Congress failed to reach an agreement on a short-term patch to fund the government by September 30, the start of the new fiscal year (FY 2026). As a result, as of October 1, large swaths of the federal government are closed. The shutdown impacts federal agencies and programs that are funded through the annual appropriations process (discretionary spending). So, programs and agencies that operate under mandatory spending, or through fees or advance-year appropriations can and will keep operating during the shutdown.

Among the programs still operating are Social Security payments, Medicare and Medicaid payments, and the US Post Office. Other federal activities—like air traffic control, for example—will remain operational, but their personnel will not get paid until after the shutdown ends. Employees working without pay have begun calling in sick, creating new problems. This has become apparent in air travel where air traffic controllers in many cities are calling in sick.

The dispute is intensely partisan and shows no sign of a quick resolution. On one side are the Republicans who control both the House and the Senate. They want a “clean” continuing resolution (CR) that would fund the government from October 1 to November 21 (giving Congress more time to hammer out a FY 2026 funding package). The clean CR continues government funding almost totally at FY 2025 levels and contains no new policy.

On the other side are Congressional Democrats, who say the clean CR was crafted without Democratic input and that to win their votes the CR must address several issues. The key issue is the need to extend enhanced Affordable Care Act (ACA) premium tax credits (PTCs). The enhancements to the PTCs were enacted during the COVID era and are set to expire December 31, 2025. Democrats are also demanding repeal of the Medicaid cuts enacted in the tax and spending cuts law this past summer, and a ban on rescissions of already-appropriated funding.

The House of Representative passed, on a largely party-line vote, the clean CR prior to recessing for the Jewish holidays the last full week of September. The Senate, however, has repeatedly rejected it. In the Senate, a CR needs 60 votes—and thus at least seven Democrats to vote for it—to pass. This is the leverage currently held by the Democrats. The Senate has also repeatedly rejected the CR offered by the Democrats. The Democrats’ CR contains their demands and would last until October 31.

The shutdown impacts many issues important to NAIFA members. There will be almost no regulatory activity until the government reopens. Thus, there will be no progress on regulatory initiatives such as the agencies’ announced intentions to rework the fiduciary rules, to rescind the current worker classification regulation, to “facilitate” inclusion of “alternative investments” (including annuities) in retirement savings plans, and to consider noncompete agreement rules.

Prospects: The federal government shutdown is already more than two weeks old. Most Washington insiders think the government shutdown will last for a while longer, as there is no visible off ramp to the situation as it currently stands. Republicans say they will discuss extension of the enhanced Affordable Care Act (ACA) premium tax credits (PTCs), but not until after the government reopens. Democrats say a resolution of the PTC issue is a prerequisite to their votes to reopen the government. Loss of the ACA PTC enhancements has been projected to result in loss of health insurance coverage for some four million people. That is the red line the Democrats say they will not cross. They say a promise to negotiate “later” is not good enough.

Democrats are also demanding repeal of the Medicaid cuts enacted last July in the tax and spending cut reconciliation law, and on a rule that would prevent Administration rescissions of already-approved appropriations. However, virtually everyone agrees that those two issues are non-starters for Republicans on the Hill and in the White House. And so, the key issue seems to be the ACA premium tax credit enhancements.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.