As enhanced ACA tax credits expire, ICHRA may emerge as an individual market stabilizer

Since 2021, the enhanced premium tax credits for individual marketplace plans have helped lower premiums for millions of individuals and families. Of the more than 24 million Americans with individual coverage through the Affordable Care Act (ACA) marketplaces in 2025, 92% received assistance through advance premium tax credits¹.

But, this assistance is ending for many of those who previously qualified. That’s because these temporary enhanced tax credits expire after December 31, 2025. This end to the COVID-era policy that expanded APTC eligibility has already contributed to individual market premium increases of an additional 2-7% for 2026 coverage as insurers priced in expectations of reduced enrollment and higher risk².

As this uncertainty grows, policymakers are looking beyond temporary subsidies and toward benefit models that offer long-term stability for the individual market. At the same time, as employers look for health benefits with more predictable spending, the individual coverage health reimbursement arrangement (ICHRA) may become a tool for stabilizing the individual market’s risk pool.

In this article, you’ll learn:

• What changes are coming to premium tax credits on January 1, 2026
• What the end of enhanced APTC means for employers and individuals
• How ICHRA may emerge as a market stabilizer

Learn more about the ICHRA in our ultimate guide.

What are the enhanced premium tax credits?

The enhanced premium tax credits set to expire differ from the original tax credits that existed before 2021.

Introduced by the ACA in 2014, premium tax credits enable individuals with marketplace health insurance to receive an advance subsidy or a tax refund that reduces their premium costs. These tax credits are available to U.S. citizens, nationals, and lawfully present individuals enrolled in on-exchange plans through HealthCare.gov and state-based marketplaces. Those with off-exchange plans aren’t eligible for premium tax credits.

Initially, the ACA offered these subsidies to those with annual household incomes between 100% and 400% of the federal poverty level (FPL). Individuals also had to be ineligible for affordable coverage through an employer, Medicare, or Medicaid.

However, in response to the COVID-19 pandemic, Congress passed the American Rescue Plan Act in 2021. This law expanded premium tax credits beyond the original thresholds by removing the 400% FPL cliff. Anyone who could be expected to pay more than 8.5% of their household income for a benchmark plan on the individual market could qualify for a subsidy. The same affordable coverage guidelines remained in place.

While the new enhanced tax credits were set to expire at the end of 2022, Congress renewed them with the passage of the Inflation Reduction Act. These enhanced tax credits will expire after December 31, 2025.

What happens when enhanced APTCs expire

Congress didn’t extend these enhanced premium tax credits prior to the end of 2025, with the legislative body entering into recess until January 6, 2026. There are some immediate and long-term impacts if Congress doesn’t pass an extension in 2026.

Premium tax credits will revert to the eligibility rules in effect prior to 2021. This means only those with incomes between 100% and 400% of the FPL will be eligible for federal subsidies. Those who currently receive tax credits may get fewer tax credits in 2026 or lose them altogether.

KFF analyzed Revenue Procedures 2023-29 and 2025-25 to determine the impact on premium payments for individuals who qualify for enhanced premium tax credits. They found that those earning $45,000 per year — who currently pay an average of only $2,475 annually for premiums due to tax credits — would see an average increase to $4,311 in 2026. Additionally, those earning more than 400% of the FPL would no longer qualify for any tax credits³. They also found that the average premium for those with subsidized coverage would increase from an average of $888 in 2025 to $1,904 in 2026.

Because of these increases, many individuals and families may forgo health coverage altogether.

The Congressional Budget Office (CBO) predicted in June 2025 that the number of people without health insurance would increase by 4.2 million by 2034 as a direct result of allowing the enhanced premium tax credits to expire⁴.

As people leave the individual market, the risk pool shrinks. Insurance carriers currently spread the risk of insuring the general population on the ACA marketplaces across the entire pool of enrollees with a particular plan. If more individuals and families forgo coverage, there’s a smaller pool to spread that risk across. Carriers anticipated this, resulting in additional premium increases for 2026 coverage.

The CBO projected that individual health insurance premiums would increase by an additional 4.3% on average from 2025 to 2026 as a result of the enhanced APTC expiration⁵. Additionally, it expects a further 7.7% increase in 2027 and an average of 7.9% for 2026 through 2034 overall.

Regardless of whether Congress renews or allows these tax credits to expire in the near future, the impact on 2026 premiums is already a reality. With Open Enrollment coming to a close, 2026 rates are now set, and individuals and families are already making their enrollment decisions for the year.

For employers, especially those relying on wage increases or stipends alongside tax credits, the expiration of enhanced tax credits creates new challenges. As employees face higher net premiums, employers may feel pressure to intervene without clear, compliant ways to do so. We’ll explore how ICHRA can be a solution to this later in the article.

Where the enhanced tax credits stand at the close of 2025

Congress has weighed extending these tax credits or making them permanent beyond 2025. Lawmakers have introduced multiple bills seeking to extend them, and others have floated alternative ideas for reducing healthcare costs. As the year comes to a close, none of the proposed bills have passed. Congress is now in recess until January 6, 2026.

Here’s a look at the various proposed bills on premium tax credits and alternatives:

While it’s too late to stop premium increases for 2026, renewing the tax credits in the coming months could help those who qualify for tax credits by lowering their premiums once again. It could also help stabilize the individual market for 2027.

