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posted on 09 April 2016

Federal Subsidies For Health Insurance Coverage For People Under Age 65: 2016 To 2026

from the Congressional Budget Office

CBO and the staff of the JCT project that the federal subsidies, taxes, and penalties associated with health insurance coverage for people under age 65 will result in a net subsidy from the federal government of $660 billion in 2016.

The federal government subsidizes health insurance for most Americans through a variety of federal programs and tax preferences. In 2016, those subsidies for people under age 65 will total more than $600 billion, CBO and the staff of the Joint Committee on Taxation (JCT) estimate. (The government also bears significant costs for health insurance for people 65 or older, mostly through Medicare and Medicaid.)

In preparing the March 2016 baseline budget projections, CBO and JCT updated their estimates of the number of people under age 65 who have health insurance from various sources as well as their projections of the federal subsidies associated with that coverage. Those projections encompass a broad set of budgetary effects that operate under current law, including the effects of providing preferential tax treatment for employment-based coverage, costs for providing Medicaid coverage to people under age 65, and payments stemming directly from the Affordable Care Act (ACA). In this report, CBO and JCT also present estimates that focus only on those changes in coverage and federal deficits that stem from the ACA's major provisions related to health insurance coverage.

How Many People Under Age 65 Are Projected to Have Health Insurance?

By CBO and JCT's estimates, an average of about 244 million noninstitutionalized residents of the United States under age 65 will have health insurance in any given month in 2016. Almost two-thirds of them will obtain coverage through an employer, and about a quarter will be enrolled in Medicaid or the Children's Health Insurance Program (CHIP). A smaller number will have nongroup coverage that they purchase either through or outside one of the health insurance marketplaces (previously referred to as exchanges in CBO's publications) established under the ACA or coverage that is provided by Medicare or through various other sources. On average, about 27 million people under age 65 - 10 percent of that population - will be uninsured in 2016, CBO and JCT estimate (see figure below).

Health insurance coverage in 2016 for people under age 65

From 2017 through 2026, the number of people with coverage is expected to grow from 246 million to 253 million; the number of people obtaining coverage through some sources will increase slightly, and for other sources that number will decrease slightly. The number of uninsured people is also expected to rise, from 26 million to 28 million, but the portion of the under-65 population without insurance is projected to remain at about 10 percent.

How Much Are the Federal Subsidies, Taxes, and Penalties Associated With Health Insurance?

CBO and JCT currently estimate that in 2016 the federal subsidies, taxes, and penalties associated with health insurance coverage will result in a net subsidy from the federal government of $660 billion, or 3.6 percent of gross domestic product (GDP). That amount is projected to rise at an average annual rate of 5.4 percent, reaching $1.1 trillion (or 4.1 percent of GDP) in 2026. For the entire 2017 - 2026 period, the projected net subsidy is $8.9 trillion. Two types of costs account for most of that amount:

  • Federal spending for Medicaid and CHIP benefits provided to people under age 65 (excluding those who reside in a nursing home or other institution) is projected to amount to $3.8 trillion - or 43 percent of the total net subsidy. That amount includes $1.0 trillion in subsidies for people whom the ACA made eligible for Medicaid.

  • Federal subsidies associated with employment-based coverage for people under age 65, which stem almost entirely from the exclusion of most premiums for such coverage from income and payroll taxes, are projected to be $3.6 trillion - or 41 percent of the total net subsidy.

Other subsidy costs are much smaller:

  • Medicare benefits (net of premium payments and other offsetting receipts) for noninstitutionalized beneficiaries under age 65 are projected to amount to $1.0 trillion - or 11 percent of the total net subsidy. Such spending is primarily for people who are disabled.

  • Subsidies for coverage obtained in the nongroup market, including the health insurance marketplaces, and through the Basic Health Program are estimated to total $0.9 trillion - or 10 percent of the total net subsidy.

The costs of those subsidies are offset to a small extent - $0.4 trillion (or 5 percent) - by taxes and penalties collected from health insurance providers, uninsured people, and employers.

How Much Do the ACA's Insurance Coverage Provisions Cost?

The effects of the health insurance coverage provisions of the ACA are incorporated into the estimates of overall health insurance coverage and are a subset of the estimates of the net federal subsidies associated with such coverage that are discussed above. To separate the effects of the ACA's coverage provisions from those broader estimates, CBO and JCT compared their current projections with estimates of what would have occurred if the ACA had never been enacted. In 2016, those provisions are estimated to reduce the number of uninsured people by 22 million and to result in a net cost to the federal government of $110 billion. For the 2017 - 2026 period, the projected net cost of those provisions is $1.4 trillion. Those estimates address only the insurance coverage provisions of the ACA, which do not generate all of the law's budgetary effects. Many other provisions - such as various tax provisions that increase revenues and reductions in Medicare payments to hospitals, to other providers of care, and to private insurance plans delivering Medicare's benefits - are, on net, expected to reduce budget deficits.

How Have Estimates of the Cost of the ACA's Insurance Coverage Provisions Changed?

For the 2016 - 2025 period, CBO and JCT's projection of the net cost of the ACA's insurance coverage provisions is now $136 billion higher than their March 2015 estimate (from the last detailed projections that the agencies published). The largest difference from the March 2015 projection stems from an increase in projected spending for Medicaid because more people whom the ACA made eligible for Medicaid are expected to enroll than were anticipated when that projection was made. Compared with the projection made by CBO and JCT in March 2010, just before the ACA was enacted, the current estimate of the net cost of the insurance coverage provisions over the 2016 - 2019 period (the final years of the 10-year budget window used in the original report) is lower by $157 billion, or 25 percent.

How Will Future Reports Present Baseline Projections Related to Insurance Coverage?

Although CBO and JCT have included in this report estimates that separately identify the effects of the ACA's insurance coverage provisions on the federal budget, generating such estimates is becoming more difficult and less meaningful. As a result, CBO and JCT will no longer make separate projections of all of the incremental effects of the ACA's insurance coverage provisions; instead, they will present their projections of overall insurance coverage levels and related subsidies, taxes, and penalties under current law. In future years, the agencies will update and publish those broader estimates annually. Consistent with their statutory responsibilities, CBO and JCT will continue to estimate the effects of proposed legislation related to the ACA, including proposals to modify certain provisions of the law or to repeal it entirely.

[read the entire report]

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