, its subsidized insurance program, while California committed $300 million on an ongoing basis in its 2026–2027 budget to support its state premium subsidy program for certain lower-income enrollees.

Such efforts represent recurring rather than one-time budget commitments, creating additional expenditure pressures for states that maintain them.

State-based reinsurance provides another approach to affordability. Section 1332 of the ACA allows states, subject to federal approval and statutory requirements, to operate individual-market reinsurance programs that reimburse insurers for portions of eligible high-cost claims, reducing insurers' claims costs and gross premiums.

Georgia, for example, operates a Section 1332 program that in 2026 reimburses insurers for eligible claims between a $35,000 attachment point and a $500,000 cap. Reimbursement rates are 15 percent, 45 percent, and 80 percent across three geographic tiers, with greater support provided in higher-cost areas.

KBRA said reinsurance can reduce gross premiums and support individual-market stability but does not directly replace income-based premium tax credits.