Colorado Republican Sen. Rod Pelton (R) and Senate President James Coleman, a Democrat, speak during the sixth day of the special legislative session in August 2025. Colorado is among the states using state funds to aid residents purchase health insurance on the Obamacare exchanges. (Photo: Delilah Brumer/Colorado Newsline)
At least 10 Democratic-leaning states are using their own money to aid people buy Obamacare health plans, at least partially replacing federal tax credits that expired overdue last year.
State aid, partly offered through programs that existed before federal subsidies expired, is helping hundreds of thousands of people lower monthly premiums that would otherwise have risen to double or even triple what they were before federal aid ended. The savings can amount to hundreds of dollars per month.
But only New Mexico fully fills the gap left by the expiration of federal aid, offering it to people of all incomes; for most Americans buying Obamacare plans, the end of federal aid means much higher prices. And New Mexico and other states trying to cushion the blow to their residents will face mounting budget pressures as health care costs continue to rise.
In addition to the expiration of federal subsidies, Obamacare insurance costs have increased due to other factorsincluding labor shortages and rising prescription drug costs, driven in part by rising demand for GLP-1 drugs such as Ozempic and Wegovy.
The increased federal subsidies were made available under the American Rescue Plan Act in 2021 and then extended through the end of 2025 under the Inflation Reduction Act. Designed as a fleeting solution during the pandemic, they helped escalate the number of people buying health insurance on insurance marketplaces created by the Affordable Care Act – formally known as Obamacare – from 11.4 million people in 2020 to 24.3 million last year.
The increased subsidies were available to everyone, regardless of income. The additional federal aid provided to some of the lowest-income households has eliminated premium payments entirely for some people.
Congressional leaders allowed the grants to expire on December 31. As of the end of last month, the number of people in the marketplace’s coverage was down about 1.2 million compared to a year ago, according to data federal data.
Last year, the Congressional Budget Office estimated that the expiration of federal subsidies would escalate the number of people without insurance by 4.2 million until 2034.
Under the Affordable Care Act, each state can exploit the government’s online insurance marketplace, HealthCare.gov, or operate its own state-run exchange. Only 21 states and the District of Columbia with state-run markets 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) do.
Matt McGough, a policy analyst at the research group KFF, said many people buying Obamacare plans “have fallen between the cracks of the health care system.”
“They may not be working or working enough hours to qualify for health benefits. They’re too young for Medicare. They’re making too much to qualify for Medicaid, and they really have no choice but to go to the marketplace,” McGough said.
He warned that relatively hearty people are most likely to forgo market coverage rather than pay more for it. This will leave the exchange with people who have the greatest health needs, raising costs and premiums for everyone. To avoid such a scenario, he said, “I want to be able to keep as many people in the market as possible.”
Major involvement in New Mexico
In New Mexico, Democratic Gov. Michelle Lujan Grisham and state lawmakers earlier this year he hit the state’s 5-year-old Health Care Affordability Fund for an additional $17.3 million to fully replace expired federal grants by June 30 for all enrollees, regardless of income.
The huge majority of the 82,400 New Mexicans who purchase insurance through the state marketplace qualify for state aid. Perhaps New Mexico is like that as a result one of the few states where the number of people buying Obamacare plans has increased this year: Enrollment is up 18% in New Mexico, while the District of Columbia, Maryland and Texas all saw single-digit growth.
“We feel really great that we’ve come together to really focus on the affordability challenges for New Mexicans, and we’re really proud of the gains we’ve made in insurance when we’re seeing losses elsewhere,” said Kari Armijo, cabinet secretary of the New Mexico Health Care Authority. She noted that a handful of Republican state lawmakers have joined Democrats in supporting the aid.
New Mexico’s Health Care Affordability Fund money comes from a 3.75% surtax on insurance companies. At the time of the fund’s creation, the surtax was expected to generate approximately $165 million in modern revenue annually.
