The ACA Subsidy Cliff Is Back in 2026. Here's What Employers Should Know

Enhanced ACA subsidies expired at the end of 2025, and marketplace premium payments jumped 114% on average for subsidized buyers in 2026. Here is what small business employers need to know.

Quick Answer (as of 2026): Congress did not extend enhanced ACA marketplace subsidies past 2025. For 2026, premium payments rose 114% on average for subsidized marketplace enrollees, and anyone earning above 400% of the federal poverty level lost their subsidy entirely. Employer-sponsored coverage is not affected by this cliff, which is why many small employers are taking a fresh look at group plans and Section 125 pre-tax savings.

The "subsidy cliff" returned to the ACA marketplace in 2026, and it hit fast. Congress let the enhanced premium tax credits created by the American Rescue Plan and extended by the Inflation Reduction Act expire at the end of 2025. The result: marketplace premium payments jumped sharply for millions of people, and anyone with household income above 400% of the federal poverty level lost their subsidy altogether, no matter how expensive their plan is.

For small business owners, this is not just a headline. It changes the math on whether employees are better off buying their own coverage or getting it through work. This guide breaks down what changed, who it hits hardest, and what small employers can do about it.

What Is the ACA "Subsidy Cliff," and Why Did It Return in 2026?

The subsidy cliff is the point where ACA marketplace premium subsidies stop entirely once a household's income crosses 400% of the federal poverty level. Before 2021, this cliff was a normal part of the ACA. The American Rescue Plan removed it for 2021 and 2022, and the Inflation Reduction Act extended that removal through 2025, capping benchmark Silver plan premiums at 8.5% of income for higher earners instead of cutting them off completely.

Congress did not renew that extension for 2026. The cliff is back. According to KFF, the enhanced tax credits had driven ACA marketplace enrollment to record highs by expanding subsidy eligibility to people who earn well above 400% of the poverty line. Without them, that group now pays full price the moment they cross the threshold.

How Much Did ACA Marketplace Premiums Increase in 2026?

Marketplace premium payments increased sharply in 2026, and the size of the jump depends heavily on age, location, and income. KFF found that premium payments for subsidized enrollees rose 114% on average nationally to keep the same plan. Across the full marketplace population, including unsubsidized buyers, the average net monthly premium payment rose 58%, from $113 to $178, according to KFF's 2026 marketplace tracking.

The increase is far steeper for older buyers just above the 400% FPL line, since ACA premiums are age-rated and can run two to three times higher for someone in their 60s compared to a 21-year-old. healthinsurance.org documented a real-world example: a 63-year-old couple in Charleston, West Virginia earning $85,000 a year, just over the 400% FPL threshold, paid about $300 a month for the lowest-cost Gold plan in 2025. In 2026, with no subsidy at all, the same plan costs $4,562 a month. Their lowest-cost Bronze plan went from $0 a month to $3,648 a month.

States with higher baseline premiums saw the sharpest percentage jumps. KFF's Peterson-KFF Health System Tracker flagged Alaska, Delaware, Maine, Mississippi, Nebraska, Tennessee, Vermont, Wisconsin, West Virginia, and Wyoming as having the highest projected full-price marketplace premiums for 2026, which means buyers in those states who lose their subsidy face the largest dollar increases. For more state-by-state detail, see Summit Health Benefits' guide to <a href="/blog/health-insurance-premium-increase-2026-by-state">health insurance premium increases by state in 2026</a>.

Summit Health Benefits helps small employers model the real cost of every coverage option. If your team is weighing group coverage, ICHRA, or a Section 125 plan against rising marketplace premiums, we'll run the numbers side by side before you decide anything. Talk to a Summit specialist.

Who Is Most Affected by the Subsidy Cliff?

The subsidy cliff hits hardest for people between roughly 50 and 64 years old with household income just above 400% of the federal poverty level, which was $84,600 for a household of two using 2025 guidelines. This group is old enough to pay the highest ACA age-rated premiums but too young for Medicare, and they no longer qualify for any subsidy once they cross the income line. According to CMS enrollment data cited by KFF, the share of marketplace enrollees receiving a premium tax credit fell from 92% in 2025 to 87% in 2026, the first drop in subsidized enrollment since 2020. KFF also projects that average monthly marketplace enrollment could fall to about 17.5 million people in 2026, down from 22.3 million in 2025, as some buyers drop coverage entirely rather than pay full price.

Small business owners and self-employed individuals who buy their own marketplace coverage are directly exposed to this cliff, since their income often sits in the affected range. Employees of small businesses that do not offer group coverage face the same exposure.

Does the Subsidy Cliff Affect Employer-Sponsored Health Coverage?

No. The subsidy cliff only applies to individual marketplace plans purchased through healthcare.gov or a state exchange. It has no effect on the price or availability of employer-sponsored group health coverage. This is one of the clearest changes in the relative value of employer coverage for 2026: a plan that used to compete against a subsidized $300-a-month marketplace option now competes against a $3,600-plus unsubsidized one for employees over 400% of FPL. Group coverage was already exempt from the ACA's individual affordability calculations, and that gap has only widened.

This also raises the stakes for how employees pay for whatever coverage they do have. A Section 125 cafeteria plan lets employees pay their share of group premiums with pre-tax payroll dollars, which lowers their taxable income and reduces the employer's FICA obligation at the same time. Read Summit's <a href="/blog/section-125-cafeteria-plan-2026-guide">complete guide to Section 125 cafeteria plans</a> for the full mechanics.

How Can Small Business Employers Help Employees Avoid the Subsidy Cliff?

