Affluent Aid

The enhanced ACA subsidies largely don’t help poor Americans but enrich upper-income households and insurers

Nov 10, 2025

Late Sunday night, eight Democrats joined all but one Republican to clear a 60-vote threshold in the Senate, 60 to 40, to begin debate on a funding bill that has already passed in the House. That vote opened the path to ending the longest government shutdown in five years. Lawmakers are now working to merge three bipartisan full-year appropriations bills with a stopgap continuing resolution to fund the rest of the government through January 30.

But the core fight remains unresolved: Democrats demand continued funding for the enhanced premium subsidies created via the American Rescue Plan Act (ARPA) during the pandemic, while Republicans want to let the subsidies expire. The compromise merely defers the showdown, with Republicans promising to hold a stand-alone vote in December on whether to extend the enhanced subsidies beyond their scheduled 2025 expiration.

One of the more misleading talking points in this debate is the deliberate conflation of the Affordable Care Act’s (ACA) original premium tax credits with the “enhanced” subsidies added under ARPA and later extended through the Inflation Reduction Act.

The original ACA credits were designed to help lower-income families, those below 400% of the federal poverty level. The enhanced credits, by contrast, eliminated that upper income cap, dramatically expanding eligibility to affluent households—some earning over half a million dollars per year. Removing the income cap was intended as a temporary pandemic measure, but like most “temporary” federal benefits, it has proven politically sticky.

Costly and Regressive

According to Congressional Budget Office estimates, making the enhanced credits permanent would cost over $400 billion in the next decade. Yet the biggest beneficiaries of these enhanced subsidies are well above the middle class. As the pie chart below shows, less than 10% of those who became eligible for enhanced subsidies in 2021 were what we might consider middle class. Most of the increase in newly eligible beneficiaries constitutes high earners, with household incomes that are often double or more the median household income.[1]

For example, a family of five in Prescott, Arizona earning $500,000 can still qualify for an $8,423 subsidy, and the benefit does not fully phase out until income exceeds $599,000.

This feature makes the policy deeply regressive. As the bar chart below shows, the largest gains flow to higher-income households who would have purchased health insurance anyway, hardly the group in need of federal assistance. By contrast, low-income households gain little, as their monthly premiums were already heavily subsidized under the original ACA structure.

Massive Market Distortions

These subsidies are not primarily helping consumers; they’re lining the pockets of insurance companies. As the credits are tied to the sticker price of premiums, insurance companies have an incentive to raise premiums, knowing that taxpayers will cover most of the increase through larger subsidies.

As a result, federal taxpayers foot the bill, insurers earn more, and consumers face ever-higher costs if they don’t qualify for the full subsidy. It’s a textbook case of moral hazard and captured regulation, dressed up as “affordable care.”

Worse still, according to the Paragon Health Institute, improper Medicaid enrollment costs taxpayers roughly $27 billion per year. The program is growing faster than auditors or administrators can keep up with, another sign of Washington’s inability to manage sprawling entitlement expansions.

Washington’s Inverted Priorities

If the enhanced subsidies are made permanent, by 2035, the annual cost for every federal taxpayer will be the equivalent of $11,500. The fight over the enhanced ACA subsidies encapsulates Washington’s misplaced priorities:

· Congress is risking a shutdown to protect a temporary pandemic benefit that disproportionately aids upper-income households.

· Meanwhile, Medicare, Medicaid and Social Security—programs with genuine redistributive purposes—continue to crowd out everything else in the budget.

If lawmakers are serious about fiscal responsibility, they should let the enhanced subsidies expire as scheduled and focus on reforming the ACA to make premiums more competitive and transparent, not endlessly layering subsidies that enrich insurers at taxpayers’ expense.

[1] People below 250% FPL were already eligible under the ACA; ARPA just marginally boosted their benefits. The major eligibility expansion came for those above 400% FPL, which is why the chart only shows visible growth in those higher-income categories.