Health Insurance Tax Credits and the Government Shutdown: What to Know

sorry we are closed sign in front of a rendering of the US capitol building

(Image credit: Getty Images)

For the first time in nearly seven years, the federal government shut down on October 1, 2025.

Government shutdowns aren’t new to Washington. Since the late 1970s, there have been 20 funding gaps. Some lasted only a few hours, while others have lasted several weeks. Initially, the longest was during President Donald Trump’s first term, when a border wall funding standoff lasted 35 days. But the 2025 shutdown moved into the spot for the longest in U.S. history.

The standoff behind the scenes notably centered on taxes and health care.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Specifically, Congress has been battling over the extension of premium tax credits that help millions afford health insurance. (Reversing billions in Medicaid cuts that Trump and the GOP pushed through in their 2025 tax and spending bill are also at issue.)

So, the sheer scale of this year’s tax and health care concerns — potentially impacting nearly one in 14 Americans — adds an unusual twist to the recent shutdown. Here’s more to know.

ACA Premium Tax Credits in the health care debate

At the heart of the 2025 government shutdown impasse was a widely used tax credit that subsidizes premiums for Affordable Care Act (ACA) marketplace insurance.

Congress originally expanded these premium tax credits during the pandemic in 2021 and later extended them through the end of 2025.
They substantially lower health insurance costs for more than 24 million people in the U.S., or roughly 7% of the population.
Data show the tax credits have helped make coverage more affordable for a range of people, including the self-employed, small business owners, and those who lack access to employer or other coverage.

Congressional Democrats made it clear they would not approve a temporary spending bill unless Republicans also agreed to extend these enhanced credits and reverse scheduled Medicaid cuts.

At the time, Minority Leader of the U.S. House of Representatives Hakeem Jeffries (D-N.Y.) told reporters the following regarding rising health care premiums and the shutdown stalemate.

“In just days, tens of millions of Americans will see their health care costs rise sharply because of the failure to extend Affordable Care Act tax credits. It’s happening at a time when the cost of living is already too high.”

While some Republicans have acknowledged the popularity of the tax credits, many rejected the notion of tying any extension of them and/or any rollback of Medicaid cuts to a stopgap funding deal.

Vice President JD Vance said in a Fox News interview, “I will go to the Capitol right now to discuss premium support for the Affordable Care Act with Chuck Schumer and Senate Democrats, but only after they have reopened the government.”

In a surprising move, Rep. Marjorie Taylor Greene (R-Ga.), a staunch supporter of the Trump party line on most political issues, noted that her own adult children's insurance premiums would double, along with those of many families in her district, but still described health insurance as "a scam."

Medicaid cuts are also part of the shutdown battle

As Kiplinger has reported, scheduled Medicaid cuts ushered in by the GOP megabill signed into law by Trump on July 4, 2025, risk curtailing coverage and access for millions of low-income families, increasing the uninsured rate, and shifting costs onto hospitals and local governments. Many rural hospitals could be forced to close.

Many Democrats insist that both protections — the ACA credits and broader Medicaid funding — remain in place.

The GOP megabill, nicknamed the “big, beautiful bill,” includes a cut of approximately 15% to Medicaid spending, totaling nearly $1 trillion over the next ten years. According to the nonpartisan Congressional Budget Office (CBO), these cuts could result in approximately 7.8 million people losing Medicaid coverage by 2034.

Health care for undocumented immigrants?

The President and some Republican lawmakers have claimed that Democrats want to provide health care to illegal immigrants.

It’s important to note that individuals in the U.S. illegally aren’t eligible for insurance coverage provided through the Medicare program or the ACA exchange.

Current policy only allows Medicaid and ACA subsidies for U.S. citizens, lawful permanent residents (green card holders), and certain immigrants with lawful presence status.

Note: Hospitals receive Medicaid reimbursements for emergency services they provide to undocumented immigrants; however, this expenditure is a small fraction of their overall spending and does not constitute “free healthcare” coverage.

Health insurance: What happens if ACA tax credits expire?

According to the Kaiser Family Foundation (KFF), ACA plan premiums could increase by an average of 114% if Congress allows the credits to expire. That could mean a jump from $888 this year to nearly $1,904 per year for a typical beneficiary.

Some enrollment experts warn that more than 4 million people could leave the marketplace entirely, overwhelmed by the cost.
The expiration would hit middle-income households that were newly eligible for the enhanced credits the hardest. Many would lose all subsidy support overnight if Congress doesn’t act before Dec. 31, 2025.
KFF reports that ACA marketplace insurers, anticipating coverage lapses, are already raising their proposed 2026 rates, with some reportedly increasing by as much as 18%.

Medicaid, meanwhile, faces its own set of cascading effects if the cuts take effect.

Past state-level rollbacks have shown that reduced federal Medicaid funding often leads states to restrict eligibility, cut provider payments, or both. So, fewer people are being covered and a greater strain is being placed on emergency care systems.

For more information, see: How Five States Are Worse Off After SNAP, Medicaid Cuts.

Government shutdown update: What's at stake?

As open enrollment for ACA began in November, some insurers and policyholders alike have been in limbo, unsure what premiums or coverage rules will look like. Some Medicaid participants wonder if new cuts could force them off coverage or reduce their access to care in the coming year.

As the government shutdown stretched on, President Donald Trump issued stark warnings about potential layoffs of federal workers. On social media, he framed the shutdown as what he called an “unprecedented opportunity” to cut federal programs aligned with Democratic priorities.

In an interview reportedly taped with One America News, as reported by PBS, Trump added, “There could be firings, and that would be their responsibility. There might also be other actions. We could eliminate projects they favor, and those would be permanently cut.”

Update: The government shutdown ended without an extension of ACA premium tax credit subsidies. A vote on the matter could take place in the Senate in December.

TOPICS

Kelley R. Taylor is the senior tax editor at Kiplinger.com, where she breaks down federal and state tax rules and news to help readers navigate their finances with confidence. A corporate attorney and business journalist with more than 20 years of experience, Kelley has helped taxpayers make sense of shifting U.S. tax law and policy from the Affordable Care Act (ACA) and the Tax Cuts and Jobs Act (TCJA), to SECURE 2.0, the Inflation Reduction Act, and most recently, the 2025 “Big, Beautiful Bill.” She has covered issues ranging from partnerships, carried interest, compensation and benefits, and tax‑exempt organizations to RMDs, capital gains taxes, and energy tax credits. Her award‑winning work has been featured in numerous national and specialty publications.