Here are some potential outcomes for these tax credits:

• Congress could extend them in 2026 for one or more years.
• Congress could extend them with changes to income eligibility, such as setting the cap higher than 400% of the FPL but more strict than the current 8.5% of income basis.
• Congress could consider alternative solutions to reduce healthcare costs.
• Congress doesn’t extend the tax credits, allowing them to remain expired.

Remodel Health will continue to follow the situation closely and provide updates.

Is ICHRA a potential market stabilizer amid subsidy volatility?

With the expiration of enhanced premium tax credits, premiums are increasing even for those who don’t qualify for any subsidies. That’s because of the potential for a shrinking risk pool on the individual market.

The ICHRA could serve as a long-term solution for stabilizing the individual market.

An ICHRA is an employer-funded defined-contribution health benefit. It allows employers to provide a tax-free contribution toward their employees’ individual health insurance premiums (and potentially other out-of-pocket medical expenses if allowed in the plan design). For employers switching from group health insurance, an ICHRA can provide substantial cost savings and budget predictability. This is because employers define their monthly contribution in advance.

For example, Remodel Health customer St. Anne’s Retirement Community saw nearly 40% in savings when they switched to an ICHRA compared to their group plan renewal price.

Employees offered an affordable ICHRA contribution can’t claim any premium tax credits. However, their tax-free contributions help them with their premium costs. Employees get the freedom to choose a plan that best fits their needs and budget, and their coverage isn’t tied to their employment (though the ICHRA allowance is).

An ICHRA can help employers break free from rising group health insurance premiums, but how does it help stabilize the individual market?

Every time an employer switches from a group plan or no coverage to an ICHRA, it means employees and their families are enrolling in individual health insurance plans. This expands the individual market, increasing the size and diversity of the risk pool and making it less sensitive to subsidy cliffs.

ICHRAs are on the up-and-up, with 34% growth in adoption among applicable large employers (ALEs) from 2024 to 2025, according to the HRA Council. With many ICHRA vendors, including Remodel Health, seeing record ICHRA deals in 2025, the benefit is one way to drive up enrollments on the individual market.

RELATED: Is ICHRA still a viable option when individual insurance rates increase?

Recent movements to codify ICHRA as the CHOICE Arrangement

Many federal legislators are also considering ICHRA as a potential solution to rising health insurance costs and as an alternative to extending enhanced tax credits. In May 2025, the House passed an early version of what eventually became H.R. 1, the “One Big Beautiful Bill Act,” which included provisions for codifying the ICHRA as the Custom Health Option and Individual Care Expense (CHOICE) Arrangement.

While the Senate ultimately removed language about ICHRA from H.R. 1, the House passed a healthcare bill including the CHOICE Arrangement again in December 2025. This new bill, the Lower Health Care Premiums for All Americans Act, passed the House by a vote of 216-211. If the Senate enacts the bill in 2026, it would codify ICHRA as the CHOICE Arrangement and introduce additional changes to stop-loss policies and association health plans¹⁰.

While ICHRA currently exists through federal regulation, codifying it as the CHOICE Arrangement would put employer-sponsored individual coverage for large employers in statute, reducing regulatory uncertainty and signaling long-term federal support.

Codifying ICHRA would make it a permanent tool and increase its attractiveness for employers. Even if the Senate doesn’t act on this bill, ICHRA can be a great way to grow the individual market in the long term, regardless of any extension of the enhanced premium tax credits.

You can read our original article on the CHOICE Arrangement from May 2025 to learn more about the potential changes.

Conclusion

As Congress heads into 2026 without extending enhanced ACA premium tax credits, uncertainty has become a defining feature of the individual health insurance market for the new year. Millions of Americans will face higher premiums and changes to tax credit eligibility.

By pairing defined, predictable employer contributions through ICHRAs with individual health coverage, the benefit offers a framework that can help smooth volatility caused by shifting subsidy policy. ICHRAs give employers budget control, provide employees with support for their premiums, and, when adopted thoughtfully, can help strengthen the individual market by encouraging stable enrollment.

Importantly, employer-funded ICHRAs and federal premium tax credits aren’t mutually exclusive. Growing ICHRA enrollment and extending the enhanced subsidies would help lower premiums and the risk pool across the individual market.

For brokers and employers navigating these changes, execution matters as much as strategy. Compliance, employee education, affordability testing, and ongoing administration all play a role in determining whether an ICHRA succeeds in practice. That’s where Remodel Health comes in. As the ICHRA administration partner that brokers and employers trust, we can help large and enterprise employers transition to defined contribution models from traditional group health insurance.

Learn more about our ICHRA+ administration platform.

References

1. KFF - Marketplace plan selections with financial assistance
2. Remodel Health analysis of rate increases in Connecticut, Maryland, Massachusetts, New York, Oregon, Tennessee, Vermont, and Washington based on 2026 rate filings
3. KFF - ACA Marketplace premium payments would more than double on average next year if enhanced premium tax credits expire
4. Congressional Budget Office letter to the Senate Committee on Finance, House Committee on Energy and Commerce, and House Committee on Ways and Means
5. Congressional Research Service: Enhanced premium tax credit and 2026 exchange premiums: FAQs
6. Congress - H.R. 5145
7. Congress - S. 2824
8. Congress - S. 3385
9. Congress - S. 3386
10. Congress - H.R. 6703