đ¨ Sticker Shock: Understanding the High Cost of ACA Plans and the Subsidy Cliff
The annual Open Enrollment period for the Affordable Care Act (ACA) Marketplace is here, and for many Americans, this year is bringing an unpleasant surprise: sticker shock. While the ACA remains a vital source of coverage for millions, the underlying cost of health insurance is rising, and a major federal policy decision is poised to make things even more difficult for consumers in the near future.
The conversation this year revolves around two critical factors: rising premiums and the looming expiration of the enhanced federal subsidies.
The Current High Cost of Coverage
Health insurance premiums across the board are on the rise. Several factors contribute to this:
General Inflation and Healthcare Costs: The cost of medical services, drugs, and hospital care continues to climb, naturally pushing up the price of the insurance designed to cover them.
Insurer Rate Hikes: Insurers are proposing and receiving approval for some of the largest rate increases seen since the ACA’s early days.
Even with these increases, the true bombshell for many enrollees isn’t just the price of the plan itselfâit’s what happens when you remove the financial cushion of the expanded tax credits.
The Critical Role of Enhanced Subsidies (and the Looming Cliff)
The federal government provides Premium Tax Credits (PTCs) to make Marketplace coverage affordable. This assistance is critical for the vast majority of ACA enrollees.
In 2021, Congress temporarily passed enhanced premium tax credits as part of the American Rescue Plan Act, which were later extended through the end of 2025 by the Inflation Reduction Act. These enhancements achieved two major things:
They eliminated the “Subsidy Cliff”: They removed the previous income cap (400% of the federal poverty level, or FPL) for subsidy eligibility. This meant that middle- and higher-income families who faced very high-cost premiums could still receive help, ensuring no one paid more than 8.5% of their household income for a benchmark Silver plan.
They made subsidies more generous: They lowered the percentage of income that all eligible households had to pay toward their premiums.
What Happens Next? The 2026 Subsidy Cliff
Unless Congress acts soon, the enhanced subsidies are scheduled to expire on December 31, 2025. This expiration will have dramatic consequences, reverting the system back to the original, less generous ACA subsidy structure for 2026.
According to health policy analysts, the changes will hit millions of Americans hard:
Household Income Category
Pre-Expiration Reality (Through 2025)
Post-Expiration Reality (Scheduled for 2026)
Above 400% FPL
Subsidies available if the benchmark plan costs more than 8.5% of income.
Lose ALL subsidies (The “Subsidy Cliff” returns).
Below 400% FPL
Pay a smaller percentage of income toward the premium.
Subsidy amounts will shrink; consumers will pay a higher percentage of their income toward the premium.
The average subsidized enrollee is projected to see their net annual premium payments more than double if the enhanced tax credits are allowed to expire. For a middle-aged couple earning just over the 400% FPL threshold, the annual premium shock could be in the tens of thousands of dollars.
Navigating Your Options in a High-Cost Environment
If you’re shopping on the Marketplace now, here is what you need to know:
The Enhanced Subsidies are Still in Effect for Your 2025 Plan: You can still benefit from the lower caps and expanded eligibility for this year’s coverage.
Shop Around, Every Year: Don’t auto-renew! Plans and prices change significantly year to year. You may find that a different planâeven from a different metal level (Bronze, Silver, Gold)âoffers a lower net premium thanks to how the subsidy calculation works.
Know Your Income Estimate: Your subsidy is based on your expected household income for the year you are seeking coverage. A slight overestimate or underestimate can greatly affect your eligibility and monthly premium amount.
The clock is ticking on the enhanced subsidies. For the millions who rely on the Marketplace, the affordability of health insurance in the coming years rests on a looming legislative decision.
If you have been priced out of the marketplace we can help.
Medigap offers the type of flexibility that some seniors may find is worth the higher price tag.
As Medicare open enrollment kicks into high gear, millions of older adults are taking a fresh look at their health insurance options. For many, that means deciding between sticking with or switching to either a Medicare Advantage plan or a Medicare supplemental insurance policy, also known as Medigap. It’s a choice that can shape not just monthly budgets but also how easily seniors can access the care they need.
