New research from the Joint Economic Committee (JEC) provides strong empirical support for what Paragon has been warning for months: Extending the COVID-era ACA subsidy add-ons would be extremely costly for taxpayers.
The JEC report documents the negative long-term effects that continuing this policy would have on health care affordability. Most noteworthy, the JEC analysis reveals that for every additional $1 taxpayers spend on these subsidies, consumers receive only about 34 cents in actual value—the rest goes to higher premiums (benefiting insurers and brokers) or is lost to economic inefficiency.
This latest JEC research confirms Paragon’s argument that extending the enhanced ACA subsidies would deepen the federal government’s fiscal woes, perpetuate high levels of improper and “phantom” enrollment in the exchanges, and funnel yet more taxpayer funds to insurers rather than instituting reforms that make care and coverage genuinely more affordable.
The COVID-Credit Money Pit
Congressional Democrats created the enhanced ACA subsidies (or “COVID credits”) in 2021 as part of the American Rescue Plan Act. In 2022, in the Inflation Reduction Act, they extended the credits through 2025. These credits were supposed to be a temporary measure in response to the pandemic. They were never intended to be a permanent expansion of the welfare state.
One reason for this is that Democrats knew that the COVID credits add substantial federal spending on top of the original ACA premium tax credits (PTCs). Those original credits were already providing robust financial support to both low- and middle-income Americans and will continue to do so after the COVID credits expire. Paragon estimates that under the original subsidies alone, a 50-year-old enrollee earning 150 percent of the federal poverty level (FPL)—$23,475 per year—would receive a $9,010 federal subsidy to purchase health insurance in 2026. If that $9,010 was used for a benchmark plan with a very low deductible and copayment amounts, the enrollee’s share of the monthly premium would be $82. If the enrollee chose a bronze plan instead, the original credit would cover the entire cost.
The COVID-era expansion of the credits increased taxpayer costs by eliminating enrollee contributions toward premiums for millions of enrollees, lowering contributions for others, and expanding eligibility to high income families.
The COVID credits have ballooned federal spending far beyond initial projections. Since their implementation, total spending on the PTCs has more than doubled, substantially exceeding the CBO’s estimates at the time of their enactment. In its July 2021 forecast, CBO projected that federal spending on ACA subsidies—including both the original ACA credits and the COVID credits—would be approximately $80 billion in 2025. Actual spending will be closer to $130 billion in 2025, a cost overrun of about 60 percent. Much of this unforeseen spending stems from the surge in enrollment that followed the expanded subsidies and higher premiums driven by over-subsidization of the market.
Over the next decade, if the COVID credits are extended, the negative fiscal effects will become even more severe. JEC projects that federal PTC spending in 2034 will be about $75 billion above what CBO originally forecast in 2021. JEC also projects that direct spending on the COVID credits would reach $45 billion in 2034—if they are made permanent—for a total PTC cost of nearly $200 billion. To put this in perspective, that is enough to buy about half a million new single-family homes at the national median price in 2025.
Market Distortions Drive Premium Increases
The escalating costs of extending the COVID credits are partly due to how they distort the health insurance market. By capping what enrollees pay as a share of income, the ACA—and especially the COVID credits—significantly reduces price discipline. Insurers can raise premiums knowing taxpayers cover nearly the entire increase. The lack of price sensitivity allows insurers to raise premiums without losing customers.
The COVID credits amplified these market distortions by further insulating the underlying costs from consumers. By increasing the share of premiums paid by taxpayers, the COVID credits enabled roughly 10 million people to enroll in plans with $0 monthly premiums. Zero-dollar premiums eliminate any incentive for consumers to shop for value.
Predictably, insurers have responded to these incentives by sharply raising premiums and increasing the burden on taxpayers’ shoulders. The JEC report estimates that average gross premiums (after adjusting for changes in the mix of enrollees over time) increased by 31 percent from 2021 to 2024. Over the same period, average net premiums—the amount paid by consumers after the COVID credits are applied—decreased by 32 percent.
