Updated projection from CBO


July 1, 2016

Federal Health Insurance Subsidies for People Under Age 65

The Affordable Care Act (ACA) requires a set budget and an annual analysis of costs for its broad effects on tax treatment for employment-based coverage, Medicaid costs for those under age 65, and other payments directly related to the health care law.

In 2016, the Congressional Budget Office (CBO) and the staff of the Joint Contracts Tribunal (JCT) are projecting federal taxes, subsidies, as well as penalties associated with health insurance coverage for people under age 65 to net approximately $660 billion. This is equal to 3.6 percent of the nations’ gross domestic product (GDP). That percentage is expected to rise by 5.4 percent annually until reaching $1.1 trillion in 2026 equaling 4.1 percent of the (GDP).

The report estimates anticipate about 244 million non-institutionalized residents (not residing in a health or elderly care facility) under age 65 will have health insurance on an average given month throughout the year. The following estimates comprise the total:

  • Two-thirds are expected to have employer-based coverage
  • One-quarter will be subsidized through Medicaid or the Children’s Health Insurance Program (CHIP).
  • A smaller number will have individual coverage purchased privately or through the ACA health insurance marketplaces or coverage provided by Medicare and other sources.
  • The number of uninsured people under age 65 in 2016 is expected to be 27 million which equals 10 percent of the population.

Health insurance coverage for people under age 65 includes 90 percent of the noninstitutionalized population under 65 who expect to have health insurance coverage during 2016. The main sources of coverage are employment-based plans, Medicaid, non-group policies, and Medicare.

Further projections from 2017 until 2026 show a rise in the number of insured from 246 million to 253 million. The number of uninsured will rise as well from 26 to 28 million with 10 percent of those being under age 65. Sources of coverage for those who are insured will vary with only slight increases or decreases in number.

Employment-Based Statistics

Employment-based coverage is clearly shown as the most common source of health insurance coverage and is obtained through an individual or family member’s employer. Estimates show about 155 million people at about 57 percent of the under age 65 population will be covered in 2016. It is projected to decline to 152 million in 2019 and to stay level through 2026, with 54 percent of the population under age 65 enrolled in employment-based coverage. The reason for this is the result of employers declining to offer coverage and employees rejecting offers for coverage elsewhere. Also, a gradual decline in employer-based coverage had already begun before ACA law was signed due to insurance premiums outgrowing the cost of living over a period of thirty years. Changes in the labor force and the aging population have also impacted these numbers.

Subsidies for employment-based coverage are expected around $266 billion in 2016 with total costs for the time frame from 2017-2026 expected to be $3.6 trillion overall.

The shift occurring in compensation of employment-based coverage reducing nontaxable health benefits and increasing taxable income will reduce deficits by $5 billion in 2016. The period between 2017 and 2026 increases to a total of $248 billion. An additional increase of $9 billion in 2016 from Social Security is expected as well, boosting the revenue from 2017-2026 to $239 billion. The reasons are as follows:

  • higher federal tax receipts
  • reducing costs from certain refundable tax credits
  • larger Social Security benefits paid due to higher employee wages

Subsidized coverage enrollment is expected to rise from 2016 to 2018 as more people learn how to use the state marketplaces and as the penalties for being uninsured are increased to a permanent level.

Medicaid and CHIP Statistics

Sixty-two million noninstitutionalized individuals under the age of 65 are covered by Medicaid. As the second largest source of insurance coverage for 2016, it will increase to 69 million by 2026. Fifteen million are newly eligible through the ACA’s Medicaid expansion and other eligibility requirements.

Six million people, largely children, will be enrolled in CHIP in 2016 and that is expected to decrease to about 2 million in 2026 due to declining funding support. Under current law, initial funding for CHIP expires at the end of 2017 and becomes an annualized amount of $6 billion. Fewer people would be able to afford enrollment and will obtain coverage through the marketplaces, Medicaid, or an employer, or become uninsured.