At first glance, Medicare Advantage plans may seem like the obvious choice. Many offer low or $0 monthly premiums and bundle extra perks like dental, vision and hearing coverage. For retirees living on fixed incomes, those features can be appealing. But despite the popularity of Medicare Advantage â 54% of all Medicare beneficiaries are enrolled in these plans â a significant share of seniors continue to rely on Medigap coverage instead.
So what drives some seniors to choose Medigap coverage over Medicare Advantage plans? That answer typically comes down to what people value in their healthcare coverage. Below, we’ll break down what to consider.
Why do some seniors choose Medigap over Medicare Advantage?
Medigap plans work alongside Original Medicare, covering many of the out-of-pocket costs that traditional Medicare doesn’t, like deductibles, coinsurance and copayments. Medicare Advantage plans, on the other hand, replace Original Medicare with a private insurance plan that often comes with its own rules, networks and cost structures. Here’s more on why many older adults opt for Medicare supplemental coverage over Medicare Advantage plans:
Access to a wider network of doctors and hospitals
One of the main reasons seniors opt for Medicare supplemental coverage is the flexibility to see any doctor or specialist who accepts Medicare, anywhere in the nation. There are no restrictive provider networks or referral requirements. For retirees who travel frequently, live in multiple states or simply want to keep their existing doctors, this nationwide access can be a major advantage.
While Medigap plans typically have higher monthly premiums than Medicare Advantage plans, they tend to offer more stable and predictable out-of-pocket expenses. Depending on the plan type, like Plan G or Plan N, Medigap may cover nearly all of the costs left over after Medicare pays its share. For seniors managing chronic conditions or anticipating regular medical visits, that type of coverage predictability can be invaluable.
Fewer administrative hurdlesÂ
Medicare Advantage plans often require beneficiaries to obtain prior authorizations before they can be approved for certain treatments or services, and these hurdles can sometimes lead to delays or denials for otherwise necessary medical care. Medigap paired with Original Medicare typically doesn’t have these barriers, though, which makes it easier to access care when you need it.
Stable benefits year after yearÂ
While Medicare Advantage plans can change their provider networks, cost-sharing rules and benefits annually, Medicare supplemental plans are standardized and don’t change once you enroll. That type of stability can make long-term financial planning simpler and reduce the risk of unexpected coverage shifts.
How to decide between Medicare supplemental coverage and Medicare Advantage
Both Medicare Advantage and Medigap have clear benefits and tradeoffs and the right choice often depends on your health needs, financial situation and lifestyle. Here’s what to weigh as you’re deciding which coverage option makes the most sense for your needs:
Consider your healthcare usageÂ
If you visit doctors frequently, need specialist care or expect ongoing medical costs, Medigap’s more comprehensive coverage may make sense. On the other hand, if you’re relatively healthy and want to minimize monthly premiums, a Medicare Advantage plan could be more cost-effective.
Think about where you receive careÂ
Seniors who split time between states or travel often may benefit more from Medigap’s nationwide coverage. But if your care is primarily local and your providers are in-network, Medicare Advantage could work well.
Weigh long-term costs carefullyÂ
While Medigap premiums can rise with age, Medicare Advantage plans can also change cost structures each year. Some seniors start with Advantage plans for the lower premiums and switch to Medigap later. However, in many states, switching to Medigap after your initial enrollment period may require medical underwriting, and you could be denied coverage or face higher premiums if your health has changed.
Factor in extra benefitsÂ
Medicare Advantage plans often offer extras like dental, vision, fitness memberships or transportation services. If these are important to you, they might tilt the balance toward Medicare Advantage. Medigap focuses primarily on covering medical costs rather than additional perks.
The bottom line
When choosing between Medicare Advantage and Medigap, there’s no universal answer for retirees. Medigap appeals to many seniors because of its flexibility, predictable costs and stable coverage, while Medicare Advantage can be more affordable for those with limited healthcare needs or who value additional benefits.
When weighing your options during open enrollment, be sure to assess your health, budget and lifestyle carefully. By understanding the potential benefits and downsides of each option, you can select the coverage that best fits your unique situation and ensures you have the care you need at a cost you can manage.
Would you like more information on a Medigap plan?
For the past few weeks, Shana Verstegen has been “sick to her stomach” wondering what might happen to her family’s health insurance next year.
Ms Verstegen and her husband both work for a small business as fitness trainers, meaning they have to pay for their own plan.