This research corroborates Paragon’s analysis showing that the COVID credits caused a massive shift in costs from enrollees to taxpayers. For a 50-year-old enrollee earning $31,300 per year (roughly the age and income of the average exchange enrollee), the taxpayers’ share of the premium was 93 percent in 2025, up from 80 percent in 2020 and 68 percent in 2014. As a result of the subsidy design, taxpayers paid for 90 percent of the increase in gross premiums from 2014 to 2025 for this enrollee.
Corporate Welfare Disguised as Consumer Aid
When government subsidizes a market, much of the benefit is typically captured by the industry offering the subsidized product. In this case, much of the value of the COVID credits shifted to insurers through higher prices, rather than to consumers through lower costs. Although the credits were designed to help households afford insurance, most of the money was captured by insurers and brokers through higher premiums and commissions or lost due to inefficiencies created by over-subsidization.
One study of the ACA exchanges in 2017 found that for every additional dollar of federal ACA subsidy spending, insurers captured roughly 38 cents by raising gross premiums higher than they would have in an unsubsidized market. Another 28 cents were deadweight loss: Taxpayer money wasted that benefited no one. Because consumers were spending little or none of their own money, they were less careful shoppers and chose plans that did not reflect the highest value. (Importantly, the study uses a narrow definition of deadweight loss, which excludes the negative economic effects of raising taxes to fund the subsidies. Including those costs would double the deadweight loss.) That leaves only 34 cents of value going to consumers. Put differently, for every dollar spent in the ACA exchanges that benefited enrollees through lower premiums, roughly two dollars were captured by insurance companies, brokers, and intermediaries or wasted as economic deadweight. Figure 1 illustrates this distribution.
The marginal benefit to consumers of the COVID credits is likely even lower. With the COVID credits fueling escalating premium increases, this 34-cent consumer benefit is likely a best-case scenario. The actual fraction of COVID credits padding insurers’ profits is almost certainly higher due to the much higher level of subsidization relative to the original ACA credits. And according to the JEC’s projections, the consumer economic benefit from the ACA subsidies will continue to decline if the COVID credits are extended. In 2034, JEC expects only about 32 cents of every additional PTC dollar spent to benefit consumers. The other 68 cents will flow to insurance companies due to higher gross premiums or be wasted through economic inefficiencies.
The Phantom Enrollment Problem
One of the starkest illustrations of wasteful spending tied to the COVID credits is the explosion in improper and phantom enrollment in the exchanges since 2021. Under the COVID credit eligibility rules, people earning less than 150 percent of the FPL can enroll in plans with $0 monthly premiums. Free coverage removes any financial barrier to enrollment, inviting large-scale fraud and abuse by unscrupulous brokers and other intermediaries who sign up individuals without their consent to collect commissions. Paragon estimates that nearly 6.4 million ineligible people received fully subsidized coverage in 2025, many of whom likely had duplicate coverage (e.g., an employer plan) or were unaware they were enrolled.
From 2021 to 2024, the number of enrollees who filed zero medical claims during the year nearly quadrupled, as JEC confirmed Paragon’s research based on CMS data. Zero-claim enrollees constituted 35 percent of all enrollees in 2024—nearly 12 million people. Among enrollees with $0 monthly premiums, the proportion of zero-claim enrollees was a staggering 40 percent. A large proportion of these zero-claim enrollees are likely phantoms—individuals enrolled without their knowledge or through improper broker activity.
Conclusion: Let Them Expire
Over the past four years, the COVID credits have cost too much and delivered too little. Instead of meaningfully expanding access to health coverage to those in need, these misguided subsidies have enriched insurers at the expense of taxpayers and all but severed the critical link between price and value in the health insurance market. They have also encouraged small employers to drop coverage, incentivized early retirement at taxpayer cost, enabled state and local governments to offload health expenses to the federal government, and allowed higher-income households to receive welfare benefits. Extending the COVID credits would entrench all these distortions and drive health care costs even higher. JEC’s report provides another reason for the COVID credits to expire: The vast majority of the cost fails to deliver any benefit to the enrollee.
