Executive Health Administration

Affordable Care Act Subsidies in Perspective

[fa icon="calendar'] Mar 16, 2015 8:49:00 AM / by William D. Leach, Ph.D.


On January 26, the UK’s Daily Mail ran a headline "Obamacare program costs $50,000 in taxpayer money for every American who gets health insurance." The claim was repeated in various blogs and news sites, drawing the attention of fact-check organizations, which criticized the British tabloid for glossing over the fact that this was a 10-year total (not the annual cost), and for conflating insurance subsidies with several other provisions of the health care law.

The actual cost will be closer to $268 per month per person, which works out to $3,216 per year.  According to the Department of Health and Human Services, this is the cost of the average subsidy for the 6.5 million people who had enrolled via the federal exchange for 2015 coverage, as of January 30.  An earlier Congressional Budget Office report had projected somewhat larger subsidies, averaging $4,330 per year for 2015.

With the politics of the Affordable Care Act subsidies in full swing, and the Supreme Court set to rule this summer on whether the IRS can provide the subsidy in the 37 states that rely on the federal Marketplace, now is a good time to place ACA subsidies in perspective by examining their fiscal impacts relative to other social welfare programs.

On a household level, the impact of the subsidy is large. The subsidy covers about 75% of the cost of an insurance policy. Without the subsidy, many people would either forgo insurance or incur a substantial financial burden by purchasing a policy partly to avoid the tax penalty known as the insurance mandate, which rises to 2% of income for 2015. 

Relative to other social welfare programs, however, $268/month is small potatoes. The first graph below compares the monthly benefit provided by ACA subsidies and 14 other major programs. ACA subsidies turn out to be one of the least-generous benefits, second only to food stamps with their average monthly value of $125 per adult or child served.

The most expensive benefit is Medicaid for disabled adults, with an average expenditure per beneficiary of $1,500 per month. Following close behind are unemployment insurance benefits ($1,400), Medicaid for seniors ($1,300), and Social Security checks (OASDI) for retired workers and spouses ($1,250), survivors of retired workers ($1,100), and disabled workers ($1,000). 


Another way to compare programs is by their total cost to state and federal government. This perspective factors in the number of people benefiting from each program at any given time. For example, because the number of concurrent unemployment claims is relatively small when the economy is expanding (currently around 2.8 million), unemployment insurance is simultaneously one of the most generous programs and one of the least expensive overall. The second graph displays the overall cost of each program. By this measure, Social Security, Medicare, and Medicaid total around $1.9 trillion per year, dwarfing the other social welfare programs.  


Assuming 9 million people purchase subsidized insurance policies on the state and federal exchanges for 2015, ACA subsidies will cost about $29 billion, or 1.3% of the $2.2 trillion devoted to all 15 major programs. According to the CBO’s latest projections, the number of individuals with subsidized ACA policies could double over the next 10 years, and the total cost of the subsidies could triple or quadruple depending on the rate of health care inflation. 

In summary, ACA marketplace subsidies have grown the welfare state by a small fraction (less than 2%), and the monthly cost of these subsidies is modest when compared to other social welfare programs. 

In a subsequent post, I will examine the average beneficiary age for the same 15 programs, focusing on how ACA insurance subsidies compare in terms of intergenerational equity and economic impact. 


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William D. Leach, Ph.D.

Written by William D. Leach, Ph.D.

Bill Leach teaches in USC's online master’s program in Public Administration at the Sol Price School of Public Policy.

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