The Wisconsin parents of two have saved an estimated $800 (ÂŁ601) a month on their health insurance through Affordable Care Act, also known as Obamacare, premium tax credits.
Set to expire at the end of the year, the federal subsidies are now at the heart of the battle over the US shutdown. Democrats will not back a spending deal that reopens the government unless Republicans renew the subsidies.
Ms Verstegen and others are watching anxiously, wondering what kind of financial consequences they would face if a deal can’t be reached.
“Everything’s getting more expensive now anyway, and this would be another major hit for our family,” she said.
Health policy experts say time is running out to prevent millions from losing their health insurance because the price hikes will make it unaffordable.
The tax credits were first introduced through former President Barack Obama’s Affordable Care Act (ACA) in 2014 and then expanded during the Covid pandemic.
Some Americans could see their monthly cost of insurance – also known as a premium – rise by hundreds of dollars on 1 November, said Leighton Ku, a health policy professor at George Washington’s Milken Institute School of Public Health.
“If you are one of the 20 or so million people who’s getting your health insurance through the marketplace, if you’re about to see prices on average double, that’s a big deal,” he said. “It’s going to be too late real soon.”
Red states would be hardest hit
Of the roughly 24 million people who get their health insurance through the ACA Marketplace, a vast majority benefit from the premium subsidies.
Stacy Cox, a photographer in Utah, has saved over $10,000 a year on average since she started benefiting from the subsidies in 2022.
“It is an absolute lifeline for so many of us,” said Ms Cox, who has an autoimmune disease.
But if the tax credits are not extended, Ms Cox said she will have to quit her newly launched photography business and find a different job that provides health insurance.
Around seven million people like Ms Cox are expected to stop buying health insurance through the marketplace if the tax credits end, Ku said. Of those, around four to five million are expected to lose health care coverage altogether because they won’t be able to find other means, data suggests.
Many of those who will be affected are working-class people who don’t qualify for Medicaid, the government-run programme which provides healthcare insurance for low-income adults, children, pregnant women, elderly adults and people with disabilities.
The hardest hit could be those in 10 US states – most of which vote Republican – that have chosen not to expand eligibility for Medicaid.
“One of the political paradoxes of all this is that the places that get hurt the most are states that are more conservative,” said Ku.
If the subsidies expire and healthier people begin to opt out of insurance, that will also raise premium prices overall for Americans, as a sicker pool of customers will drive up healthcare costs, said Elizabeth Fowler, a distinguished scholar at Johns Hopkins Bloomberg School of Public Health.
“You start to get into a death spiral where premiums become even more expensive and more out of reach for more people,” she said.
Divisions emerge among Republicans
Some Republican leaders in Congress have maintained they will discuss the future of subsidies once the government reopens.
But at least a few Republicans want their party to take action now.
Representative Marjorie Taylor Greene, a close ally of President Donald Trump’s, has said she is in favour of the tax credits, adding that her own children’s premiums would go up if they end.
“I’m absolutely disgusted that health insurance premiums will DOUBLE if the tax credits expire this year,” the Georgia lawmaker said.
Republican Senator Lisa Murkowski this month introduced a bill to extend the credits for two years, while Senators Dan Sullivan and Tommy Tuberville are also in support.
Trump appeared open to negotiating with Democrats over their health care agenda, saying last Monday that if it’s “the right deal, I’d make a deal”. But he seemed to walk back those remarks later.
Experts said Republicans’ opposition to the subsidies is representative of their general dislike of the ACA, also known as Obamacare.
“Some of it has to do with the belief that it’s big government intrusion, and so they resent it for that,” Ku said.
In addition to the expiration of the tax credits, Republicans were also able to target the ACA this year through Trump’s tax and spending bill, which made steep cuts to Medicaid, changes Democrats are also seeking to reverse.
Republicans argue those cuts are aimed at eliminating waste, fraud and abuse of federal funding.
Time ticking to save subsidies
The deeper cuts to Medicaid are not expected to take effect for years but the Democrats who want the healthcare premiums to stay at current levels have to race against a looming deadline – the 1 November open enrollment period.
Some Republicans have argued that the subsidies can be resolved later since they only expire at the end of the year, but Ku said some health insurers have already changed their rates in response to the expiration, and may not be able to change them.
