The Cost of Eliminating the Enhanced Premium Tax Credits

Introduction

To help people afford plans sold in the health insurance marketplaces, the Affordable Care Act (ACA, also sometimes called Obamacare) provides low- and middle-income individuals with premium tax credits (PTCs). In 2021, Congress enhanced the generosity of these tax credits and made them available to more people. Authorized originally by the American Rescue Plan Act, the enhanced PTCs were later extended by the Inflation Reduction Act through December 2025. Together, these changes have made marketplace health insurance coverage more affordable.¹ As of January 2025, 24 million Americans had selected a marketplace plan, about twice as many as in 2021.²

If Congress does not reauthorize the legislation that provides the more generous tax credits, this financial lifeline will no longer be available to consumers after December 31, 2025. There would be a sharp rise in the net cost of marketplace premiums, and many Americans would no longer be eligible for tax credits to defray the cost of their plan premiums.

This will lead to dramatic losses in health coverage: 4 million more Americans will become uninsured.³ Among those who will feel the consequences most severely are Black and Latino Americans and people in states that have not expanded Medicaid under the ACA, including Alabama, Florida, Georgia, Idaho, South Carolina, Tennessee, and Texas, where disproportionately more residents depend on marketplace plan subsidies to get their health care.⁴

Beyond the direct impact on consumers, this policy change will have a ripple effect across the entire health care industry — hospitals and other care providers, insurers, health workers, businesses that supply health care facilities, and those companies’ employees. In this data brief, we project the impact on economies, employment, and tax revenue in all 50 states and the District of Columbia.

The dynamics of this ripple effect work as follows. As the enhanced PTCs disappear, former recipients will likely either become uninsured or shift to another form of health insurance.⁵ Health insurers, in turn, will no longer collect the PTCs (and other insurance payments), causing them to cut payments for patient care to hospitals, doctors’ offices, pharmacies, and other health providers.⁶ For their part, health providers will need to cut jobs — some could even close due to loss of revenue. This would lower access to health care overall, even for people who remain insured.

Providers will also need to reduce payments to businesses in their supply chains, and, in response, those firms will be forced to cut labor and other costs. As employees lose income, they must reduce spending on consumer goods and services. Finally, the loss of individual and business income results in less state and local tax revenue collected.

To produce our estimates of this cascading economic impact, we ran data through a widely used software program called IMPLAN (for complete methods, see “How We Conducted This Study”). Table 2 at the end provides detailed findings of the estimated impacts for states in 2026. We highlight key findings below.

National Findings

Loss of financial support. Across states, the federal tax credits that individuals, health insurers, and, ultimately, health care providers receive would fall by $26.1 billion in 2026, compared to a baseline in which the enhanced PTCs were continued. (Although we do not show this here, the losses climb in subsequent years, as projected by the Congressional Budget Office.⁷)

Reduced economic activity and personal income. Ending enhanced PTCs would reduce state economies across the nation. Total state gross domestic products (GDPs) would fall by $34.1 billion and total economic output would fall by $57.0 billion. The net economic harm for states would therefore be much larger than the loss of federal funds ($26.1 billion) to states. This includes direct losses to health care providers and indirect and induced impacts to other economic sectors, as losses spread across businesses and their employees in each state. For example, with lower funding, health care providers will need to reduce the goods and services they purchase from other businesses, such as information technology and real estate, which in turn will lead them to reduce the number of their employees.

For individuals and families, the loss of personal income means less money to spend on consumer goods and services like groceries, housing, and transportation. The impacts will extend beyond the health care sector to affect most parts of states’ economies.

Loss of jobs. Overall employment would decline by a total of 286,000 jobs nationwide in 2026. This includes 130,000 jobs lost because of direct reductions in the provision of hospital, physician, and other ambulatory care as well as reductions in pharmacy-related services. It also includes 156,000 jobs lost in nonhealth sectors like retail, real estate, and manufacturing as a result of the indirect or induced effects of health care funding losses. Rural communities in particular could be among the areas hardest hit.

