Executive Summary 

• On October 1, federal discretionary appropriations lapsed and the government entered a shutdown; at the center of Congress’ appropriations debate is the status of the expiring enhanced premium tax credits (EPTCs). 
• The EPTCs, introduced under the American Rescue Plan Act (ARPA) – and extended in the Inflation Reduction Act – have increased marketplace affordability and enrollment and are set to expire at the end of calendar year 2025. 
• The American Action Forum, through its Center for Health and Economy, used microsimulation models to estimate the budgetary and coverage impact of a one-year extension of the ARPA EPTCs, and compares this estimate to the impact of shutting the federal government down. 

Introduction 

The enhanced premium tax credits (EPTCs), enacted under the American Rescue Plan Act (ARPA) and extended via the Inflation Reduction Act (IRA) through 2025, have increased marketplace affordability and enrollment. The credits expire at the end of 2025, at which time they would revert to the premium tax credit structure under the Affordable Care Act. There has been vocal debate in Congress regarding the status of EPTCs, becoming a central lever in short-term budget negotiations and the current government funding standoff, which on October 1 led to a federal shutdown. The timing, optics, and fiscal stakes make this potential extension a high-pressure test of health care policy and budget priority alignment. 

The American Action Forum (AAF), through its Center for Health and Economy (H&E), uses a microsimulation model to estimate the impact of various policy or legislative changes to the health insurance marketplace. With the role of the EPTCs central to the ongoing government shutdown, AAF used its H&E model to calculate the impact of a one-year extension of the EPTCs – in line with bipartisan legislation from a group of representatives and public statements by several senators – and assess whether the cost of the extension warrants EPTCs being the central object a federal shutdown. 

Background 

In March 2021, ARPA temporarily enhanced the Affordable Care Act’s premium tax credits by increasing tax credit amounts across the board (lowering expected premium contribution percentages) and eliminating the 400-percent federal poverty level (FPL) cap so that no eligible household would pay more than a set share of income for the benchmark plan. These changes made coverage cheaper for existing enrollees and opened the tax credits to many middle-income consumers who previously received no federal support. Congress then extended ARPA’s enhancements through the end of 2025 in the IRA enacted in August 2022. 

Under current law, however, the ARPA/IRA enhancements are scheduled to lapse after December 31, 2025. If Congress does not act, the pre-2021 rules return in 2026: Expected contributions will rise (reducing the size of credits), and subsidy eligibility again ends at 400 percent FPL. 

Cost of One-year Extension of EPTCs 

While there are many competing estimates of the cost and coverage impact of the expiration or extension of the EPTCs, those estimates focus on a primary program parameter that is not being seriously debated: permanent extension. Across reputable sources, a permanent extension of the enhanced ACA premium tax credits is consistently scored at about $350 billion over 10 years, with credible bounds of approximately $335–$383 billion depending on the budget window and baseline used. The only targeted legislation that has been introduced, however, is a bipartisan one-year extension of the EPTCs, which also happens to be the most likely resolution of the extension debate. This is borne out through ongoing conversations that senators are having on a resolution to the budget standoff.  

To that end, AAF used H&E microsimulation models to estimate the coverage and budgetary impact of the one-year extension legislation. The estimates are also placed in the context of a 10-year window, in line with current scoring best practices. It is also important to consider these estimates in the context of the current policy baseline, which is that the EPTCs expire at the end of 2025. A full estimate of H&E coverage and budgetary baselines can be found here.  

Health care coverage on the exchanges– an oft-cited metric by Congress – would not be affected significantly by a one-year extension. Compared to the baseline, there would be a 1-percent decrease in the uninsured population, with most coverage gains occurring in the marketplace. Any coverage losses would be focused in Medicaid (which is outside the purview of this paper). 

The impact on average premiums would likewise be negligible. While this may run counter to the ongoing narrative in the press, the microsimulation model demonstrates a net decrease in 2025 as compared to baseline by $100 for Silver plan premiums. Furthermore, the average net premiums on Silver plans would not drastically increase, although non-EPTC related policy changes might lead to future metal plan sorting that also impacts premiums. 

