Expiring ACA Subsidies and CMS Payment Models Raise Costs for Consumers and Employers

The Affordable Care Act (ACA) subsidies and some of the CMS Innovation Center models are set to expire on December 31, 2025, with little prospect for equivalent and affordable alternatives for beneficiaries and potential cost burdens for employers.1,2

The ACA subsidies will revert to those used before the American Rescue Plan Act and Inflation Reduction Act, which allowed individuals and households making 400% or less of the Federal Poverty Line (FPL) to have premiums capped at 8.5% of household income. Should the ACA subsidies expire, after adjusting for inflation and rising costs, benchmark premium plans for those making 100% of FPL will constitute 2% of household income, 6.6% by 200% of FPL, and 9.9% by 300% and 400%. Rising costs in health care services and inflation threaten higher premiums for all beneficiaries making 400% or less of FPL.3 As a result, the Congressional Budget Office predicts nearly 4 million people will lose marketplace coverage, many of whom make too much to qualify for Medicaid but not enough to afford full-price premiums, therefore leading to delays in or avoidance of primary or medical care, which can lead to hospitalizations and more costly and poor health outcomes.4

ACA subsidies and key CMS payment models end in 2025, pushing premiums higher and shifting costs to employers and consumers. | Image Credit: @DoubletreeStudio-AdobeStock.jpeg

Employers Bear the Brunt of Costs, but Can They Manage It?

“I think all of it's going to have more people looking back to the employer,” said Ben Light, vice president of partnerships at Zorro—an AI-powered Individual Coverage Health Reimbursement Arrangement (ICHRA) platform for personalized benefits—and expert in consumer-directed health benefits, in an interview with The American Journal of Managed Care® (AJMC®). “Now that [ACA subsidies] are going away, [people are] going to look back to their employer and say, ‘I either need health insurance or maybe I'm going to have to find another job.’”

Health insurance costs increased by 6.0% to $17,496 per employee in 2025, according to Mercer’s national survey of employer-sponsored health plans.5 Employers with thin margins and smaller businesses will struggle to balance competitive benefit packages to keep their staff while also trying to increase revenue margins.

However, alternative health coverage options can help employers provide relatively competitive health insurance coverage and cater to the health needs of the patient, without high deductibles or premiums. Individual Coverage Health Reimbursement Arrangements (ICHRAs) allow employees the flexibility to select a plan that caters to their health needs, should their employer's group plans become too expensive or not align with their health coverage needs.

“I think you're going to have people looking at the ICHRA, because it's a shift of risk, and you're moving that risk from the population, just in your company now, out to the individual market,” Light said.

For example, employees would select their own ACA-compliant market coverage insurance; then they would pay their premiums upfront, and—depending on what their employer decides to cover—they’ll be reimbursed by their employer, Light explained. This option, however, can be biased towards those with higher incomes who can afford to pay premiums upfront and wait to be reimbursed, whereas those making under 400% of the FPL may not.

CMS Ends Key Payment Models, Raising Concerns Over Rising Premiums

While employers brace for higher premiums, the federal payment models designed to contain long-term spending also present another challenge for individuals and health care systems.

CMS Innovation Center's value-based payment models are designed to improve service delivery models and patient outcomes. For example, the Primary Care First (PCF) model option is set to end a year earlier than its expiration date under the CMS Innovation Center’s strategy to “Make America Healthy Again.” The PCF model is a voluntary, alternative 5-year payment model rewarding value-based care by offering innovative payment structures. Using this model, primary care practitioners are given the flexibility to cater primary care services to the needs of their patient population, with the idea that it will help patients manage their health and reduce avoidable and costly hospitalizations and specialty care.6

In addition to ACA subsidies expiring, many people will likely opt to forgo insurance. For healthier individuals, this may not be a problem, but for those with chronic conditions, it’s even less likely to be an option. Experts predict that this may also create financial strain on hospitals, community clinics, and public health programs to bear the costs should rates of uninsurance rise if subsidies expire.