Reduced tax revenues. The reductions in income and economic activity will lead to losses of $2.1 billion in state and local tax revenues in 2026, as well as $5.4 billion in reduced federal tax revenues. The loss of state and local tax revenues would make it harder for state and local governments to balance their budgets and continue paying for crucial services like education.

The estimates detailed above are similar, but somewhat larger, for 2027 and 2028, as the value of enhanced PTCs would grow if they were to be continued.

Selected State Findings

Economic, employment, and tax losses would generally be higher in states that have not expanded Medicaid eligibility for adults. Residents of these states are more reliant on enhanced PTCs, because their legislatures and governors have not taken up the ACA’s Medicaid expansion and there are no other affordable health insurance options. For example, the 10 states that have not expanded Medicaid (Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming) would lose 194,000 of the 286,000 total jobs lost nationwide in 2026 (Table 1). About 90,000 jobs in health care would be lost in these states (see detail in Table 2). These states’ GDPs would fall by $23.0 billion, and they would lose $1.3 billion in state and local tax revenue.

Most other states would also experience economic, employment and tax revenue losses (see Table 2). The magnitude of the losses depends on the enrollment in their ACA marketplaces, use of enhanced PTCs, and the health insurance alternatives available to their residents.⁸

Conclusion

Unless Congress extends the enhanced premium tax credits, 4 million more Americans will become uninsured, and many will likely experience difficulties accessing affordable health care. This analysis demonstrates the harm to state economies that will also result. The direct, indirect, and induced effects of ending the enhanced credits will create serious hardships for health care providers, other businesses, and the workers they employ. Moreover, the lower tax revenues that state and local governments receive will make it more difficult for them to balance their budgets.

It should be noted that our estimates are conservative. They do not account for the potential loss of productivity likely to result when people who lose access to affordable insurance, and thus affordable medical care, are unable to work because of a decline in their health status.

How We Conducted This Study

About Our Data and Methods

We began our analysis by adapting estimates produced by the Urban Institute’s Health Insurance Policy Simulation Model of the state changes in hospital and other health care spending that would result if enhanced premium tax credits were eliminated.⁹ This model incorporates the shifts in insurance coverage and health care use as people respond to the elimination of enhanced PTCs. These estimates were then aligned with Congressional Budget Office projections of national changes in federal funding associated with this policy for 2026.¹⁰

We produced our estimates of the economic, employment, and tax effects of reduced federal funding with IMPLAN, a widely used input–output economic impact software system.¹¹ As illustrated in the figure below, the underlying logic is that funding cutbacks have a “multiplier effect” that is felt initially in the health care sector but soon spreads to other economic and employment sectors as well.

How the Multiplier Effect Works

Cuts in enhanced PTCs cause recipients to drop or change their insurance coverage. This results in lower payments to marketplace health insurers, which then must reduce payments for hospital, physician, or other clinical care and for pharmaceutical goods. These are the direct impacts of the policy change.

In turn, hospitals, doctors’ offices, and pharmacies must compensate for their loss of income by reducing how much they spend on staff and on goods and services from vendors (e.g., medical supplies, equipment, rent, and IT services). These vendors also must reduce spending on labor, goods, and services. These are the indirect impacts of the policy change.

To compensate for lost revenue, health care providers and other businesses must lower their labor costs, including by reducing the number of people they employ and reducing compensation.

Finally, as health care staff and personnel in other businesses lose income, they purchase fewer consumer goods and services (e.g., retail goods, transportation, groceries, rent). These are known as induced losses. Falling personal and business income also lowers state and local revenue from income, sales, and other taxes, such as real estate taxes.

After dividing expected changes in federal funding across hospital services, other health care, and pharmacy goods, we estimated impacts for the hospital- and physician-office-related care and the pharmaceutical commodity sector, as defined by the North American Industry Classification System (NAICS).

Why We Focus on Changes in Federal Funding

We focus on the effects of changes in federal funding because these are exogenous changes (“shocks”) in the resources available to each state and its residents, caused solely by the change in federal policy. There may be other compensatory changes in state, business, or consumer economic behaviors, but these involve shifting resources away from other uses, which also have economic effects.