According to the analysis in the microsimulation model, the PTCs would cost approximately $152 billion next year, which is a $38 billion cost over the baseline expiration policy. This budgetary impact is approximately in line with longer-term extension estimates, as mentioned above.  

While there are other factors that might impact utilization of the EPTCs that are difficult to capture in any model, such as wage growth and employment changes, there should be sufficient confidence that the approximate cost of extending the policy cited above can contribute to discussions about its extension. 

Cost of Government Shutdowns 

AAF Director of Fiscal Policy Jordan Haring provides some insight as to costs of historical government shutdowns. As Haring points out, “a shutdown can affect everything from gross domestic product growth to small business revenues” and can separately “necessitate large sums of back pay to furloughed workers as well as lost fee collections and penalty interest payments.” These wide-ranging impacts can make it difficult to compare government shutdowns given the fluid nature of the economy and unique fiscal circumstances each shutdown has, but analysis has provided illustrative figures to recognize the harm in any amount of prolonged lapse of government appropriations. 

Economically, shutdowns depress growth, delay private investment, and reduce local business revenues as federal employees and contractors cut back on spending. Services such as food inspections and passport processing also halt, harming households and industries. The Congressional Budget Office (CBO) estimated that the 35-day partial shutdown reduced gross domestic product (GDP) by $11 billion. While difficult to determine a “per day” cost of the extended shutdown, given the partial appropriation lapse (nearly 85 percent of the discretionary funding had been appropriated), a full-government shutdown would be expected to reach similar levels of GDP reduction given the larger magnitude of furloughs and productivity losses. 

Budgetarily, shutdowns paradoxically cost more than keeping the government open, as furloughed employees receive back pay and agencies face administrative restart expenses, lost fees, and penalty interest. CBO estimates current furloughs alone are costing $400 million per day. 

Cost of EPTC Extension Versus Cost of Shutdown 

With the respective costs of each policy pathway, the natural question becomes: Between an extension of EPTCs and a federal shutdown, which has the smaller impact on federal budgets and deficits? 

One variable is easy to calculate. An extension of the EPTCs would cost approximately $38 billion. As described earlier, this estimate includes no eligibilty changes and simply extends current law by one year. The impact is fairly straightforward. Although the table above shows 2027 reverting to baseline policy, the rise in the uninsured population is centered in the Medicaid market (outside the purview of this paper) rather than the individual market. Thus, we can expect that the $38 billion price tag is relatively inclusive and that longer-term coverage impacts are minimal.  

The cost of the government shutdown is harder to calculate definitively, but it is reasonable to project that the longer the shutdown progressed, the more impact it will have on GDP and federal budgets. There are two main characteristics that determine impact: the broader economic environment (including systemic resilience) and future policy machinations. According to an analysis by Goldman Sachs, federal shutdowns can reduce quarter-on-quarter economic growth by about 0.15 percentage points of GDP in Q4. Based on real Q4 2024 GDP ($23.6 trillion), this GDP contraction leads to $35.4 billion lost GDP per week. As of the writing of this paper, it has been nearly a week since the shutdown, with no resolution on the table – other than some agreement that EPTCs are the central issue. There is a high probability of a longer shutdown based on evolving dynamics. 

While these reductions historically correspond to equal-sized positive effects in Q1, that effect is contingent on a return to previous policy – which, given threats from the administration regarding reductions in force, recissions, and more, may not be the case. The shutdown may end in a new policy environment that doesn’t provide enough elasticity to make up for the contractions. 

Conclusion 

The debate over extending the EPTCs highlights the difficult trade-offs at the center of budget and health policy. A one-year extension would cost an estimated $38 billion, in line with other estimates. The extension also largely preserves current marketplace participation, maintaining coverage and premium levels in line with expectations, compared to baseline. AAF’s findings that a one-year extension of EPTCs would in fact be less expensive than a prolonged federal shutdown may be of some use to lawmakers as negotiations around reopening the government continue.