The Growing Budget Cost of Insurance Subsidies in the Affordable Care Act

November 16, 2012

The Affordable Care Act (ACA) is expected to become a much bigger portion of the federal budget than originally thought. Many policymakers failed to anticipate further growth in the cost of the entitlement due to the risks of faster than expected health care inflation, slow growth in incomes, and the potential for less employer-sponsored insurance in the future, says Douglas Holtz-Eakin, president of the American Action Forum.

The projections of the budgetary cost have changed drastically over the years since the ACA passed.

When the ACA was first passed, the subsidies were projected to cost $462 billion between 2012 and 2019.
But the March 2011 baseline spiked to $515.5 billion, an 11.6 percent increase. This assumed the cost of the program to be between $5 billion and $13 billion from 2014 to 2019.
And after the Supreme Court ruling, the budget estimate increased again to $574 billion or about 24.2 percent from the initial projections.
The costs were expected to be as high as $23 billion in every year of operation of the entitlement.

The subsidies for insurance through the newly established state-based exchanges also increased. To be eligible, a household must have an income that is between 100 percent and 400 percent of the federal poverty level. The amount of the subsidy is determined by the premium plan and the household's expected contribution.

Since the cost of the entitlement is a result of several factors, it is likely that rising health costs and lower wages will continue to increase the cost of the subsidies.

Source: Douglas Holtz-Eakin, "The Growing Budget Cost of Insurance Subsidies in the Affordable Care Act," American Action Forum, October 28, 2012.