Small employers have three practical paths in 2026. First, offer a traditional group health plan through a Section 125 Premium Only Plan, which sidesteps the marketplace and its subsidy cliff entirely while cutting payroll taxes for both sides. Second, offer an Individual Coverage Health Reimbursement Arrangement, or ICHRA, which lets the employer set a fixed reimbursement amount toward an employee's individual marketplace plan. An ICHRA contribution is not means-tested and does not disappear at 400% of FPL, so it can meaningfully offset the subsidy cliff for affected employees. See Summit's guide to <a href="/blog/how-does-ichra-work">how ICHRA works</a> for a full breakdown. Third, layer in a zero-cost supplemental benefit stack, virtual urgent care, $0 primary care visits, and discounted prescriptions, on top of whatever core coverage employees choose, which softens the blow for anyone still absorbing a bigger premium bill.

For businesses that are not ready to sponsor a full group plan, Summit's guide to <a href="/blog/small-business-health-insurance-alternatives-2026">small business health insurance alternatives</a> and <a href="/blog/zero-cost-employee-health-benefits-2026">zero-cost employee health benefits</a> covers lower-commitment options that still give employees something real to work with.

Is a Section 125 Plan Still Worth It If Employees Don't Buy Marketplace Coverage?

Yes. A Section 125 plan's value does not depend on the marketplace at all. It comes from the FICA and income tax savings generated whenever an employee pays for an eligible benefit with pre-tax payroll dollars, whether that benefit is a group health premium, an FSA contribution, or a supplemental plan. Summit Health Benefits charges $35 per enrolled employee per month to administer a plan. Employers typically recapture $91 to $136 per enrolled employee per month in employer-side FICA savings alone, for a net benefit of $56 to $101 per employee per month after the admin fee, while employees see $70 to $110 more in take-home pay each month. None of that math changes based on what happens to ACA marketplace subsidies. See the full breakdown in Summit's guide to <a href="/blog/maximizing-fica-tax-savings">maximizing FICA tax savings</a>.

For a 10-person business with $400 a month in employee pre-tax premium contributions, the employer avoids roughly $306 a month in FICA taxes ($4,000 x 7.65%), or $3,672 a year. Against a $4,200 annual admin fee for that group, the math still works because the FICA savings are only one part of the value. Employees keep more of every paycheck regardless of what is happening at healthcare.gov.

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Frequently Asked Questions

What is the ACA subsidy cliff?
The ACA subsidy cliff is the point at which marketplace premium subsidies stop completely once a household's income passes 400% of the federal poverty level. Enhanced subsidies from the American Rescue Plan and Inflation Reduction Act removed this cliff from 2021 through 2025. Congress did not extend those enhancements, so the cliff returned for the 2026 plan year.
How much more are people paying for ACA marketplace coverage in 2026?
According to KFF, premium payments for subsidized marketplace enrollees rose 114% on average in 2026 to keep the same plan. Across the entire marketplace population, the average net monthly premium payment rose 58%, from $113 to $178. Older enrollees just above the 400% FPL threshold saw the steepest increases, in some documented cases moving from a few hundred dollars a month to several thousand.
Does the subsidy cliff affect employer-sponsored health insurance?
No. The subsidy cliff only applies to individual coverage purchased on the ACA marketplace through healthcare.gov or a state exchange. Employer-sponsored group health plans are priced and regulated separately and are not affected by marketplace subsidy eligibility rules.
What is 400% of the federal poverty level in 2026?
Using the 2025 poverty guidelines that determine 2026 marketplace subsidy eligibility, 400% of the federal poverty level was $60,240 for a single person and $84,600 for a household of two, according to the U.S. Department of Health and Human Services. Household income above these levels loses ACA marketplace subsidy eligibility entirely under the restored cliff.
Can an ICHRA help employees affected by the subsidy cliff?
Yes. An Individual Coverage Health Reimbursement Arrangement lets an employer set a fixed, tax-free reimbursement amount toward an employee's individual marketplace plan. That reimbursement is not means-tested and does not disappear at 400% of the federal poverty level, so it can offset some or all of the premium increase an employee faces from the returned subsidy cliff.
Does a Section 125 plan still save money if fewer employees use the ACA marketplace?
Yes. A Section 125 plan's savings come from pre-tax payroll deductions for eligible benefits, not from ACA marketplace subsidies. Employers typically recapture $91 to $136 per enrolled employee per month in FICA savings, and employees see $70 to $110 more in take-home pay each month, regardless of what happens to marketplace pricing.
Which states have the highest marketplace premiums after the subsidy cliff returned?
KFF's Peterson-KFF Health System Tracker identified Alaska, Delaware, Maine, Mississippi, Nebraska, Tennessee, Vermont, Wisconsin, West Virginia, and Wyoming as having the highest projected full-price marketplace premiums for 2026. Buyers in these states who lose their subsidy face the largest dollar-amount increases in monthly premium payments.
What should a small business do if employees are worried about losing their subsidy?
Small employers should compare the real cost of a group health plan with Section 125 pre-tax savings against what employees would pay unsubsidized on the marketplace, then consider an ICHRA or a zero-cost supplemental benefit stack to fill any remaining gap. A benefits specialist can model all three options against actual payroll numbers before an employer commits to anything.

Ready to see what your team's options look like with real numbers? Summit Health Benefits works with employers to weigh group coverage, ICHRA, and Section 125 savings side by side.

See Your Team's Options

Sources: KFF, "ACA Marketplace Premium Payments Would More than Double on Average Next Year if Enhanced Premium Tax Credits Expire" (Sept. 30, 2025) and 2026 marketplace tracking; Peterson-KFF Health System Tracker; healthinsurance.org, "Marketplace enrollees face return of the 'subsidy cliff' in 2026" (Feb. 11, 2026); Centers for Medicare and Medicaid Services (CMS) 2025 Marketplace Open Enrollment Period Public Use Files; U.S. Department of Health and Human Services 2025 poverty guidelines; Internal Revenue Service.