“That means that more folks are going to present in hospitals who need emergency care but who are unable to pay, which manifests as uncompensated care costs that are borne by hospitals,” said William Schpero, health economist and assistant professor in the Department of Population Health Sciences at Weill Medical College of Cornell University, in an interview with AJMC.

The primary first care model, Maryland Total Cost of Care, and End-Stage Renal Disease (ESRD) Treatment Choices model are expected to end on December 31, in addition to the Making Care Primary model, which was cut as of June 2025. Instead, the Trump Administration announced an Innovation Center model targeting Wasteful and Inappropriate Service Reduction (WISeR). The model's strategy proposes third-party partnerships to incorporate artificial intelligence into payment models to “help reduce clinically unsupported care” and expedite and improve the review process for selected services, like prior authorizations.7

“[However], there are a number of programs out there at both the federal and state levels that are meant, in part, to mitigate those uncompensated care costs and compensate hospitals for care provided to folks who are uninsured,” Schpero said. “But those subsidies and things are relatively small, and I [don’t think] they will [bear the] brunt of financial effects for hospitals. So, this is yet another potential hit to operating margins for hospitals.”

How Expiring Subsidies and Payment Models Will Impact Coverage and Costs

Increases in premiums are primarily due to general inflation, fast-rising health care prices, growing demand from older individuals, and the surge in specialty drugs like glucagon-like peptide-1 agonist receptors. ACA subsidies and some of CMS's innovative models expiring parallel to rising premiums present a substantial barrier to equitable health care access while also putting a strain on employers to compensate in their absence. 3

Although the expiration of ACA subsidies may directly increase benchmark premiums, thus pushing costs onto employers, CMS value-based payment models remove another layer of federal intervention aimed at slowing long-term spending growth.

“There's a chance that you can see some contraction in the total individual market, but eventually, I think you'll see it growing back again as more people start to explore other alternatives, like ICHRA, to get that risk off of them and onto the individual market,” Light said.

Overall, these shifts create a challenging landscape for low-income individuals, employers, and payers. As policymakers debate whether to extend or replace both subsidies and payment models, the central question remains: can the next phase of reform balance federal spending with market affordability?

References

1. Bonavitacola J. Government shutdown concluded but ACA subsidies in limbo. AJMC. November 13, 2025. Accessed November 25, 2025. https://www.ajmc.com/view/government-shutdown-concluded-but-aca-subsidies-in-limbo

2. CMS Innovation Center announces model portfolio changes to better protect taxpayers and help Americans live healthier lives. News release. CMS. March 12, 2025. Accessed November 25, 2025. https://www.cms.gov/newsroom/fact-sheets/cms-innovation-center-announces-model-portfolio-changes-better-protect-taxpayers-and-help-americans

3. Understanding the ACA subsidy discussion. Committee for a Responsible Federal Budget. November 5, 2025. Accessed November 25, 2025. https://www.crfb.org/blogs/understanding-aca-subsidy-discussion

4. Steinzor P. 5 consequences if ACA premium subsidies end in 2026. AJMC. October 31, 2025. Accessed November 25, 2025. https://www.ajmc.com/view/5-consequences-if-aca-premium-subsidies-end-in-2026

5. Watts T, Umland B. Employers are challenged to keep healthcare affordable as costs soar: survey results. Mercer. November 17, 2025. Accessed November 25, 2025. https://www.mercer.com/en-us/insights/us-health-news/employers-are-challenged-to-keep-healthcare-affordable-as-costs-soar-survey-results/

6. Primary care first model options. CMS. Accessed November 25, 2025. https://www.cms.gov/priorities/innovation/innovation-models/primary-care-first-model-options

7. WISeR (wasteful and inappropriate service reduction) model. CMS. November 21, 2025. Accessed November 25, 2025. https://www.cms.gov/priorities/innovation/innovation-models/wiser