The federal government shutdown has stretched into its third week as lawmakers remain divided over extending the enhanced health insurance subsidies enacted in 2021. These subsidies, which help millions afford coverage under the Affordable Care Act (ACA), will expire at the end of this year unless Congress acts.
Mark Shepard, associate professor of public policy at Harvard University’s Kennedy School of Government, responded to these questions about how these subsidies work, who benefits, and what happens if they end.
Q: Why are health insurance subsidies a sticking point in the shutdown fight?
This shutdown centers on a technical but high-impact issue: whether to continue the more generous “enhanced” subsidies that have made ACA marketplace coverage cheaper since 2021.
If Congress fails to extend them, out-of-pocket premiums will spike in 2026 for about 20 million Americans. Democrats have made continuing these subsidies a condition for reopening the government, while Republicans say the enhanced version is too costly and poorly targeted. The disagreement has left both sides dug in — and the government unfunded.
Q: Can you explain what these subsidies are and who they’re for?
The U.S. doesn’t have one national health insurance system. Instead, it’s a patchwork built over decades:
- Employer-based insurance: Roughly 160 million Americans, about half the population, get private insurance through their jobs. These are mostly people in larger or better-paying companies that can afford to offer benefits.
- Public programs: Another 120 million rely on government coverage through Medicare (for seniors and people with disabilities) and Medicaid (for lower-income households and children covered under CHIP).
- The “missing middle”: About 40–50 million people fall in between — they earn too much for Medicaid, are too young for Medicare, and don’t get insurance through work. Many are self-employed, gig workers, or employed by small businesses that don’t offer coverage.
That’s the group the ACA marketplaces, sometimes called “exchanges,” were created to serve when they launched in 2014. These are private insurance markets where individuals can buy regulated plans that meet minimum quality standards, such as covering pre-existing conditions and essential health benefits.
But there’s a catch: health care in the U.S. is extremely expensive. A standard Silver plan on the ACA exchange costs around $500 per month in 2025 — about $6,000 a year for one person. That’s before adding deductibles and co-pays. The average employer plan actually costs even more — close to $9,000 per person per year in 2024 — but workers rarely see the full price because employers pay part of it.
For a typical adult earning about $45,000 a year, those prices are daunting. Without help, coverage is out of reach for many middle-income families.
That’s where the ACA subsidies come in. They ensure that people buying marketplace coverage don’t spend more than a fixed share of their income on premiums. The federal government covers the rest.
As of 2025, about 24 million people are enrolled in marketplace plans, and 22 million receive subsidies. Still, roughly 26 million Americans remain uninsured, a number that’s barely budged since 2016. Many of those uninsured live in states that didn’t expand Medicaid under the ACA, creating another gap in coverage.
“There’s a big group, about 40–50 million people, who fall in the ‘missing middle’: they earn too much to qualify for Medicaid and they’re too young for Medicare, but they don’t have a job that offers health insurance.”—Mark Shepard
Q: What changed with the ‘enhanced’ subsidies passed in 2021?
The original ACA capped premiums between 2% and 10% of income, depending on household earnings. That formula looked reasonable on paper but proved too steep for many families. Even small increases in monthly cost caused large drop-offs in enrollment, especially among younger adults and lower-income workers.
In 2021, Congress expanded the subsidies under the American Rescue Plan, lowering the cap to 0% to 8.5% of income. For those earning under 150% of the poverty line — about $45,000 for a family of four — coverage became free.
That shift had a big impact. The number of people with ACA coverage jumped from 11 million in 2020 to about 25 million in 2024, the highest ever. States that hadn’t expanded Medicaid saw some of the largest gains because these subsidies filled the gap for poor adults who otherwise would’ve remained uninsured.
Democrats point to that record enrollment as a sign of success. Republicans counter that making coverage free to so many households invites waste, errors, and improper enrollment. Those competing views now sit at the heart of the budget stalemate.
Q: What happens if the enhanced subsidies expire?
Without congressional action, the subsidies revert to pre-2021 levels. The effects would unfold quickly:
- Premiums rise sharply. The Kaiser Family Foundation estimates the average subsidized household’s annual premium would more than double — from $888 in 2025 to $1,904 in 2026.
- Millions lose coverage. The Congressional Budget Office predicts 3.8 million people would drop insurance altogether, either because it’s unaffordable or because the extra paperwork of paying premiums deters re-enrollment.
- Markets weaken. When healthier people leave, the risk pool gets older and sicker. Insurers respond with higher prices and, in some cases, pull out of the markets. That creates a cycle of rising costs and shrinking participation — similar to what happened during the 2017–18 “repeal and replace” debate.
While ending the enhanced subsidies could save the federal government about $30 billion per year, those savings come with higher premiums and reduced coverage across the board.
Q: What would that mean for state and local communities?
The consequences don’t stop in Washington. When people lose health coverage, they still need care — and often seek it in emergency rooms that must treat them regardless of ability to pay.
Hospitals then absorb those unpaid costs as uncompensated care, which strains budgets and can lead to higher prices for insured patients. State and local governments, which fund many public hospitals and Medicaid programs, often have to step in to fill the gap.
In short, what looks like a federal budget cut on paper often turns into a local fiscal problem for counties, cities, and health systems.
Q: Republicans argue these subsidies are costly and prone to abuse. Are those concerns valid?
It’s reasonable to worry about cost; enhanced subsidies do add tens of billions of dollars annually to the federal budget. But cutting them shifts those costs to households. And when insurance gets pricier, many people — especially younger, healthier ones — opt out. That leaves smaller, riskier insurance pools and pushes premiums up for everyone else.
Other countries with private insurance systems, like Switzerland or the Netherlands, avoid this spiral by mandating universal coverage and collecting premiums through taxes or payroll deductions. The U.S. briefly had a lighter version of that under the ACA’s individual mandate, but Congress repealed it in 2017.
Without such a mandate, the U.S. faces a trade-off:
- Keep subsidies generous to maintain widespread, affordable coverage, or
- Scale them back to save money but accept higher uninsurance rates.
“There’s no magic solution,” Shepard said. “Congress has to decide how much coverage it wants and how much it’s willing to pay for it.”
Bottom line:
If the enhanced ACA subsidies expire, millions could lose affordable coverage, premiums could climb for those who remain insured, and local governments could face higher uncompensated-care costs. The debate over these subsidies is more than a budget fight — it’s a defining question about what kind of health safety net the U.S. is willing to sustain.