Currently, the state uses almost half of the revenues from the additional tax to finance the remaining parts of its budget. But the New Mexico House earlier this month approved the bill which would gradually escalate the portion of the surtax earmarked for the Health Care Affordability Fund from the current 55% to 100% in 2028.
This is quite a significant amount and will strain the programs we can provide with these funds.
– Kari Armijo, cabinet secretary, New Mexico Health Care Authority
Legislative financial analysts recently questioned the long-term sustainability of this approach. Armijo acknowledged that continuing to replace expired federal grants “will deplete the fund over time.”
“It’s quite a significant amount and it will strain the programs we can provide with these funds,” Armijo said.
Paul Gessing, president of the Rio Grande Foundation, a conservative think tank in New Mexico, said the state is now “awash in oil and gas money,” allowing it to “spend money in ways that make little sense for the population as a whole and instead benefit a small portion of relatively wealthy New Mexicans.”
Gessing said the state should focus on reducing health care spending by recruiting and retaining more doctors and nurses to reduce doctor and nurse shortages, as well as by changing medical malpractice laws.
“I don’t think the state should make it a practice to use state funds to fill the gap when federal funding is transferred or eliminated,” Gessing said.
Other states
In California, where there were 1.9 million people adopted According to state data, the number of subscriptions on the state exchange in 2025 has already decreased by 32% compared to last year.
The state decided to spend $190 million this year to fully replace lost federal grants for people earning up to 150% of the federal poverty level ($23,940 for an individual) and partially replace them for people earning between 150% and 165% of the federal poverty level – just above Medicaid eligibility in the state. This year, approximately 390,000 people enrolling in higher education will receive state subsidies.
Like New Mexico, California has created in 2021 Health Care Affordability Reserve Fundfunded by general revenues and the penalties some have to impose pay when they pay taxes.
State Budget Democratic Governor Gavin Newsom proposed last month projects a “modest projected deficit” of $2.9 billion for fiscal year 2026–27, but that it could grow to $22 billion next year. California’s total annual budget is approximately $350 billion.
“Any amount of money you can put towards affordability makes a difference,” said Jessica Altman, executive director of the California marketplace. “Thinking about these trade-offs is a challenging but important conversation at the state level.”
In Colorado, the state is offering financial assistance through a modern program called Colorado Premium Assistance. It happened during August 2025 special sessionwhen Colorado lawmakers approved it up to $110 million partially replace federal grants this year. Aid will be available to anyone earning between 133% and 400% of the federal poverty level, or between $43,890 and $132,000 for a family of four.
“It’s clear that there is value to Coloradans. And having a state-based marketplace, as Colorado does, 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, director of policy and external affairs for the Colorado marketplace.
However, Schwartz emphasized that state aid will not completely replace expired federal aid and, as a result, the number of people buying insurance on the exchange is decreasing. The number of appeals increased by 83% compared to last year.
“We are seeing an increase in the number of cancellations, and the number of people who canceled their plans during open enrollment has almost doubled compared to last year,” she said.
Other states are also favoring circumscribed aid. For example, Connecticut offers assistance to households with incomes up to 200% of the federal poverty level, and the state announced it will spend $115 million in 2026 to partially offset the expiration of federal grants.
Massachusetts has set committed $250 million to enhance the state’s existing subsidy program, helping to keep approximately 270,000 enrollees with incomes below 400% of the federal poverty level enrolled with stable premiums. By early January, about 25,000 Massachusetts residents had already canceled their plans for the marketplace.
Maryland has something modern premium assistance program which fully replaces federal aid for people earning less than 200% of the federal poverty level and partially replaces it for people earning between 200% and 400% of the federal poverty level. New York has been offering it since last year aid those registering on the market with incomes reaching 400% of the federal poverty level. And from 2023, Washington he offered state subsidies for anyone earning less than 250% of the federal poverty level.
Stateline reporter Shalina Chatlani can be reached at: schatlani@stateline.org.
This story was originally produced by state linewhich is part of States Newsroom, a nonprofit news network that includes Pennsylvania Capital-Star, and is supported by grants and a coalition of donors as a 501c(3) public charity.
