What’s the beef over Obamacare subsidies threatening to shut down the government?

Congressional Democrats’ key demand for averting a government shutdown next week — extending enhanced Obamacare premium subsidies — is dividing Republicans who outright oppose the policy and those who want to limit health care price increases.

The simmering dispute, which involves both policy and political calculations, has yet to fully erupt as Republicans maintain a largely united front against Democrats’ ploy to tie the health care debate to the Sept. 30 government funding deadline.

“This is not the time or the place to do this,” Senate Majority Leader John Thune, South Dakota Republican, said on CNN.

Democrats are eager to exploit the GOP’s divisions as they push to permanently extend pandemic-era expansions of the Obamacare subsidies before open enrollment begins on Nov. 1.

Although the enhanced subsidies are not set to expire until the end of the year, insurers must notify existing plan holders of premium increases beginning Oct. 1.

“In a matter of days, notices are going to go out to tens of millions of Americans indicating to them that their health care insurance costs — their premiums, their copays and their deductibles — are about to skyrocket in ways that will bankrupt Americans,” House Democratic leader Hakeem Jeffries of New York said.

Democrats included the subsidies, known as premium tax credits, in Obamacare to help people purchase insurance on the public exchanges when they cannot obtain it through other means, such as an employer-sponsored plan or the government’s low-income Medicaid program.

The subsidies were initially available only to households with annual incomes between 100% and 400% of the poverty level. Those below 100% qualify for Medicaid.

President Biden’s signature domestic policy laws, the American Rescue Plan Act and the Inflation Reduction Act, eliminated the upper income limit and expanded the subsidies to cover a higher share of premiums. Those enhancements expire at the end of the year.

The policy caps premium contributions as a percentage of household income — maxing out at 8.5% under the enhancements — and the subsidies cover the difference.

Democrats argue that the more generous subsidies are a critical lifeline for Americans struggling with high costs and are pushing for a permanent extension.

The Congressional Budget Office says that would cost $350 billion over the next decade but increase the number of people with health insurance by 3.8 million.

President Trump has not weighed in on whether Congress should continue the enhanced Obamacare subsidies, but he’s attacked Democrats for demanding more than $1 trillion in health care spending to keep the government open.

That figure includes the cost of permanently renewing the subsidies and repealing recently enacted GOP changes to Medicaid that cut federal funding for illegal immigrants and able-bodied adults who decline to work, among other provisions.

While Democrats have included the Medicaid rollback in their demands, it’s the Obamacare subsidies they’re eying as the more achievable prize. Republican leaders are refusing to hold negotiations on that issue until the government is funded, but Democrats don’t want to release that leverage.

If Republicans decline to extend the more generous subsidies, Democrats will most certainly use it as a campaign issue in the 2026 election cycle.

But if the GOP does decide to pursue an extension, they’ve got other political issues to wrestle with, like a demand from anti-abortion advocates for language ensuring the subsidies cannot be used on plans that cover elective abortions.

Waste and fraud

Many Republicans say the expansion of the Obamacare subsidies for the COVID-19 emergency was far too generous and has led to wasteful and sometimes fraudulent government spending.

“These Democrat subsidies mean the federal government is sending billions of YOUR dollars directly to insurance companies with ZERO accountability or assurance they are actually helping people,” Sen. Rick Scott, Florida Republican, said on social media.

The nonprofit Paragon Health Institute analyzed public health data and found Obamacare marketplace enrollees with no medical claims more than tripled from 2021, when the enhanced subsidies were enacted, to 2024.

“The likely issue: millions of enrollees had other forms of coverage or were enrolled without their knowledge,” Paragon said.

The pandemic enhancements have also led to increased fraud since the lowest eligible earners, households with annual incomes between 100% and 150% of the federal poverty level, no longer have to contribute any share of their premium costs.

The CBO estimates that 2.3 million Obamacare enrollees overstated their income in 2025 so that they would be deemed eligible for the subsidies instead of Medicaid. The problem is particularly acute in states that opted against expanding Medicaid to cover adults with incomes up to 138% of the federal poverty level, as the Obamacare law allowed.

KFF, a nonprofit health policy research organization, said many overstatements of income are unintentional, coming from individuals with low wages and unstable work being off in their projections.

Broader marketplace fraud comes from agents and brokers who receive commissions from health insurance companies and are enrolling individuals or switching their plans without their consent, KFF said.

Senate Democrats proposed legislation to require audits of agent and broker enrollments and impose penalties for fraud. Republicans, through executive action and legislation, are cracking down on consumer misrepresentations but have taken limited action against brokers.

Income considerations

Republicans have pointed to the elimination of the income cap for the subsidies among the issues with extending the pandemic policy.

“People who make $600,000 a year get a government subsidy for their health care,” said House Speaker Mike Johnson, Louisiana Republican. “I don’t think that that’s going to be a popular measure when people understand how that works.”

While people at any income threshold are eligible for the subsidies, a Joint Committee on Taxation analysis found that none of the benefits would actually go to anyone making over $500,000.

Households earning above 400% of the federal poverty level still have to contribute 8.5% of their income toward their premium before the subsidies would kick in, which prevents the richest earners from qualifying.

The JCT analysis says that if the enhanced subsidies are continued, 94% of the benefits in 2026 would be used to reduce premiums for households earning under $200,000.

Premiums still increasing

The government payments of the subsidies go directly to insurers who are in charge of setting rates for health insurance premiums. Republicans argue the policy does not actually reduce the cost of health care but just hides some of the increases from consumers.

“Making the subsidies permanent will harden Obamacare’s grip on our health care system and make much-needed meaningful reform impossible,” National Taxpayers Union President Pete Sepp and five members of the House Freedom Caucus wrote in a Newsweek op-ed arguing for “alternatives that empower patients rather than the government.”

Many Republicans in and outside the Freedom Caucus want to let the enhanced Obamacare subsidies expire. But others, particularly Republicans from swing districts and areas with high Obamacare enrollment, are interested in at least a short-term extension.

Rep. Jen Kiggans, Virginia Republican, and Tom Suozzi, New York Democrat, are leading a bipartisan bill to extend the enhanced subsidies for one year that has 12 GOP and eight Democratic cosponsors.

Most Democrats say a one-year extension isn’t long enough, but have left wiggle room to compromise from their opening demand for a permanent extension.

Whatever the duration, any extension of the subsidies would have a limited impact on premium rates for 2026 since insurers have already set their prices.

They can make some adjustments until Obamacare open enrollment begins Nov. 1, but rates will remain unchanged if Congress does not act before then, the CBO said.

The CBO has said a permanent extension of the enhanced Obamacare subsidies enacted around the Sept. 30 government funding deadline would lead to an average premium reduction of 2.4% in 2026, while the long-term certainty would lower rates by 7.6% on average over the next decade.

Base premiums will increase regardless, as insurers in the Obamacare marketplace have proposed an average rate increase of 20% for 2026, according to an analysis from KFF.

The premium increases, the highest since 2018, are due in large part to rising health care costs from factors like inflation, labor costs and drug prices.

“Insurers say that rates are rising by about 4 percentage points more than they otherwise would, due to the expiration of the enhanced premium tax credit,” KFF said.