Medicaid and CHIP are expected to cover one-quarter of the population under age 65 in 2026 since the ACA boosted enrollment by asking states to expand eligibility for Medicaid to adults under age 65 whose income is equal to or less than 138 percent of the federal poverty guidelines (FPL).

In 2015, 30 states and the District of Columbia were participating in ACA Medicaid expansion and half of the newly eligible lived in those states. Participation is expected to increase 80 percent in 2026. Based on numbers in 2014 of 7 million new enrollees and then 10 million more in 2015. Eleven million are expected by the end of 2016 and should reach 15 million by 2026.

The additional cost for Medicaid and CHIP due to the ACA law is about $74 billion in 2016 and projected to be $144 billion in 2026. For the entire 2017–2026 period, that cost is expected to total $1,063 billion. Federal spending for people made eligible for Medicaid by the ACA law is projected to be $64 billion in 2016 and to total $969 billion over the 2017–2026 period.

Non-Group and Basic Health Coverage Statistics

Non-group Coverage and the Basic Health Program Insurance purchased individually is the smallest share of the population under age 65 and about 22 million people are expected to have this coverage purchased through the ACA marketplaces. These policies may or may not include subsidies depending on qualifications. An additional 1 million low-income people are estimated to participate in the Basic Health Program. About 13 million people purchased plans through the marketplaces in 2016 and about 10 million of them will receive subsidies for coverage.

Combined, the subsidies for coverage through the marketplaces and the Basic Health Program are averaging $4,240 per qualifying individual throughout 2016 and expected to rise to about $7,100 in 2026.

Non-group coverage is also subsidized in part by the income tax deduction for self-employed health insurance. The estimate for self-employed people who purchase non-group insurance is anticipated to be $53 billion over the 2017–2026 period. Medicare net costs associated with Medicare coverage for noninstitutionalized people under age 65 are $80 billion in 2016 and expected to total $979 billion over the 2017–2026 period. That amount comprises one-eighth of the Medicare program’s total projected net spending.

The average enrollment will continue to increase to 15 million people in 2017 and then to between 18 million and 19 million people each year from 2018 to 2026. Between 80 and 85 percent (14 to 16 million) of enrolled individuals are expected to qualify for subsidies when purchasing insurance each year after 2017.

National Spending Through 2026

The subsidy totals from 2017–2026 are projected to hit $8.9 trillion between federal spending for Medicaid and CHIP benefits and employment-based subsidy for people under age 65 who are not institutionalized (those in a health or elderly care facility). This number breaks down as follows:

  • Medicaid and Chip benefits for those under age 65 are expected to be about $3.8 trillion including those newly eligible for Medicaid by ACA law at 43 percent of the total net subsidy.
  • Employment-based coverage for those under age 65, for coverage excluded from income and payroll taxes, is projected to be $3.6 trillion at 41 percent of the total net subsidy.
  • Medicare benefits premium payments and other related costs for noninstitutionalized beneficiaries under age 65 are projected at $1.0 trillion or 11 percent of the total net subsidy and include mostly the disabled.
  • Subsidies for individual coverage privately or in the health insurance marketplaces and Basic Health Program are estimated at $0.9 trillion for 10 percent of the total net subsidy. Taxes and penalties received from health insurance providers, uninsured people, and employers will offset costs by about $0.4 trillion or 5 percent.

Recouping Costs Through Taxes and Penalties

Taxes and penalties related to health insurance coverage are expected to reduce the total amount of federal subsidies by $15 billion in 2016. Under ACA law, those taxes and penalties would total $441 billion over the 2017–2026 period based on current CBO and JCT estimates.

Excise Tax on High-Premium Insurance Plans

High-cost group employment coverage is subject to the ACAs excise tax scheduled to begin in 2020 after being delayed from its scheduled enactment from 2018 by The Consolidated Appropriations Act. Excise taxes on high-cost group health plans are projected to reach $18 billion over the 2017–2026 period. An expected shift in employers and workers tax liability will cause a net increase in revenues from $18 billion to a much higher number of $79 billion over the timeframe between 2017 and 2026.

