Ten Democratic-leaning states are using their own money to help people buy Obamacare health plans, at least partially replacing the federal tax credits that expired at the end of last year.
The state assistance, some of it offered through programs that existed before the federal subsidies expired, is helping hundreds of thousands of people lower their monthly premium payments, which otherwise would have surged to double or even triple what they were before the expiration of the federal aid. The savings can total hundreds of dollars per month.
But only New Mexico is completely filling the gap left by the expiration of the federal help by offering it to people of all incomes; for most Americans buying Obamacare plans, the end of the federal aid means much higher prices. And New Mexico and the other states that are trying to cushion the blow for their residents will face increasing budget pressures as health care costs continue their inexorable rise.
In addition to the expiration of the federal subsidies, the cost of Obamacare coverage has increased because of other factors, including labor shortages and the rising cost of prescription drugs, driven in part by the growing demand for GLP-1 drugs such as Ozempic and Wegovy.
The enhanced federal subsidies were made available by the American Rescue Plan Act in 2021 and later extended through the end of 2025 by the Inflation Reduction Act. Designed as a temporary pandemic-era measure, they helped boost the number of people buying health coverage from the insurance marketplaces created under the Affordable Care Act — Obamacare’s formal name — from 11.4 million people in 2020 to 24.3 million last year.
Far fewer people buy Obamacare coverage as insurance premiums spike
The enhanced subsidies were available to everyone, regardless of income. Additional federal aid provided to some of the lowest-income households entirely eliminated premium payments for some people.
Congressional leaders let the subsidies expire on Dec. 31. As of the end of last month, the number of people enrolled in marketplace coverage was down by about 1.2 million compared with last year, according to federal data.
Last year, the Congressional Budget Office estimated that the expiration of the federal subsidies would increase the number of people without insurance by 4.2 million by 2034.
Under the Affordable Care Act, each state can either use the federal government’s online insurance marketplace, HealthCare.gov, or operate its own state-run exchange. Only the 21 states plus the District of Columbia with state-run marketplaces can offer state-funded tax credits or subsidies, and at least 10 of them (California, Colorado, Connecticut, Maryland, Massachusetts, New Jersey, New Mexico, New York, Vermont and Washington) are doing so.
Matt McGough, a policy analyst at health care research group KFF, said many of the people who buy Obamacare plans “have fallen between the cracks of the health care system.”
“They might not work a job or work enough hours at a job to be eligible for health benefits. They are too young for Medicare. They make too much to be eligible for Medicaid, and they really have no other option but to go to the marketplace,” McGough said.
He warned that relatively healthy people are the ones most likely to forgo marketplace coverage rather than pay more for it. That will leave the exchanges with the people who have the greatest health needs, raising costs and premiums for everyone. To avoid that scenario, he said, states “want to be able to keep as many people in the marketplace as possible.”
A big commitment in New Mexico
In New Mexico, Democratic Gov. Michelle Lujan Grisham and state lawmakers earlier this year tapped the state’s 5-year-old Health Care Affordability Fund for an additional $17.3 million so they could entirely replace the expired federal subsidies through June 30 for all enrollees, regardless of income.
The vast majority of the 82,400 New Mexicans who buy coverage from the state marketplace are eligible for state help. Perhaps as a result, New Mexico is one of only a handful of states where the number of people buying Obamacare plans has increased this year: Enrollment is up 18% in New Mexico, while there have been single-digit increases in the District of Columbia, Maryland and Texas.
“We feel really great about having come together to really focus on these affordability challenges for New Mexicans, and really proud of the gains that we’ve made in coverage while we’re seeing losses elsewhere,” said Kari Armijo, cabinet secretary for the New Mexico Health Care Authority. She noted that a handful of Republican state lawmakers have joined Democrats in supporting the aid.
The money in New Mexico’s Health Care Affordability Fund comes from a 3.75% surtax levied on insurance companies. When the fund was created, the surtax was expected to generate about $165 million in new revenue annually.
