The ACA’s enhanced premium tax credits were established as a part of the American Rescue Plan Act (ARPA) to temporarily boost financial assistance for Affordable Care Act (ACA) subsidies during the COVID-19 pandemic. Extended via the Inflation Reduction Act (IRA), the temporary enhanced subsidies are set to expire at the end of 2025. The enhanced premium tax credits eliminated the income cap for ACA tax credit eligibility, meaning individuals making more than 400% of the federal poverty level (FPL) are eligible for these tax credits, and their premiums are capped at 8.5% of their total income. The enhanced premium tax credits also created zero-dollar plans for those making between 100% and 150% of the FPL. Because eligibility verification measures are weak and many plans offered via the enhanced premium tax credits are completely taxpayer-funded, the risk of fraud and improper enrollment is high, leading to a substantial number of phantom enrollees. Estimates from the CBO indicate that making the enhanced premium tax credits permanent would cost as much as $400 billion over the decade from 2025 to 2034.
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