Beware $200-Billion, Permanent Premium Tax Credit Expansion

This is the third post in a series NTU is publishing on the American Rescue Plan (ARP), the $1.9-trillion COVID relief bill supported by President Biden and House and Senate Democrats. The series seeks to examine what’s next for Congress and taxpayers regarding many aspects of this significant legislation. Here are the others, on Child Tax Credit expansion, state taxation of unemployment, direct payments, and Employee Retention Tax Credit expansion.

The American Rescue Plan (ARP), President Biden’s COVID relief bill, just became law, and one provision expanding the Affordable Care Act’s (ACA) premium tax credits (PTCs) should concern taxpayers.

The law includes a two-year expansion of PTCs, which are advanceable monthly credits that lower the price of premiums for individuals purchasing health insurance on the ACA marketplace.

The new legislation makes two big changes to the ACA’s PTC structure:

  1. It makes the PTCs larger in value for everyone purchasing ACA coverage, by lowering the maximum proportion of household income that an individual can spend on premiums in the ACA marketplace; and
  2. It allows households making above 400 percent of the federal poverty level (FPL) to access PTCs for the first time.

These changes are just in effect for 2021 and 2022. Here’s how PTCs in these two years would compare to current law:

Household Income (expressed as percent of poverty line, $12,880 for an individual in 2021)

Current Law Maximum Proportion of Income an Individual May Pay Towards Their ACA Premium

Proportion of Income an Individual May Pay Towards Their ACA Premium

for 2021-2022 Under W&M Plan

Up to 133%


















400% and above

Not eligible for PTCs


Sources: U.S. Code; American Rescue Plan Act

The nonpartisan Joint Committee on Taxation (JCT) estimates that these changes will cost close to $35 billion over the next three fiscal years (FYs 2021, 2022, and 2023). It’s a relative drop in a $1.9-trillion bucket, but that estimate may mask the likelihood that Congressional Democrats and the Biden administration will push for permanent expansion of these larger PTCs in 2022. Permanent expansion of ACA PTCs along these lines was a part of then-candidate Joe Biden’s health care plan released in 2019, and House Democrats voted on a bill last year that would have also permanently expanded ACA PTCs.

NTU identified three problems with permanent expansion of PTCs in the House bill last year:

  1. Expansion is expensive (a $212 billion deficit impact over 10 years, according to the nonpartisan Congressional Budget Office);
  2. Targeting generous PTCs to households making six figures or more is a poor use of limited taxpayer dollars; and
  3. PTCs are not designed to bend the cost curve for private health coverage, and will only increase in cost as premium hikes outpace wage increases.

Those same problems apply to this legislation. Taxpayers should assume that policymakers will both a) push to make these provisions permanent in 2022, and b) frame opposition to making these provisions permanent as a tax hike on individuals and families purchasing ACA coverage.

For those who have lost a job and are struggling, ARP also provides a 100-percent COBRA subsidy through September. (NTU has also proposed its own novel policy for helping individuals losing coverage, Pandemic Health Accounts.)

Permanent expansion has little to do with the COVID-19 pandemic and carries a cost in the hundreds of billions of dollars per decade, with the likelihood of consistent growth in costs as premium hikes outpace wage increases. Lawmakers should instead seek to expand private coverage options and competition, which would give consumers more choices such as low-premium/high-deductible plans paired with a health savings account and employer-sponsored health reimbursement arrangements.