Rep. Becca Balint recently emailed Vermonters warning that if Congress fails to extend enhanced Affordable Care Act (ACA) subsidies, “millions of Americans will see their premiums more than double.” The anxiety is understandable. No household wants to see a health insurance bill jump in a single year.
But the situation Vermonters are being warned about is not just a story of one spending bill or one vote. It is the product of a deeper policy design choice: treating a major subsidy as a temporary “emergency” measure, extending it in short increments, and allowing that structure to create a recurring policy cliff that repeatedly hangs over consumers and taxpayers.
How the “Emergency” Subsidies Became a Cliff
The current enhanced ACA premium subsidies were introduced in 2021 through the American Rescue Plan Act (ARPA) as a temporary pandemic response. They lowered the share of income that households pay toward coverage and removed the income cap that previously cut off assistance at 400% of the federal poverty level.
In 2022, Congress extended those enhanced subsidies through the Inflation Reduction Act (IRA), moving the expiration date to the end of 2025. At that time, Congress had the procedural tools—through budget reconciliation—to make these changes permanent. Instead, lawmakers chose another time-limited extension that preserved a hard sunset.
That decision matters. A temporary subsidy, especially one extended more than once, does not just assist people in the short run. It also sets up a fixed date at which premium support is scheduled to fall back toward the old rules. Each extension pushes that date out, but keeps the underlying structure intact.
The Premium Multiverse: Baseline vs Subsidy-Insulated
To understand why the 2025 expiration is now so sharp, it helps to imagine two parallel paths for premiums over the last several years.
In a baseline path, there is no enhanced subsidy. Consumers see more of the true price of coverage. Insurers know that if they raise premiums too quickly, people will shop, downgrade plans, or drop coverage. Premiums still rise—driven by hospital prices, prescription drugs, and medical wages—but they do so under consistent competitive pressure.
In a subsidy-insulated path, consumers see much lower out-of-pocket premiums because the federal government is paying a larger share. When an insurer raises the gross premium, most of that increase is absorbed by the subsidy formula rather than the household’s monthly bill. Over time, this can weaken price sensitivity and allow gross premiums to drift higher than they would have under the baseline path.
Independent estimates of the coming premium jump reflect both forces at once: the scheduled step-down in subsidies and the higher underlying premium level reached after several years of insulation. When the enhanced subsidies expire, households are exposed simultaneously to the loss of extra support and to the cumulative premium growth that occurred while that support was in place.
In practical terms, the “cliff” is not just the removal of a discount. It is the sudden reveal of several years of underlying cost growth that the discount helped to hide.
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What It Means to Keep the Policy Temporary
Because Congress chose to structure the enhanced subsidies as temporary and then extend them rather than redesign them permanently, every new sunset date creates a recurring decision point. Each time the deadline nears, there is a period of uncertainty in which millions of enrollees do not know what their premiums will look like the following year.
For consumers, that means repeated seasons of warnings, advocacy campaigns, and sharply worded emails. For insurers and state marketplaces, it complicates rate setting, plan design, and outreach. For taxpayers, it defers an honest debate about whether a long-term subsidy of this size should be fully incorporated into the federal budget and paid for on a permanent basis.
In budget terms, the structure resembles a policy version of the sword of Damocles: the benefit hangs over the marketplace as long as Congress acts in time, but the threat of a sharp correction never goes away. The longer the temporary policy runs, the larger the potential adjustment becomes if it is ever allowed to lapse.
The Costs of a Policy Built on Repeated Cliffs
If Congress extends the enhanced subsidies again, the immediate shock for 2026 is reduced or avoided. But the underlying issues remain. The federal budget bears a growing cost. Insurers continue to operate in an environment where a significant part of the premium is buffered by subsidies. And the next expiration date merely moves further into the future.
If Congress allows the subsidies to expire, the households who have built their budgets around several years of lower premiums will face abrupt and substantial increases. That outcome would be painful precisely because the temporary policy has been in place long enough to reshape expectations and pricing behavior.
Either way, the central problem Vermonters now face is not simply partisan disagreement over one extension. It is a structural choice to expand a major subsidy on an emergency, temporary basis, and then to repeat that temporary approach instead of settling on a long-term framework. The result is a cycle of recurring cliffs, recurring uncertainty, and recurring pressure campaigns—on top of the underlying challenge of rising health care costs.
Understanding that structure, and its economic consequences, is essential to evaluating whatever Congress does next.
Dave Soulia | FYIVT
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