Inflation Reduction Act Tax Credits Improve Coverage Affordability for Middle-Income Americans

Americans shouldn’t have to worry about not being able to afford prescriptions, or that a bill from the doctor could send them into bankruptcy. That’s why the Biden-Harris Administration has made it a priority to make sure more Americans have access to affordable, high quality health insurance by strengthening the Affordable Care Act (ACA) and reducing health insurance premiums for millions of people.

In 2021, the Biden-Harris Administration implemented the American Rescue Plan (ARP), which included provisions to increase and expand federal premium tax credits for consumers enrolled in ACA qualified health plans through 2022. As a result of the enhanced and expanded ARP tax credits, Marketplace health insurance coverage is more accessible and affordable than ever. This year, the rate of uninsured Americans reached a record-low of 8%, and enrollment in the ACA Marketplaces reached a record-high—with a 14.5 million consumers nationwide signing up for health care coverage in 2022.[1] And, if the Inflation Reduction Act is enacted, millions of Americans will be able to continue to afford health insurance coverage and continue to receive the real benefits from the ARP’s ACA improvements.

Under Secretary Becerra’s leadership, HHS is leveraging every opportunity to ensure all Americans – no matter who they are or where they live – can access affordable and comprehensive health coverage as we work to close disparity gaps. Our aim is to provide American families the peace of mind that access to high-quality, affordable care can bring.

The expanded American Rescue Plan premium tax credits have meaningfully reduced premiums for people across the income spectrum, by 50% on average (or $67 per consumer per month).[2] That’s made an enormous difference in people’s ability to get health coverage for themselves and their families. If these improvements continue, the Department of Health and Human Services (HHS) and outside experts estimate that 13 million people will continue to benefit from more affordable coverage, including about 3 million who would otherwise become uninsured because they couldn’t afford their premiums.[3]

In addition to improving affordability for people at lower income levels, under the ARP, middle-income people and families over 400% of the federal poverty level (FPL), or about $52,000 for a single person and $106,000 for a family of four,[4] gained access to ACA premium tax credits for the first time. Before the ARP, financial assistance was only available to customers with an annual income under 400% FPL. For the first time, the ARP expanded premium tax credits to all Marketplace consumers for whom sticker price premiums exceed 8.5% of income, the maximum contribution under the ARP.

Access to these new tax credits represent significant help for middle-income individuals and families who do not have access to employer-sponsored insurance and instead obtain coverage in the Marketplace, such as small business owners and self-employed people and retirees ineligible for Medicare coverage. Small business owners and self-employed people make up one in four working-age marketplace enrollees, Treasury data show, and the expansion of tax credit eligibility is likely especially important to them.[5] And importantly, people over 55 years old face higher premiums due to age rating and are especially vulnerable to high premiums without ARP tax credits and capped income contributions. People over 55 years old make up 46% of people with income over 400% FPL enrolled on HealthCare.gov, compared to 28% of people under 400% FPL.

The expanded income eligibility for federal tax credits under the ARP has provided needed relief to individuals and families—largely targeting people who would otherwise face high premium burdens as a share of their income.

Without the ARP premium tax credits, more than half (57%) of people with incomes between 400-500% FPL—$52,000-$64,000 for an individual or $106,000-$132,000 for a family of four—would pay over 15% of their incomes in premiums, and nearly a third would pay over 20% of their income. For people over 600% FPL, 28% would pay over 15% of their income[6] and some people would face net premiums that could exceed up to 25% of their income in 2023, according to CMS data. See Figure 1 and additional examples below:

• People with incomes between 400%-600% FPL who receive premium tax credits pay an average of $3,510 in annual premiums after ARP tax credits. Without tax credits, their premiums would more than double, on average.
• A 60-year-old with income of $60,000 (466% FPL) currently pays 8.5% of income for benchmark coverage. Without tax credits, premiums for benchmark coverage would exceed 15% of income for this person in 44 states (including DC), would exceed 20% in 15 states[7], and would exceed 25% in 6 states.[8]
• Even with an income of $85,000 (621% of the poverty line) premiums for such a consumer would exceed 15% of income in 14 states without tax credits.

While more individuals are now eligible for premium tax credits under the ARP, the maximum contribution policy naturally phases out tax credits availability as income increases, since premiums account for less of an enrollee’s overall income. According to CMS data, just 0.3% of consumers receiving advance premium tax credits on HealthCare.gov have incomes over 800% FPL.[9]  

If the Inflation Reduction Act is enacted, millions of middle-class Americans will continue to benefit from the cost-savings and peace of mind that the American Rescue Plan’s improvements to the Affordable Care Act brought. By extending these improvements, the Inflation Reduction Act would be the most meaningful improvement to our nation’s health insurance system since the Affordable Care Act, will lower costs, and provide life-saving care for millions of people nationwide.   In addition, millions more will see meaningful reductions in the cost of prescription drugs thanks to other provisions in the Inflation Reduction Act. All together this will mean real relief, real savings and real results for the American people.