What factors are increasing federal spending on ACA subsidies in 2024?
Executive summary
Federal spending on ACA premium tax-credit subsidies rose sharply in 2024 largely because enrollment grew and the government paid larger subsidies tied to rising benchmark premiums — pushing annual federal outlays from prior years into the high tens of billions (CBO/JCT and committee estimates put 2024 spending well above earlier years, with one Republican committee citing $125 billion in 2024) [1]. Analysts and budget shops also point to temporary “enhanced” subsidies enacted during the pandemic (ARPA/IRA) that increased generosity and eligibility, which directly raised per-enrollee federal subsidy amounts and overall costs [2] [3].
1. Enrollment surges: more people, more checks
One central driver of higher federal spending is growing marketplace enrollment: CMS reported more than 21 million people enrolled in marketplace plans for 2024 — a roughly 30 percent increase from a year earlier — which means the government is writing premium tax-credit checks for many more people than before [4]. CBO similarly attributes higher baseline projections of marketplace enrollment to the availability of enhanced subsidies, noting average annual enrollment over 2024–2033 is 3.2 million higher than earlier forecasts because of those enhanced credits [3]. More enrollees logically translate into larger aggregate subsidy outlays even if per-person generosity stayed the same [4] [3].
2. Enhanced subsidies raised generosity and eligibility
Temporary policy changes — the American Rescue Plan and later Inflation Reduction Act adjustments — increased subsidy generosity and removed the upper income cap for eligibility through 2025, making subsidies larger for many households and extending them to higher-income people who previously were ineligible. Analyses show that those enhancements materially raised federal subsidy costs relative to pre-pandemic rules [2] [4]. Policy shops and advocates interpret those statutory enhancements as a direct cause of the jump in spending measured for 2023–2025 [2].
3. Benchmark premiums and the dollar-for-dollar link
Premium tax credits are calculated relative to a benchmark (the second-lowest-cost silver plan), so when benchmark premiums rise, the federal subsidy obligation rises dollar-for-dollar. Several sources note that rising benchmark premiums in recent years — including 2023–2025 increases — pushed up average subsidy amounts paid to enrollees [5] [6]. Critics argue this creates an inflationary feedback loop: larger subsidies give insurers more pricing power because taxpayers pick up the tab for higher benchmark premiums (a contention made by the House Budget Committee) [1].
4. Policy design: how formula changes magnify costs
The design matters. Under the enhanced rules, required enrollee contributions were lowered and eligibility broadened, increasing subsidy amounts for those already enrolled and bringing new enrollees into the program; budget analysts note that both rising health costs and the expanded generosity of subsidies have driven growth in gross federal costs from single-digit billions in early years to far higher recent totals [2]. Congressional scorekeeping (CBO/JCT) and committees have highlighted that temporary changes through reconciliation laws increased federal expenditures compared with ACA-only rules [3] [2].
5. Disagreement over causation and policy implications
There is a sharp partisan divide over causes and cures. Democratic and many health-policy analysts emphasize that the enhancements expanded coverage and lowered out-of-pocket costs — reducing the uninsured rate and helping low- and moderate-income families [4] [7]. Republican budget writers and some committees argue the policy expanded subsidies too far, increasing federal deficits and exerting upward pressure on premiums because subsidies grow with benchmark premiums [1]. Both perspectives rely on the same mechanics — enrollment, subsidy generosity, and benchmark pricing — but they draw opposite policy conclusions [1] [7].
6. Numbers and fiscal scale: why 2024 looks different
Multiple sources document rapid growth in gross federal subsidy costs over the last decade: from roughly $18 billion in 2014 to tens of billions annually, with estimates in recent reporting and committee statements showing very large figures for the early 2020s (examples cited include $92 billion in 2023 and committee claims of $125 billion in 2024), and other budget estimates forecasting continued high costs into 2025 and beyond if enhancements persist [2] [1] [8]. These headline numbers reflect the combined effects of enrollment gains, enhanced generosity, and rising benchmark premiums [2] [4].
Limitations and what reporting does not say
Available sources document enrollment, statutory enhancements, and premium-link mechanics as principal drivers [4] [2] [6]. Available sources do not mention detailed insurer-level responses or state-funded subsidy offsets in depth beyond noting they exist in some states [9] [8]. They also do not conclusively prove an insurer-driven “inflationary” pricing strategy; that is a contested interpretation offered by some committees and critics [1].
Bottom line: higher 2024 federal spending on ACA subsidies is the predictable result of more enrollees, more generous temporary subsidies, and subsidy formulas tied to benchmark premiums — a mix that both expands coverage and raises federal outlays, and that has become a partisan fulcrum in budget debates [4] [2] [1].