Government Shutdown Hinges on Contentious Debate Over Costly Covid-Era Subsidies for Obamacare Customers
The health insurance subsidies being championed by Democrats are, one think tank says, ‘a costly reminder of how temporary government programs can become billion-dollar permanent entitlements.’
Both Democrats and Republicans are spouting talking points about the federal government shutdown that are partly misleading and partly flat-out false.
What’s really going on? Yes, Democrats want to roll back about $1 trillion in Medicaid cuts included in the “Big Beautiful Bill” that President Trump signed into law in July. But the real sticking point revolves around the Affordable Care Act, otherwise known as Obamacare.
A bitter partisan dispute over expiring health insurance subsidies is at the core of the current government shutdown, leaving the coverage of more than 20 million Americans hanging in the balance.
Democrats are leveraging the need for government funding to demand the renewal of enhanced tax credits under the ACA, while Republicans remain divided on the issue, with some siding, in part, with the Democrats and others taking a harder line.
The Case for Extending Subsidies
The subsidies in question, which help millions of Americans afford health insurance through marketplaces like Healthcare.gov, were significantly expanded in 2021 at the height of the Covid pandemic. This expansion led to a surge in enrollment, with coverage more than doubling nationwide. However, the enhanced benefits are set to expire at the end of the year, threatening to trigger dramatic hikes in what many consumers are paying for their health care coverage.
Without congressional action, the average consumer could see their share of the insurance premiums increase by more than 100 percent, according to an analysis by the health research group, KFF.
Democrats argue that immediate action is critical to prevent these eye-popping premium increases. They have made the renewal a condition for their support of any spending measure that would reopen the government, pointing to the potential for millions to have to give up their health insurance for economic reasons. The nonpartisan Congressional Budget Office estimates that without the subsidies, about 2 million more Americans would be unable to afford health care next year.
The timing is particularly sensitive, as the open enrollment period for ACA plans begins on November 1. Democrats fear that if an extension isn’t passed soon, consumers will face “sticker shock” from the higher prices and forgo coverage altogether.
Republicans, however, are split on the path forward. Many have long opposed Obamacare and are reluctant to allocate the estimated $350 billion over a decade needed to extend the subsidies. Critics also argue that the program shifts the rising cost of health insurance to the federal government rather than addressing the root causes of America’s health insurance conundrum. Those same critics also say the generous subsidies have encouraged fraud.
A growing number of Republicans have expressed support for an extension, particularly those in competitive districts. Ten House Republicans introduced legislation for a one-year extension, and several senators, including Lisa Murkowski of Alaska, have also proposed bills to continue the funding.
Even some staunch conservatives have signaled a change of heart. Congresswoman Marjorie Taylor Greene, a right-wing Republican from Georgia, wrote on X that she was “disgusted” by the prospect of premiums doubling for her own adult children.
“I’m going to go against everyone on this issue because when the tax credits expire this year my own adult children’s insurance premiums for 2026 are going to DOUBLE, along with all the wonderful families and hard-working people in my district,” she wrote.
The Case for Ending Subsidies
Ms. Greene’s central argument focuses on the expiration of enhanced subsidies, which she and some progressive groups suggest will lead to a drastic spike in insurance premiums. However, this conflates out-of-pocket costs with the total premium and overlooks key details about the ACA subsidy structure.
Contrary to her claim, the foundational subsidies of the original ACA are not expiring. The provisions set to lapse on December 31 are the enhanced subsidies passed by the Biden administration in 2021 using the Covid pandemic as an excuse.
The confusion arises from how premium costs are presented. An enrollee’s out-of-pocket payment is only a fraction of the total premium, with government subsidies covering the rest. When the enhanced subsidies expire, the portion a consumer pays will increase, but the total premium itself is not doubling.
Ms. Greene’s social media post referenced data from the KFF to support her claim, noting, “If the enhanced subsidies expire, the average annual premium for subsidized enrollees could rise by 114%, from $888 in 2025 to $1,904 in 2026.”
While the percentage increase appears dramatic, this figure reflects a rise in the enrollee’s out-of-pocket share from approximately $74 per month to about $159 per month. The total premium for the health insurance plan is significantly higher, with federal taxpayers continuing to subsidize the majority of the cost.
A July 2024 policy brief from KFF visually broke down these costs, illustrating that even without the enhanced subsidies, the federal government would still cover the bulk of premium expenses — an estimated 78 percent of the total cost, down from 88 percent with the enhancements in place.
This highlights that taxpayers will continue to fund the vast majority of premiums for subsidized enrollees. Critics note that more recent KFF analyses have focused solely on the out-of-pocket impact, omitting visuals that show the substantial remaining federal subsidies.
A libertarian think tank, Cato Institute, posted a piece headlined “Six Reasons to Not Extend the Enhanced Obamacare Subsidies.”
The piece concludes: “Biden’s pandemic-era Obamacare premium subsidies were sold as temporary relief but have instead produced fraud, phantom enrollees, and subsidies for wealthy taxpayers who don’t need them. The program funnels billions of taxpayer dollars to insurers and middlemen while distorting the individual market and doing little to expand meaningful access to care.”
“Congress can stand up to the insurance industry by letting these temporary Covid-era subsidies expire as scheduled,” the analysis continues. “Or better yet, repeal them entirely. The enhanced subsidies are a costly reminder of how temporary government programs can become billion-dollar permanent entitlements.”
The Wall Street Journal has also weighed in, with a piece headlined “Let the ObamaCare Enhanced Premium Subsidies Expire.”
“By luring people to these expensive plans and making them dependent on subsidies, lawmakers not only wasted taxpayer dollars and invited fraud but also effectively killed the market for affordable alternatives. Continuing this scheme would be fiscally reckless and irresponsible to consumers. Covid-era subsidies should be allowed to die a natural death,” the piece said.
