Biden’s COVID Credits Are an ObamaCare Expansion That Congress Should Allow To Expire

Biden’s COVID credits make ObamaCare much more expensive

ObamaCare mandates and pricing rules raised premiums and reduced quality, with fewer doctors and hospitals willing to participate.^1-2 The law raised premiums the most for young and healthy enrollees—making the coverage a lousy deal for them.³ In order to compel this group into the market, ObamaCare contained an individual mandate—a penalty on people who went without “acceptable” coverage—and massive taxpayer-funded subsidies. The individual mandate was ineffective at bringing these individuals into the market, leading Congress to repeal the penalty in 2017.^4-5 Most enrollees have needed large taxpayer-funded subsidies—which go directly to insurance companies—to purchase coverage.⁶ Those without subsidies have mostly found ObamaCare plans so unattractive that they forego purchasing individual market coverage.

Biden’s COVID credits, first enacted in the American Rescue Plan Act (ARPA) and then extended by the Inflation Reduction Act, funneled even larger subsidies directly to health insurers.^7-8 These COVID credits caused a surge of enrollment in the exchanges and higher insurer profits, although many new enrollees were ineligible, unaware they were signed up, or never used their plan.⁹ Even without the COVID credits, the original subsidies will cost taxpayers nearly $1 trillion over the next decade.¹⁰ Continuing the COVID credits would raise that cost by more than 40 percent.¹¹

ObamaCare needs reform. Insurance plans are too expensive and unattractive for consumers.  But Biden’s COVID credits give insurers even less incentive to design plans that people truly value because taxpayers cover nearly all of the costs. Pouring more taxpayer money into this broken system would only delay needed reforms.

Taxpayers pay the vast majority of ObamaCare plan premiums and will continue to do so after Biden’s COVID credits expire

The authors of ObamaCare expected enrollees to pay a portion of the premiums based on their income. Under this structure, someone at the federal poverty line (FPL) could receive the “benchmark” plan for about two percent of his or her household income.^12-13 Those contributions increase along a sliding scale up to nearly 10 percent for someone earning about four times the poverty line, with the subsidies unavailable beyond that point.¹⁴ Taxpayers would then pick up the cost of the rest of the premium, regardless of how high the premium was.¹⁵ If individuals pick plans that are less expensive than the subsidy amount, taxpayers cover the entire premium.¹⁶

Virtually all ObamaCare enrollees receive taxpayer-funded subsidies for their coverage.¹⁷ In addition to covering premiums, ObamaCare also limits cost-sharing for most enrollees.^18-19 For most subsidized enrollees, those plans are often even more generous than “platinum” plans, as they generally have no deductible and often no copayments for primary care and generic drugs.^20-23

Tying the subsidy to the premium creates inflationary pressures. The enrollee is largely insulated from premium increases, which are instead borne by taxpayers.²⁴ Enrollee insensitivity to premium increases gives insurers some degree of pricing power, particularly in less competitive markets. This means that they are able to set health care prices and corresponding premiums higher. And since the subsidies are tied to premiums, the higher premiums caused by the subsidy design result in higher subsidies. Research finds this “price-linking” design “increases premiums 1-6 percent, and much more in less competitive markets,” reducing societal welfare.²⁵ Democrats used reconciliation to expand ObamaCare subsidies in a party-line vote on ARPA as temporary emergency relief during the COVID pandemic.^26-28 These subsidy enhancements, or Biden’s COVID credits, made two fundamental changes to the nature of the ObamaCare subsidies. First, they broadened the scope to include households with incomes above 400 percent FPL, subsidizing even affluent households’ health insurance.²⁹ Second, the COVID credits increased the size of the subsidies across all income categories.³⁰ This second change had the effect of passing the entire cost of the premium to taxpayers for households with incomes between 100 and 150 percent FPL for a 94 percent actuarial value plan, i.e., one with extremely low cost sharing.³¹ The extra subsidies were meant to prevent health insurance coverage rates from declining during the pandemic.^32-33 But the public health emergency ended nearly two and a half years ago.³⁴

These credits ultimately created perverse incentives that led to fraud, abuse, and enrollment gaming.^35-37 Even after the COVID credits expire at the end of 2025, ObamaCare subsidies will continue, meaning taxpayers will still cover most of the premiums for the vast majority of enrollees.