If the subsidies are not renewed before November, people will make their insurance decisions assuming their premiums are set to double, even if the credits are renewed at a later date.
“The mechanics of fixing this problem this late in the game are complicated,” Ku said.
Ms Verstegen said if her rates go up, her family will have to make financial sacrifices. Her family already has a deductible of $14,000, and she is still paying back a major hip surgery from two years ago.
“I truly believe that if this goes away next year, a lot of people are going to be very upset, and that’ll show up in elections,” she said.
Health care affordability was not a top issue in 2024 or other recent elections, as Americans have grown accustomed to accessing health insurance through the ACA.
But if people start to see their insurance prices rise, especially in red districts, that could prove a political liability for the Republican Party, Ku said.
“If I were a representative from Texas or Georgia, I would be feeling some doubts,” he said. “But in a game of chicken, you never want to show your doubts.”
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An increasing number of employers are offering their workers cash to buy their own health insurance.
Individual coverage health reimbursement arrangements, or ICHRAs, a type of health plan in which employers provide nontaxed contributions to employees to pay for medical expenses, including monthly insurance premiums, are picking up momentum.
According to data, the number of people covered by ICHRAs jumped 50% from 2024 to about 450,000 in 2025.
For decades, health policy analysts and employers have tossed around the concept of shifting from traditional employer-sponsored health insurance to a defined contribution approach â giving employees a fixed amount of money with which to buy health coverage themselves.
But there wasnât a practical way to do that due to regulatory, market, and administrative hurdles, Paul Fronstin, director of health benefits research at Employee Benefit Research Institute (EBRI), a nonprofit, nonpartisan organization, told Yahoo Finance: âThe emergence of individual coverage health reimbursement arrangements may finally offer a scalable vehicle for that long-anticipated shift.â
ICHRAs were created under regulations issued by the Trump administration in 2019 and have been gaining in popularity each year since.
This year, an estimated 500,000 people are covered through ICHRAs, according to data from the HRA Council, a trade association that works with vendors to help employers offer them. Thatâs up 50% from 2024, still a thin slice of the market for employer-sponsored health insurance coverage. About 154 million people were enrolled in coverage through their employers last year, according to KFF.
Whoâs covered
The vast majority of ICHRA adoption is from small businesses with 20 or fewer employees, most of which are offering health coverage for the first time.
âIt’s definitely something for small businesses,â Fronstin said. âThe market is developing from a group of employers that never offered health benefits or weren’t offering health benefits. Itâs really turning into a new benefit for these people that didn’t have access to health coverage through the job. While they’re not actually getting health coverage through their job, they’re getting tax-free money from their employer to help pay for it.â
For now, ICHRAs are playing a role in expanding access to health coverage for people, rather than displacing traditional group plans among larger firms, he said.
Fronstin estimates that up to 700,000 people are in these arrangements.
âThere are a number of factors that are driving the expansion of ICHRAs, but also some barriers that still need to be worked out to make it become a little bit more of a mainstay in the health insurance landscape,â Matt McGough, a policy analyst at KFF, told Yahoo Finance.
Nuts and bolts of do-it-yourself plans
It works like this.
Employers generally contract with an outside vendor or broker that helps employees navigate the process.
Workers do their own insurance shopping through individual insurance markets where they can typically find more choices for coverage than a traditional employer group plan that might offer only two or three choices of plans.
With a group plan, employers typically pay for the bulk of the premium. The employer contribution in a group plan depends on myriad factors, from the size of the firm to the industry, location, and the type of health insurance plan â Preferred Provider Organization (PPO) or Health Maintenance Organization (HMO).
While there are no annual minimum or maximum contribution requirements with these do-it-yourself arrangements, employers generally provide anywhere from $500 to $1,000 per month, depending on the cost of healthcare where the worker lives and whether it’s individual or family coverage.
The contribution amount may be a set dollar amount or a percentage of a premium charged by a certain plan. And the plans are portable. If you’re an employee, you can keep the coverage if you jump jobs, although youâll no longer have the employerâs tax-free contribution.
For small businesses with no more than 50 employees, there is a tax incentive to offer these arrangements. They typically qualify for the health care tax credit, which adds up to roughly half of the employer contribution for two consecutive years.