Currently, the state uses nearly half of the revenue from the surtax to fund other parts of its budget. But the New Mexico House earlier this month approved a bill that would gradually increase the portion of the surtax allocated to the Health Care Affordability Fund, from the current 55% to 100% in 2028.
It is a pretty substantial amount of money, and it is going to strain the programs that we can provide with that funding.
– Kari Armijo, cabinet secretary for the New Mexico Health Care Authority
Legislative financial analysts recently questioned the long-term sustainability of that approach. Armijo acknowledged that continuing to replace the expired federal subsidies “will deplete the fund over time.”
“It is a pretty substantial amount of money, and it is going to strain the programs that we can provide with that funding,” Armijo said.
Paul Gessing, president of the Rio Grande Foundation, a conservative-leaning think tank in New Mexico, said the state is “flush with oil and gas money” now, enabling it to “spend money in ways that don’t make a great deal of sense for the population as a whole and instead benefits a small sliver of relatively well-off New Mexicans.”
Gessing said the state should focus on reducing health care spending by recruiting and retaining more doctors and nurses to lessen its shortage of providers and by overhauling medical malpractice laws.
“I don’t think the state should make it a practice to use state funds to fill in the gap when federal funding is shifted or eliminated,” Gessing said.
Other states
In California, where 1.9 million people were enrolled on the state’s exchange in 2025, enrollment is already down by 32% from last year, according to state figures.
The state has opted this year to spend $190 million to fully replace the lost federal subsidies for people earning up to 150% of the federal poverty level ($23,940 for an individual), and partially replace them for people making between 150% and 165% of the federal poverty level — just above eligibility for Medicaid in the state. About 390,000 enrollees are receiving the state-based subsidies this year.
Like New Mexico, California in 2021 created a Health Care Affordability Reserve Fund, funded through general revenue and penalties some people have to pay when they file their taxes.
The state budget Democratic Gov. Gavin Newsom proposed last month envisions a “modest projected deficit” of $2.9 billion for fiscal year 2026-2027, but that could grow to $22 billion the next year. California has a total annual budget of about $350 billion.
“Any amount of money that you can put into affordability is meaningful,” said Jessica Altman, executive director of California’s marketplace. “Thinking about those trade-offs is a challenging conversation, but an important one at the state level.”
Many middle-income families spend at least a tenth of their income on health insurance
In Colorado, the state is offering financial help through a new program called the Colorado Premium Assistance program. It came together during an August 2025 special session, when Colorado lawmakers approved up to $110 million this year to partially replace the federal subsidies. Help will be available to anyone making between 133% and 400% of the federal poverty level, or between $43,890 and $132,000 for a family of four.
“It is clear that this is a value for Coloradans. And having a state based marketplace like we do in Colorado, it really allows us to develop state-specific solutions and have our policies and changes driven by the needs of the people who live here,” said Nina Schwartz, chief policy and external affairs officer for Colorado’s marketplace.
Schwartz emphasized, however, that the state help won’t entirely replace the expired federal aid, and that as a result, the number of people buying coverage on the exchange is declining. Cancellations are up 83% compared with last year.
“We’re seeing an increase in the number of cancellations, with the number of people nearly doubling who canceled their plans during open enrollment compared to last year,” she said.
Other states also are opting for limited assistance. Connecticut, for example, is offering aid to households with incomes up to 200% of the federal poverty level, and the state announced it would spend $115 million in 2026 to partially offset the expiration of the federal subsidies.
Massachusetts has set aside $250 million to enhance its existing state subsidy program, helping to keep around 270,000 enrollees with incomes below 400% of the federal poverty level enrolled with stable premiums. As of early January, around 25,000 people in Massachusetts had already canceled their marketplace plans.
Maryland has a new premium assistance program that fully replaces the federal aid for enrollees earning below 200% of the federal poverty level and partly replaces it for those earning between 200% and 400% of the federal poverty level. Since last year, New York has offered help to marketplace enrollees with incomes up to 400% of the federal poverty level. And since 2023, Washington has offered state subsidies to anyone earning below 250% of the federal poverty level.
Stateline is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Stateline maintains editorial independence. Contact Editor Scott S. Greenberger for questions: info@stateline.org.
