Summary
Since the passage of the Inflation Reduction Act in 2021, enhanced federal premium subsidies for Affordable Care Act (ACA) marketplaces, like Covered California, have significantly lowered costs for enrollees. This additional federal premium help will expire at the end of 2025 unless the Trump administration and Congress choose to extend them or make them permanent. Prior to the enactment of these federal subsidies. California had its own state-run premium subsidy program. Should Trump and Congress allow the current enhanced federal assistance to expire, California should once again operate a state program to partially backfill the loss.
Background
In 2019, California pioneered a state program to lower costs for low- and middle-income enrollees via premium subsidies in the Covered California marketplace. Using the funds collected from the state’s individual mandate tax penalty, these subsidies built upon those originally provided by the federal government in the Affordable Care Act. Through this state program, California extended premium subsidies to include middle-income enrollees, or those earning up to 600% of the Federal Poverty Level (FPL) — about $93,000 per year for an individual.i Prior to this program, enrollees over 400% FPL—about $62,000/year for an individual–received zero subsidies — resulting in an “affordability cliff” where enrolling in Covered California remained out of reach, even for those with middle or more
modest incomes.
In 2021, following the onset of the pandemic, the Biden administration implemented a new and extensive federal premium subsidy program–one that removed all income caps and limited marketplace premiums to 8.5% of income for all enrollees. These subsidies were implemented in 2021, extended in 2022, and are now set to expire at the end of 2025.
With these new and more generous federal premium subsidies, California halted its own program. Starting in 2024, the full revenue generated from our state’s individual mandate penalty was deposited into a newly created Health Care Affordability Reserve Fund (HCARF). With these state funds, California has been able to lower other out-of-pocket costs that serve as a barrier to care, such as high deductibles and co-pays. However, only a portion of HCARF was explicitly designated for affordability help, while the remainder has been loaned out to the General Fund. Under the state’s previous premium subsidy program, almost the entire amount was used for affordability assistance.
Problem
If federal ACA premium subsidies are allowed to expire under the Trump administration, health care premiums will increase for all 2.37 million Californians in the individual market on January 1, 2026 — even those not receiving subsidies. According to the UC Berkeley Labor Center, about 1.5 million Californians who currently receive subsidies would see premiums rise nearly $90 per month, and another 69,000 would drop coverage entirely.ii
The current federal enhanced premium assistance is especially significant for people over 400% FPL — individuals making $5,020 monthly and $10,400 monthly for a family of four.iii If the enhanced premium assistance is not continued, people in this category will see their premiums rise, on average, from $438 a month to $747 a month, an increase of 58%.
Solution
Safeguard the full amount of California’s Health Care Affordability Reserve Fund (HCARF) to restore California’s premium assistance program and partially backfill federal premium subsidies at risk under the Trump administration. We propose using all funds deposited annually into HCARF, about $300 million,iv to partially backfill the expiring federal subsidies. While these funds won’t replace the full $1.7 billion federal investment, they can still go far to prevent a catastrophic drop off in health care affordability for Californians in 2026.
For any questions please contact:
Christine Smith, Policy and Legislative Advocate, csmith@health-access.org
Endnotes
- i. 2025 Poverty Guidelines: 48 Contiguous States (all states except Alaska and Hawaii)
- ii. UC Berkeley Labor Center. “All 2.37 Million Californians in the Individual Market Will Face Higher Premiums if Congress Does Not Act by 2025 – UC Berkeley Labor Center,” September 25, 2024.
- iii. “Program Eligibility by Federal Poverty Level for 2025,” Covered California
- iv. This amount would allow the state to maintain funding from HCARF to fund health care coverage for striking workers.