Whatâs driving the interest in this coverage
The motivation for employers to offer an ICHRA: cost-control.
The set amount contribution allows employers to predict their costs more accurately than grappling with annual jumps in group plan healthcare premiums.
Half of large employers expect their average healthcare cost to rise by 6% next year, and they plan to reduce their employees’ health care benefits to address those rapidly growing costs, according to a recently released report from Mercer.
An increasing number of employers are seriously considering plan design changes that would shift more cost to employees, such as raising deductibles or out-of-pocket maximums.
No one is saying these ICHRA arrangements are about to overtake the market. It will be a slow and cautious process over the next several years.
âThere are a growing number of vendors, many backed by venture capital firms who act as management systems that process the payment and make sure everything is IRS compliant for the tax-advantaged benefits,â McGough said. âAnd that’s certainly a signal of the market’s momentum.â
As group coverage becomes more expensive and potentially unattainable for smaller businesses, an ICHRA could be more attractive, McGough said.
âWe’ve heard over and over again from stakeholders across the board that this is like the transition from pensions to 401(k)s moving from that defined benefit to defined contribution,â McGough said. âWhether it will be as revolutionary as the 401(k) remains to be seen.â
âIt’s similar in the sense that it’s shifting risk â investment risk and longevity risk from employers to workers,â Fronstin added.
They also shift the responsibility of plan selection and management to the individual.
What will push these arrangements to the next level is âwhen a large employer moves into this market and goes out on a limb,â Fronstin said. âThatâs going to get everyone else’s attention.â
And this may take a major economic jolt. âThe next recession is going to put employers’ commitment to health benefits to the tests,â he said. âIf unemployment goes back up to 10% for an extended period of time, like it was in 2010, employers may say, âHey, I’ve got an opportunity here. I don’t need to offer health benefits anymore the way I’ve been doing so to attract and retain employees, so I’m going to do something different.ââ
Generally, no employer wants to be the first to make a change that could be seen as radical, particularly in a tight labor market where recruitment and retention are top concerns, per Fronstin. Health insurance is by far the most mentioned benefit when a worker is deciding whether to stay at or leave a current job.
Your Health Insurance Is About to Get More ExpensiveâHere’s Why
If it feels like your health insurance costs are always going up, you’re not imagining it. According to a recent survey from Mercer, a consulting firm, health benefit costs are projected to increase by 6.5% in 2026âthe highest jump in 15 years. This trend is a wake-up call for both employers and employees, as everyone’s wallets are about to feel the pinch.
What’s Driving the Price Hikes?
The rise in costs isn’t just due to one single factor; it’s a perfect storm of several powerful trends:
Advances in medical science: New, cutting-edge treatments for things like cancer and chronic conditions are often incredibly expensive. While these therapies offer hope and better health outcomes, their high cost contributes significantly to rising insurance premiums.
More people using more services: A recent increase in healthcare utilization is also a key factor. This includes people catching up on care they put off during the pandemic and the growing acceptance and use of virtual healthcare, which makes it easier than ever to access a doctor.
Inflation: The broader economic trend of inflation is hitting the healthcare industry hard. Rising wages for healthcare workers and the increased cost of medical supplies are all passed down to consumers and employers.
How Employers Are Responding
Facing these mounting costs, employers are looking for ways to manage their budgets. The survey found that a growing number of companies plan to make changes to their health plans in 2026. This often means raising deductibles and co-pays, which shifts more of the financial burden directly onto employees.
However, some employers are also exploring new strategies to curb costs without simply making their employees pay more. They are focusing on managing high-cost claims and using high-performance network plans, which guide employees toward a curated list of providers known for quality care and lower costs. At the same time, many companies are still prioritizing employee well-being by expanding access to mental health services.
What This Means for You
For most employees, these changes will mean a higher paycheck deduction for health coverage. On average, employees can expect to see their premium share rise by 6% to 7% in 2026.
This is why your next open enrollment period is more important than ever. It’s crucial to take a close look at all your options. You’ll need to balance the monthly premium with potential out-of-pocket costs like deductibles and co-pays. Choosing a high-performance network plan might seem restrictive, but it could save you a significant amount of money in the long run.
Don’t wait until the last minute. By understanding these upcoming changes, you can make an informed decision that protects both your health and your wallet.
