Actuarial Insights: ACA Premiums

Given the news coverage of the Affordable Care Act (ACA) and ACA premium subsidies of late, you may have found yourself wondering, “How do ACA coverage and related subsidies really work?” For instance, you may have seen reports indicating significant increases in ACA premiums in 2026 and wondered, “How can that be possible?”¹ In 2026, ACA premiums went up because a high claims trend drove premium increases, and because federal subsidies that help many people pay for their ACA plans went down.

This article will attempt to shed some light on how ACA premium subsidies are calculated, how they increased during the pandemic (the federal enhanced subsidies), how enrollment increased with the enhanced subsidies and what may happen now that the enhanced subsidies have expired.

A BRIEF HISTORY OF THE AFFORDABLE CARE ACT

The ACA was signed into law in March 2010, and the act’s major provisions became effective in 2014.² The individual health insurance market was fundamentally transformed by the new guaranteed issue and community rating provisions, making it unlawful for carriers to deny coverage or charge more to people with pre-existing conditions. The ACA also ensured that all policies cover essential health benefits such as emergency services, maternity and newborn care, mental health care and numerous others. The ACA required all plans to have a maximum out-of-pocket limit for members and eliminated annual and lifetime benefit maximums for essential health benefits.³

The ACA created four tiers of plans: Bronze, Silver, Gold and Platinum. The lower levels have higher cost-sharing (deductibles and copays) and lower premiums, and the higher levels have lower cost-sharing and higher premiums. Because the ACA was signed into law by President Barack Obama, the plans are sometimes referred to as “Obamacare” plans.

A federal exchange marketplace was created for people to shop for plans. Some states opted to create their own exchanges, while many states still use the federal exchange platform today. The ACA also made it possible for states to expand Medicaid to include people with incomes of up to 138% of the federal poverty level (FPL). As of early 2026, 41 states (including Washington, D.C.) have expanded Medicaid.⁴

FEDERAL PREMIUM SUBSIDIES

ACA plans are priced by insurance companies similarly to how other health insurance products are. As data shows, some people pay the full price charged by the insurance company for their plans, which can be upwards of $600 per month for a single person. However, for households with incomes between 100% and 400% of the FPL, federal premium subsidies are available to help with the cost of ACA premiums. In fact, most people on ACA plans have a significant portion of their premiums covered by federal subsidies. The “applicable percentage” is the percentage of modified adjusted gross income a household is expected to spend on health insurance premiums. The federal subsidy covers the remainder of the premium. The applicable percentage varies by household income as a percentage of the FPL. The FPL for 2026 is $15,960 and varies by family size. For instance, the FPL for a family of four in 2026 is $33,000.⁵

Figure 1 shows the applicable percentage of the FPL by income for 2026.

Figure 1: Percentage of income spent on ACA premiums, 2026 federal subsidies

Source: Library of Congress

As shown in Figure 1, households with incomes at 100% of the FPL pay 2.1% of their income in premiums, while households with incomes at 300% to 400% of the FPL pay 9.96%. It’s important to note that households with incomes below 100% of the FPL are not eligible for an ACA subsidy, and the assumption generally has been that these people would instead be covered by Medicaid. Medicaid eligibility for individuals below 100% of the FPL depends on whether a state has adopted ACA Medicaid expansion, as eligibility rules and income thresholds vary by state.⁶

Households with incomes above 400% of the FPL are also not eligible for an ACA subsidy. This is what’s known as the “subsidy cliff.” When households reach 400% of the FPL, they must pay the full premium for their ACA plans, with no premium cap.

Another important fact is that the applicable percentage does not increase gradually like tax brackets. The percentage is applied to the household’s entire income. Figure 2 shows what a single-person household pays annually for health insurance premiums in 2026, relative to their income.

Figure 2: 2026 annual health insurance premiums for single-person households

Source: Library of Congress

As you can see from Figure 2, the dollar amount of annual premiums paid rises steeply as income increases from low to moderate. A single person with an income of $15,960 will pay only $335 per year for health insurance in 2026, while a person with an income of $63,840 will pay $6,358. Also, remember that a single person with an income over $63,840 will have no cap on their premium.

