New Tax Rule Could Boost Health Insurance Subsidies Starting 2026 by Counting Medicare Premiums

The Health Insurance Premium Fairness Act of 2025 introduces a targeted adjustment to the Affordable Care Act's (ACA) Premium Tax Credit (PTC), which is the subsidy many people use to buy marketplace health insurance. Starting in the 2026 tax year, eligible taxpayers will have the option to reduce the income base used to calculate their PTC by the total amount of specified Medicare premiums paid monthly by anyone in their household.

The Math of Affordability: Why This Matters

To understand the impact, you first need to know how the ACA subsidy works: the less income the IRS thinks you have, the bigger your subsidy is. This bill essentially allows you to count certain Medicare costs as a deduction when calculating that subsidy. Specifically, the bill defines "Specified Medicare Premiums" broadly, covering payments for Medicare Part A, Part B, Medicare Advantage (Part C), Part D prescription drug plans, and even Medigap supplemental policies. This is a big deal because these costs—especially for a family member—can add up quickly and were previously ignored in this specific calculation.

For example, imagine a 40-year-old self-employed architect who buys marketplace insurance using the PTC, and also pays the Part B and Medigap premiums for a retired parent who lives with them and is claimed as a household member. Under the current rules, the architect gets a subsidy based on their income, but those $300+ in monthly Medicare premiums don't factor in. Under this new rule (Section 2), the architect can subtract those monthly Medicare payments from the income figure used for the subsidy calculation, potentially making their income appear lower and thus qualifying them for a larger monthly tax credit. This is direct financial relief, increasing the affordability of the marketplace plan.

Blended Households Get a Break

This adjustment is particularly helpful for "blended" households—those where some members rely on subsidized ACA coverage while others are covered by Medicare. The bill uses the existing definition of "household member" from Section 36B, meaning the change applies to anyone counted when determining family size. By allowing the taxpayer to factor in Medicare costs for these household members, the bill acknowledges the total healthcare burden carried by the family unit, not just the cost of the ACA plan itself. This is a practical recognition of how complex family finances can be, especially when caring for older relatives.

While this change means the federal government will likely spend more on premium tax credits (because more people will qualify for larger subsidies), the benefit to the taxpayer is clear: increased financial assistance. The rule is straightforward, but taxpayers will need to diligently track and report all those monthly Medicare premium payments to ensure they get the full benefit when filing taxes or adjusting their subsidy throughout the year. It’s a good reminder to keep those payment stubs organized.