Where the health insurance tax credit debate hits hardest in Minnesota

A married couple approaching retirement in Blue Earth County, with income fairly typical for their age, could get about $18,000 worth of federal subsidies this year for their health insurance using the MNsure exchange.

All of that financial assistance could disappear in January — leaving the family with a $25,000 increase in insurance costs for 2026, state officials say — depending on the results of an ongoing debate in Congress.

Lawmakers are considering whether to extend pandemic-era enhancements to tax credits funded by the federal Affordable Care Act (ACA). The fate of the enhanced subsidies, scheduled to expire at the end of this year, was the key sticking point in this fall’s government shutdown, when some also highlighted new federal requirements that will limit access to Medicaid for people with low incomes.

While the Blue Earth County example might be an extreme case, health care advocates worry that if enhanced tax credits aren’t renewed, people across Minnesota will see price increases averaging about $3,400. Nearly 20,000 will lose all subsidies, and some likely will go without insurance. They could get sicker from delaying treatments or create stress on hospital budgets by seeking free or discounted care.

“If you don’t have coverage, it doesn’t mean that you’re not going to get sick,” said Lynn Blewett, a health policy professor at the University of Minnesota.

Subsidy critics say the enhanced financial support was meant to provide assistance during the pandemic on a short-term basis. The original tax credits that remain in place, they point out, were heralded more than a decade ago for making insurance much more affordable.

The extra subsidy money has allowed for some improper payments, critics argue, while promoting higher health care prices overall by insulating consumers from the true cost of coverage.

“When the COVID credits are pared back to pre-pandemic levels, the supports will be robust, and ... states can regain market forces,” said Matt Dean, a former Republican state lawmaker who studies health care policy at the Center of the American Experiment, a conservative think tank in Minnetonka.

The federal tax credits under debate in Congress only apply to policies in the individual health insurance market, where about 187,000 people in Minnesota buy coverage. The policies are typically bought by self-employed people including farmers, contractors, early retirees and those who don’t get insurance benefits at work.

Before the ACA, these consumers were virtually the only ones in the nation’s web of health insurance markets who lacked subsidies for their coverage, Blewett said, so the law created tax credits beginning in 2014. The ACA helps those who buy policies through a government-run health insurance exchange such as MNsure in Minnesota.

Roughly 89,000 people across Minnesota receive ACA tax credits. About 70,000 will see less help next year if Congress doesn’t extend the enhancements, MNsure says, while 19,000 people will receive no financial help whatsoever.

“The impacts will vary based on who you are and where you live and how much money you earn,” said Emma Wager, a senior policy analyst at KFF, a California-based health care research group.

Subsidies are bigger for older people, who face higher insurance premiums — the monthly rate for a 64-year-old can be triple what’s charged for a 21-year-old. Also, people with lower incomes and larger families are eligible for greater levels of assistance.

People who live in higher-cost regions, like parts of southern Minnesota, receive bigger tax credits.

MNsure shoppers in Rochester and surrounding areas, where insurers have long complained about the market power of Mayo Clinic, tap the biggest average tax credits, at $834 per month. The average is lowest at $417 per month in the Twin Cities, where there’s more competition among insurers and health care providers.

The pandemic-era enhancements addressed a quirk in the original subsidy formula sometimes called the subsidy “cliff.”

The original tax credits weren’t available to householders above certain income levels. The cutoffs work out to about $65,000 for individuals and $130,000 for a family of four.

The enhancements expanded eligibility — including for that married couple in Blue Earth County, ages 62 and 63, with an income of $89,000.

If enhanced tax credits vanish, this hypothetical household would go off the cliff and receive no subsidy next year, MNsure says, increasing their annual costs by $25,005 — one of the highest-dollar examples provided by state officials.

In Duluth, a family of three, making $115,000 per year, could see annual insurance costs increase $9,755.

The examples depict bigger price jumps than many people might see. MNsure estimates the statewide average annual cost increase at $3,396.

People with lower incomes, where the subsidy cliff is not a factor, will still get tax credits if the enhancements go away. But their subsidies will be smaller, and their premiums could increase significantly, MNsure says.

A 57-year-old individual in Hennepin County, for example, with $59,000 in household income, could see a $2,419 jump in yearly costs.

The bottom line is that Minnesotans from all backgrounds and geographies will see higher costs next year if Congress allows the enhancements to expire, said Libby Caulum, the MNsure chief executive.

Any gaps in health care for newly uninsured ACA patients could be a preview of bigger problems starting in the fourth quarter of 2026.

That’s when large enrollment cuts are expected to hit tens of thousands of Minnesotans with Medicaid, the state-federal program that provides coverage for low-income and disabled residents. Hospitals could wind up providing free or discounted care for those who can’t pay, adding to providers’ financial stress.

“When people lose insurance, it impacts everyone’s access to care,” the Minnesota Hospital Association said in a statement.

Medicaid changes were key to President Donald Trump’s landmark budget bill, passed by Congress this summer. The law tries to trim waste by removing beneficiaries who make too much money, live in another state or have other insurance, said Dean from the Center of the American Experiment.

The Minnesota Department of Human Services (DHS) estimates about 140,000 people across the state could lose Medicaid coverage, with most losing benefits starting in 2027.

“This is the largest federal disinvestment in Medicaid in its 60-year history,” John Connolly, the DHS deputy commissioner and state Medicaid director, said in an interview.

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