Once a household’s applicable percentage has been determined, it is used to calculate the dollar amount of the federal subsidy. In each county, the second-lowest-cost Silver plan is the “benchmark plan” for that county. The amount of the federal subsidy the household receives is the cost of the benchmark plan, less their applicable percentage, multiplied by their income. If the household wishes to buy a more expensive plan, they must pay the difference. Households receiving a federal subsidy can get the subsidy when they file their taxes after the end of the year, but most have it estimated in advance and paid directly to the insurance carrier during the year. If the household’s income, and hence their federal subsidy, turns out to be different from what they estimated, this will be reconciled when they file their taxes.

ENHANCED FEDERAL SUBSIDIES

During the pandemic, the federal government made extra subsidies available, known as Enhanced Premium Tax Credits or enhanced subsidies. These enhanced subsidies, which began in 2021 as part of the American Rescue Plan Act, were extended through the end of 2025 but were then discontinued. Figure 3 compares the applicable percentages of the enhanced subsidies with the 2026 federal subsidies.

Figure 3: 2026 Federal subsidies/enhanced subsidies comparison

Source: Library of Congress

While the enhanced subsidies resulted in consistently lower premiums across income levels, the largest increases in premiums after their expiration occurred among two groups.

1. People with incomes between 100% and 150% of the FPL. With the enhanced subsidies, they did not have to pay any premiums unless they wanted to upgrade to a plan beyond the benchmark plan.
2. People with incomes above 400% of the FPL. With the enhanced subsidies, there was no cap on subsidies—anyone could get a subsidy to limit their premium for the benchmark plan to 8.5% of their income, thus eliminating the “subsidy cliff” mentioned earlier. (Keep in mind that as income goes up, the premium they pay goes up—just not the percentage of income they must spend on premiums.)

Let’s work through an example. Katrina earns 200% of the FPL and is enrolled in the benchmark plan in her county. In 2025, before the enhanced subsidies expired, Katrina’s applicable percentage was 2.0%, so with her annual income of $31,300, she paid $626 annually, or $52.16 monthly. The remainder was covered by the subsidy. In 2026, her premiums were raised by 20% to $600 per month. After the expiration of the enhanced subsidies, Katrina’s applicable percentage is 6.6%. With her 2026 annual income of $31,920, she will pay $2,106.72 annually or $175.56 monthly—over three times what she paid in 2025. While her subsidy covers the majority of her premium in both years, the difference in what Katrina has to pay from 2025 to 2026 is almost $1,500, which represents a cost increase of roughly 4.6% of her 2026 income relative to the prior year.

ACA MEMBERSHIP INCREASED WITH THE ENHANCED PREMIUM TAX CREDITS

In the years the enhanced premium tax credits were in effect, ACA membership more than doubled. Figure 4 shows enrollment numbers by income in 2020 and 2025. (Idaho and Nevada are excluded from both years; data were not available on them in 2020).

Figure 4: ACA Enrollment by Income level as a Percentage of FPL

Source: CMS.gov

Enrollment increased across all income levels, with the largest increase among individuals at 100% to 150% of the FPL. This group grew from 3.4 million members in 2020 to 10.9 million in 2025. Of this 7.5 million in membership growth, 5.6 million were in the 10 states that, to date, have not expanded Medicaid under the ACA.⁷ This is likely because in those states, residents with incomes between 100% and 138% of the FPL do not have access to Medicaid.

The road ahead for ACA plans and subsidies

In 2025, there was uncertainty about whether the enhanced subsidies would continue into 2026 and beyond. In many states, insurance carriers submitted two sets of rates to insurance departments: 1) one assuming the enhanced subsidies; and 2) one assuming they would not. Health insurers considered the possibility that, without enhanced subsidies, some people might drop coverage, and that enrollment patterns could shift toward higher-cost individuals. This phenomenon, known to many as “anti-selection,” may lead to higher average claim cost and, thus, higher premiums.

While news coverage of the ACA subsidies has largely tapered off, the affordability of individual health insurance is likely to remain a widely discussed topic in the coming years. Only a few states offer additional ACA subsidies to their residents today, but more may consider doing so in the future, since ACA enrollment increased so much when the enhanced subsidies were in effect.8 There may also be reform of individual health insurance at the federal level.

CONCLUSION

The individual health insurance market can be very complex. Hopefully, this article has provided some context and helps make sense of the related news headlines over the past year or so. It may also help following the interpretation of news coverage of developments in the individual insurance market over the next few years. The individual health insurance market is likely to see more changes and will be interesting to follow in the future.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2026 by the Society of Actuaries, Chicago, Illinois.