ObamaCare’s original subsidies had taxpayers picking up most of the premium cost, and the enhanced subsidies disproportionately benefited high-income earners

Even after the COVID credits expire, subsidies remain very generous under ObamaCare’s original design. Taxpayers will continue to pay the vast majority of premiums for most enrollees, particularly those with incomes below 250 percent FPL—who make up nearly three-quarters of the exchange population.³⁸ For example, taxpayers will cover roughly 98 percent of the cost of the cheapest platinum-plus plan for the average enrollee at the poverty line.^39-50 The enrollee would be expected to pay less than $4 per week for that plan, roughly the price of a commercial-free streaming service.^51-54

For the average enrollee earning 150 percent FPL, taxpayers will still cover 92 percent of the cost.⁵⁵ Enrollees would be expected to pay less than $15 per week for that plan—on par with what many drivers pay for minimum auto insurance and comparable to the price of a monthly Internet or phone service plan.^56-58 If those enrollees choose a bronze plan, taxpayers would cover the entire cost.^59-60 The average enrollee earning between 200 and 250 percent FPL would have federal taxpayers picking up more than two-thirds of the premium.⁶¹ These enrollees would be expected to pay between $32 and $53 per week—the equivalent of the price for dining out a few times a month.^62-63

Even middle-income households earning nearly four times the poverty line will receive thousands of dollars in annual support. By lifting the subsidy cap above 400 percent FPL—income of nearly $130,000 for a family of four—Biden’s COVID credits result in federal taxpayers significantly subsidizing health insurance for households in the top 10 percent of earners—some households making more than $500,000.⁶⁴

Biden’s COVID credits led to an explosion of fraudulent spending

ObamaCare subsidies are largely a function of enrollees’ estimated income for the following year. Once an enrollee makes a plan selection, the U.S. Treasury sends those subsidies directly to insurers. When enrollees file their tax returns, the amount that their insurer received in advance subsidies is supposed to be reconciled with the actual amount to which the enrollee was entitled.

Federal law sharply limits the Treasury Department’s ability to recover subsidies if too much was advanced to the insurer.^65-66 Federal regulations issued during the Obama administration also provide no repayment whatsoever for people below the poverty line who overestimated their income to qualify for a subsidy.⁶⁷ Zero-premium plans, combined with lax oversight, created perverse incentives. Lead generators and brokers coached applicants to inflate income—or even enrolled people without consent—because they knew enrollees would only participate if coverage was free.⁶⁸ An estimated 6.4 million enrollees in 2025 were improper—enrollees who incorrectly or falsely reported income that would make them eligible for zero-premium plans.⁶⁹

The U.S. Department of Health and Human Services (HHS) recently released data showing a consequence of improper enrollment—a surge in the number of exchange enrollees who did not use any health care services.⁷⁰ Between 2019 and 2024, the number of individual market enrollees without a single claim—no doctor visit, lab test, or prescription filled—more than tripled to nearly 12 million enrollees in 2024.^71-72 Among those now eligible for zero-premium plans with low or no deductible, that number increased nearly sevenfold.⁷³

A whopping 40 percent of enrollees in fully subsidized plans had no claims in 2024.⁷⁴ In 2024 alone, taxpayers sent at least $35 billion to insurers for people who paid no premiums and never used their plan.^75-83 This shows the surge in phantom enrollees, people unknowingly signed up or double-covered elsewhere, in the market.⁸⁴ According to HHS, there are at least 1.6 million people doubly covered by Medicaid and a subsidized exchange plan.⁸⁵

Biden’s COVID credits created a policy environment that fueled improper and phantom enrollment. Incredibly, nearly half of exchange enrollees in 2025 claimed income that made them eligible for zero-premium plans—a result of large incentives for enrollees, enrollment intermediaries, and insurers to cheat.^86-87 In previous years, the Treasury Department found just 18 percent of subsidized enrollees were in that income range after reconciling the expected income reported to the exchange with actual income at tax filing.⁸⁸

The Biden administration prioritized maximizing enrollment regardless of the cost to taxpayers. This disregard for program integrity, combined with the COVID credits, fueled overall enrollment, much of it among people not eligible for subsidies they are receiving and others unaware of their enrollment or covered by either Medicaid or an employer plan. The result is an ObamaCare exchange baseline inflated with millions of improper enrollments.