Individual Mandate

Under ACA law, penalty payments referred to as an Individual Mandate will be applied to all uninsured U.S. citizens and legalized non-citizens unless qualifying for an exemption. The penalty is based on the highest of two options:

  • a fixed dollar per uninsured person in a household of $695 in 2016 adjusted annually for inflation. Children are half the rate.
  • a percentage of the difference between the household’s adjusted gross income and income threshold for tax filing at 2.5 percent in 2016 adjusted annually.

These penalties are capped according to the cost of insurance compared to income level at 8.13 percent in 2016 and also prorated when an individual is uninsured for only a portion of the year. Some are entirely exempt if their tax filing threshold is too low, they are experiencing specified hardships or part of certain religious groups. Twenty-seven million people are estimated to receive an exemption in 2016. About 3 million people will be subject to the penalty for being uninsured on an average monthly basis in 2016.

The Internal Revenue Service collected about $2 billion in penalties from uninsured people during 2014. They are estimated to jump to $3 billion in 2016 and total $38 billion between 2017–2026.

Tax on Health Insurance Providers

The ACA law assesses an excise tax on Health insurers based on a total amount that is divided among them depending on their share of total qualified premiums charged the year prior. Self-insured plans, specified state government entities, and tax-exempt providers are completely or partly exempt.

Fiscal year revenues from the tax began collection in 2014 and projected to total $11 billion in 2016 then fall to about $1 billion in 2017 due to recent legislation placing a moratorium on that tax for 2017. The tax would reach about $13 billion in 2018 and rise steadily to about $21 billion by 2026. This would total $156 billion within 10 years.

Employer Penalties

If a company has full-time employees receiving subsidies in the marketplace and it does not offer qualified health plans by ACA standards, they are subject to penalty.

Companies affected will have at least 50 full-time equivalent employees. Those penalties are estimated at a total of $228 billion between 2017–2026. It is expected the companies in this position will shift the costs of the penalties to employees by lowering taxable wages and reduce the deficit to $178 billion.


The ACA law is responsible for 24 million additional people having health insurance coverage that were previously uninsured and there are many millions waiting to enroll in the next decade. Regulations governing the health insurance marketplaces and laws allowing states to expand Medicaid coverage are largely responsible.

Reasons for enrollment increases are based on the ACA’s individual mandate, efforts to inform the public of the purpose and intent of the new law, opportunities for eligible people to apply for coverage through the health insurance marketplaces, and enrollment of many more people who would not have been eligible for Medicaid prior to the law.

In 2016, tax credits and subsidies total $43 billion and are projected to increase to $106 billion in 2026. Between 2017 and 2026 it will total $866 billion. These include the following:

  • premium tax credits
  • cost-sharing subsidies
  • basic health coverage payments
  • net spending and revenues for risk adjustment and reinsurance
  • grants to states

The costs of ACA insurance coverage after 2026 will slow considerably when Medicaid expansion is complete, CHIP funding is capped, and both have costs effectively regulated. Excise taxes on high-premium insurance coverage will equalize more of the gross costs of the ACA’s insurance coverage laws over time and affect an increasing share of coverage offered through employers because premiums for health insurance are projected to increase beyond the tax liability threshold and create more revenue.

Resources and Links:

Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2016 to 2026 https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51385-HealthInsuranceBaseline.pdf

Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2016 to 2026 https://www.cbo.gov/publication/51385#section

Federal Subsidies for Health Insurance Coverage for People Under Age 65: Tables From CBO’s March 2016 Baseline https://www.cbo.gov/sites/default/files/51298-2016-03-HealthInsurance.pdf

ACA Current costs infographic 2, Google Search

ACA Current costs infographic, Google Search

Under age 65 Infographic, Google Search

Short link to Obama Infographic http://wp.me/a6DhRC-cU

Short link to CBO Update Graph http://wp.me/a6DhRC-cV

Short Link to ACA Costs for Health Care for People Under Age 65 Graph, http://wp.me/a6DhRC-cX