For example, some individuals who lose enhanced PTCs may choose to spend more of their income to purchase marketplace plans at a higher cost. Or they might get their health care in another way, such as by purchasing other health insurance or even paying for care without insurance. In addition, some states might offer so-called affordability programs to offset some of the enhanced PTC losses.¹² And hospitals, physician offices, or pharmacies might bear higher uncompensated care costs as they provide health care to those who are now uninsured.

But if individuals, health care providers, or state or local governments spend resources to offset losses, they divert funds from other uses, each with its own economic impact. Because we focus solely on changes in federal funding due to the policy change, our impact estimates are conservative.

We use IMPLAN’s Multi-Region Input–Output (MRIO) methodology to account for cross-state effects of the policies (sometimes called “leakages”). For example, a person employed in a hospital in Maryland may live and consume goods and services in Virginia, so losses that begin in one state may have repercussions in another state. While most health care is local in nature, some effects may be broader. For example, decreasing prescription drug purchases may lower revenue in a local pharmacy but also lead to losses by wholesale distributors or manufacturers in other parts of the country.

Why Our Estimates Are Conservative

The loss of health insurance coverage due to the elimination of enhanced PTCs could negatively affect the health care use and health status of individuals and families. This harm may have further repercussions if, for example, people are unable to work because of a decline in health. Our estimates do not account for productivity or other losses due to potential harm to individual or family health; they are based solely on the economic repercussions of the federal funding loss and must therefore be considered conservative estimates.

About Our Measures of Economic and Employment Impact

The data shown in Table 2 below are estimated changes in the economic value or number of jobs in a state in 2026, compared to a baseline scenario in which the enhanced PTCs were still available.¹³ (We also estimated changes in 2027 and 2028 but do not present them for the sake of brevity. The effects are similar, but somewhat higher, in later years.) Negative values mean that there are fewer jobs or less economic activity than would have been expected if the tax credits were available; positive values mean that there are more jobs or economic activity.¹⁴

The specific measures we use are:

• Federal funding (in millions of nominal dollars): The estimated change in federal funding, in this case due to the elimination of enhanced PTCs.
• Economic output (in millions of nominal dollars): The estimated change in total economic activity due to the policy change. This overstates the effect on the state gross domestic product (GDP), since it sums output at all stages of production and processing.
• State GDP (in millions of nominal dollars): The estimated change in a state’s GDP, which is the conventional measure of economic activity in a state, based on the value of goods and services, less the inputs used up in production. It is equal to the change in net economic activity, or value added, because of the policy change.
• Total jobs (in thousands of jobs): The estimated change in the total number of jobs (full-time, part-time, and seasonal) in the state, compared to the number who would have been employed under a baseline scenario in which enhanced PTCs were still available.
• Direct health employment (in thousands of jobs): The estimated change in the number of jobs in the directly affected health care industries — that is, hospitals, physician offices, and other ambulatory care and pharmacies.
• Other jobs (in thousands of jobs): The estimated change in the number of jobs due to indirect and induced effects — that is, in industries and businesses that receive income from directly affected health care industries or from consumer purchases from affected employees and their families. These are primarily jobs outside the health care sector, for example, jobs in retail, manufacturing, or construction. A small share of jobs may also be in health care because of secondary effects: for example, hospital employees use their income to get care from doctors’ offices or purchase medications, but most of their consumption is for other goods or services, like groceries, transportation, and housing.
• Federal tax revenue (in millions of nominal dollars): The estimated change in federal tax revenues (including income tax, social insurance, and business taxes) in each state due to changes in business or individuals’ income due to the elimination of enhanced PTCs. (Note: Tax revenues are based on tax rates as of 2023. These may change if there are changes in tax rates in future years.)
• State/local tax revenue (in millions of nominal dollars): The estimated change in state and local tax revenues, including income, sales, property, and other state or local taxes (including school district or metropolitan levies) owing to changes in business or individual income related to the elimination of enhanced PTCs. (Note: Tax revenues are based on tax rates as of 2023. These may change if there are changes in tax rates in future years.)