Extending Biden’s COVID credits would cost an estimated $450 billion, fueling deficits and inflation

Continuing the Biden COVID credits would cost taxpayers an estimated $450 billion over the next decade, including the additional interest costs from higher federal debt.^89-90 More deficit spending fuels higher interest rates and inflation in the broader economy, lowering the American standard of living.⁹¹

In the case of premium subsidies, though, it is not just the problem of too many dollars chasing too few goods. As highlighted earlier, because the subsidy is tied to the premium payment, enrollees do not feel the brunt of premium increases. Insurers are aware that their premium increases are ultimately passed on to taxpayers. And without consumer pressure, insurers have little incentive to negotiate better prices with hospitals and providers. In turn, providers are less likely to curb excess utilization. ObamaCare also sets limits requiring insurers to spend a minimum percentage of premiums on medical claims. This exacerbates these problems by incentivizing insurers to push up plan spending to maximize profits and to avoid paying rebates to enrollees.

The original ObamaCare subsidies raised overall premiums. The situation is worse with the expanded subsidies because they make consumers even less sensitive to premium increases and make even more people eligible for them.⁹²

The expanded subsidies also exacerbate the crowd-out of employer insurance. Because subsidies aren’t available to workers with “affordable” job-based coverage, employers have a clear incentive to drop health plans and shift workers to the exchanges. The larger the subsidies—and the more people who qualify for them—the greater the incentive for employers to decide not to offer a workplace plan. The Congressional Budget Office estimates that Biden’s COVID credits would reduce employment-based coverage by four million.⁹³

Lastly, the expanded subsidies also reduce economic activity through deadweight loss. A central economic feature of the expanded subsidies is the crowd-out of private financing with taxpayer financing. Most individual market enrollees would have coverage even without Biden’s COVID credits—for these people, the credits drive up taxpayer costs without expanding coverage. The expanded subsidies increase borrowing, or the amount that the government needs to raise in taxes in the future to finance the borrowing. Higher taxes result in reduced economic activity. The deadweight loss of taxation represents the value of foregone productive activity. According to assumptions used by the Council of Economic Advisors about deadweight loss, extending the Biden COVID credits would cause more than $200 billion of deadweight loss over the next decade.⁹⁴

Congress should let Biden’s COVID credits expire and pursue better options to broaden choice and improve affordability

Extending Biden’s COVID credits would cost more than $40 billion per year, reduce employer coverage, prop up insurer profits, and entrench a dysfunctional regulatory structure that significantly increased premiums, lowered the quality of individual market plans, and reduced Americans’ options for health coverage.^95-96 Congressional Democrats enacted them as a temporary pandemic measure. They have resulted in large amounts of fraud and improper enrollment.⁹⁷ Congress should allow them to expire as scheduled and enact reforms that help consumers and small businesses get access to affordable coverage without increasing taxpayer costs.

Increasing choice and competition through alternative coverage options, such as short-term limited-duration plans and Association Health Plans, combined with continued progress on price transparency, are ways to strengthen market forces in a sector that has been strangled by government.^98-99 Moreover, Congress can significantly reduce premiums and subsidies by funding ObamaCare’s cost-sharing reduction (CSR) program—a provision of the One Big Beautiful Bill Act passed out of the House but struck by Senate Democrats in a parliamentary procedure. Instead of expanding ObamaCare relative to current law, as extending the Biden COVID credits would do, the CSR appropriation would free up ObamaCare subsidy dollars, providing lawmakers with about $30 billion over the next decade to offer more targeted assistance.

The Bottom Line: Congress should allow Biden’s temporary COVID credits to expire on schedule.

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