Taxpayer Subsidies for Obamacare Will Remain Generous When Biden’s COVID Credits Expire

In today’s newsletter, I highlight a new policy brief showing that taxpayers will continue to pay most of the premiums for the vast majority of Affordable Care Act (ACA) exchange plan enrollees when the enhanced pandemic-era subsidies—Biden’s COVID credits—expire at the end of 2025. Then, I discuss my letter to the editor that the The Wall Street Journal published yesterday on problems with improper and phantom enrollees in the exchanges.

Tomorrow, Thursday, August 28 at 11 a.m. EDT, Elle Minarik and I will discuss Biden’s COVID credits and improper and phantom exchange enrollment in a virtual event. You can register here.

The newsletter concludes with our most recent Paragon Pic showing a substantial increase in health care inflation since 2024 and a note on our newly released 2024 annual report.

Most Exchange Enrollees Will Pay Small Share of Premiums When Biden’s COVID Credits Expire

When Biden’s COVID credits expire at the end of 2025, federal taxpayers will continue to cover most of the premium costs for ACA exchange enrollees. Nearly three-quarters of enrollees earn below 250 percent of the federal poverty line (FPL), and for these households, taxpayer support will remain substantial.  Figure 1 shows the percentage of the premium paid by taxpayers for a benchmark plan for enrollees of four different ages.

The median enrollee, earning about 150 percent of FPL, will still have around 90 percent of the cost of coverage paid by taxpayers for a plan with extremely low deductibles and copayments. For a 50-year-old at that income level in 2026, taxpayers will contribute about $9,000 of a $10,000 premium. Taxpayers would cover more than 80 percent of premiums for younger enrollees at that income level, and an even higher share for older enrollees. Enrollees who select bronze plans would have their entire premium paid by taxpayers for all enrollees below 150 percent of FPL and for older enrollees with income up to about 250 percent of FPL.

A new policy brief that I coauthored with Liam Sigaud and John Graham shows the distribution of premiums between enrollees and taxpayers in 2026 under current law and with Biden’s COVID credits. The COVID credits were supposed to be temporary pandemic relief. Despite the official end of the COVID-19 emergency in 2023, the credits persist, costing about $40 billion annually while encouraging fraud, crowding out of private coverage, and enriching large insurers at taxpayer expense.

Paragon’s recent research shows that although enhanced subsidies boosted enrollment, much of it was improper or phantom. Paragon estimates 6.4 million ineligible enrollees in 2025, while CMS reported that 35 percent of all enrollees—nearly 12 million people—had zero medical claims in 2024, including 40 percent of those in fully subsidized plans.

The original ACA design sought a balance: generous subsidies for low- and middle-income enrollees but still requiring enrollees to contribute some share of their premiums. This ensured that coverage retained some value to enrollees while limiting program costs and abuses. Biden’s credits disrupted this balance, converting the ACA further into a welfare program by eliminating meaningful enrollee contributions and inviting large-scale fraud and abuse.

What do Large Numbers of Zero Claim Enrollees Tell Us?

Paragon’s work on phantom exchange enrollment has drawn significant attention over the past week since my initial blog post. The Wall Street Journal had an important editorial, AHIP issued a critique, and I used last week’s newsletter to provide further information and explain AHIP’s errors. On Monday, the Congressional Budget Office released its own estimate, citing Paragon’s work, of millions of improper exchange enrollees in 2025.

Yesterday, the Journal published my letter to the editor responding to Professors Amy Finkelstein and Matthew Notowidigdo, who had minimized the phantom-enrollee problem in their own letter after the paper editorial. They argue that even enrollees who make zero claims still benefit from health insurance because it provides financial protection against the uncertainty of needing medical care. Here is an excerpt from my response to their letter:

The problem isn’t real people with coverage they don’t use—it’s fraudulent sign-ups who never should have been subsidized.

President Biden’s Covid credits, which made many plans fully taxpayer-subsidized, created perverse incentives. Bad actors rushed to maximize commissions by enrolling people regardless of eligibility. That led to fraudulent enrollment, with some unaware they were signed up and others covered elsewhere.

Using conservative assumptions, Paragon estimates that 6.4 million people who weren’t eligible were enrolled in a fully subsidized plan in 2025. Centers for Medicare and Medicaid Services data shows the consequence: a spike in enrollees with no healthcare claims.

Thirty-five percent of exchange enrollees in 2024 had no medical claims, nearly double the pre-Covid share. More striking, 40% of those in fully subsidized plans with minimal cost-sharing did not use their plan to see a doctor or fill a prescription. This isn’t government subsidizing people with coverage who used no care. It’s government subsidizing millions of enrollees who don’t exist in the market.

If I had more space in my letter, I would have also made this additional point: health insurance is unlike other insurance—especially after Obamacare. Although auto and home insurers pay claims only in rare circumstances, health insurance pays for nearly all medical spending, including routine visits, lab tests, and prescriptions. Obamacare reinforced this by mandating “free” preventive services and outlawing most catastrophic coverage. Nearly all insured Americans use their coverage at least once a year. In 2023, just 15 percent of privately insured adults went without seeing a doctor or health care professional. This feature of health insurance raises even more questions about the 40 percent of Obamacare enrollees with fully-subsidized coverage with zero claims in 2024.

Health Care Inflation Picking Back Up

Although the Biden inflation binge, which peaked in the summer of 2022, has faded, prices for health care continue to rise faster than prices of other goods and services. This week’s Paragon Pic shows that non-medical prices rose 2.7 percent over the past year, while prices for hospital services grew twice as fast—inpatient prices by 5.4 percent and outpatient prices by 6.1 percent. Prescription drug prices grew by less than one percent. This indicates the Administration and Congress should ensure they prioritize hospitals for oversight and reform.

Reflecting on a Remarkable Year

This morning, we released Paragon’s 2024 annual report. We look back on many successes, including how we laid the foundation for significant policy reforms and the five team members who moved to important positions in the Trump administration, Congress, and state government over the past year. We also highlight the growing reach of our message, demonstrated by higher website traffic and more social media followers. The annual report concludes with our plans for 2026 to launch three new initiatives, including a state health reform initiative and a health care artificial intelligence initiative.

While 2024 set Paragon up for success, it is important to note that policy change is the work of many hands. As the summer of 2025 draws to a close and Congress returns from recess, our team is excited to reform government and empower patients alongside everyone in our network who makes this important work possible.