ACA Subsidy Expiration Could Ripple Through Group Health Plans

The expiration of enhanced premium subsidies that have helped millions of Americans afford individual health insurance through the Affordable Care Act exchanges at the end of 2025 will be felt by employers offering group health plans.

As exchange coverage becomes less affordable for many households, more workers may look to employer-sponsored plans for stability, while employers that fund Individual Coverage Health Reimbursement Arrangements (ICHRA) to help employees buy coverage may need to revisit affordability and contribution strategies because the same employer funds may cover a smaller share of premiums than before when purchasing health insurance on Healthcare.gov and other state-run exchanges.

The temporary subsidy enhancements enacted during the COVID-19 pandemic removed the 400% federal poverty level income cap and increased the value of premium tax credits across income brackets. As a result, subsidized exchange enrollment nearly doubled between 2020 and 2024. If the enhanced subsidies expire, higher-income households will lose eligibility altogether while those who remain eligible will receive smaller credits and pay more for their share of the premium.

Increasing enrollment pressure

For employers offering traditional group health coverage, one likely consequence is increased enrollment pressure. As individual premiums rise, employees who previously declined employer coverage may opt in during open enrollment.

That could affect plan participation, contribution levels and claims experience particularly if workers with higher health care needs are more motivated to seek employer coverage.

Labor dynamics could also shift. Workers without access to affordable employer-sponsored coverage may be more inclined to change jobs to secure benefits, potentially influencing recruitment and retention in competitive labor markets. At the same time, fewer employees qualifying for exchange subsidies could slightly reduce applicable large employers’ exposure to costly ACA “pay or play” penalties, which are triggered when full-time employees receive premium tax credits.

ICHRA effects

The impact may be more immediate for employers offering ICHRAs, which reimburse employees for individual market coverage rather than providing a group plan.

If subsidies shrink and marketplace premiums rise, some ICHRA allowances that were previously affordable may no longer meet regulatory affordability thresholds. Employers may need to increase contribution levels or adjust benchmark assumptions to remain compliant.

Industry experts have also warned that abrupt shifts in individual market enrollment could create volatility. A contraction in exchange enrollment — particularly if healthier individuals drop coverage — could put upward pressure on premiums, further complicating affordability for both employees and employers relying on individual-market plans.

At the same time, the uncertainty may accelerate interest in alternative benefit strategies. Employers facing steep group plan renewals may explore ICHRAs to shift risk to the broader individual market, though that strategy becomes more complex if exchange affordability deteriorates.

What employers should consider now

Now that the enhanced subsidies have expired, employers may want to:

• Review group health plan affordability and employee contribution structures.
• Reassess ICHRA allowance levels and benchmark plans if applicable.
• Evaluate workforce demographics and possible enrollment shifts for 2026.
• Prepare employee communications that explain coverage options and tradeoffs.