How Much Does the Affordable Care Act Cost the Government?

The Affordable Care Act costs the federal government roughly $112 billion in marketplace premium subsidies in fiscal year 2026, down from about $140 billion in 2025, plus a large share of the roughly $708 billion Medicaid budget — much of which flows to the expansion population the law created.¹ Several taxes written into the original law to offset that spending have since been repealed, so the ACA today generates less income than its designers planned for.

Marketplace Premium Subsidies

The single largest ACA expense is the Premium Tax Credit, a refundable credit that lowers what people pay for private coverage bought through the marketplace. Because it is refundable, the government pays out cash even when the recipient owes no income tax, so it counts as direct federal spending rather than a tax break.²

The credit is pegged to the second-lowest-cost silver plan in the enrollee’s area. The government calculates that benchmark premium, subtracts the share of income the enrollee is expected to pay, and sends the difference straight to the insurer each month.² Because the formula tracks silver-plan pricing, every premium increase in the private market becomes a federal cost increase for every subsidized enrollee.

Silver Loading

One structural quirk has pushed that number well beyond original projections. The ACA requires insurers to reduce deductibles and copays for lower-income enrollees, a benefit called cost-sharing reductions. Congress never clearly appropriated the funds to reimburse insurers for those reductions, and in 2017 the Department of Health and Human Services stopped making the payments. Insurers still had to offer the lower cost-sharing, so they recovered the money by loading the unreimbursed cost onto their silver-plan premiums. Since premium tax credits are calculated off the silver benchmark, inflating silver premiums automatically inflates the subsidy the government pays on plans at every tier. The result: the federal government now spends more on premium tax credits than it would have spent funding cost-sharing reductions directly.

The 2026 Drop

From 2021 through 2025, temporarily enhanced premium tax credits — created by the American Rescue Plan Act and extended by the Inflation Reduction Act — pushed marketplace spending sharply higher. Those enhancements removed the income cap on subsidy eligibility and lowered the share of income enrollees were expected to contribute toward their benchmark premium. They expired December 31, 2025. The reconciliation bill passed in mid-2025, known as the One Big Beautiful Bill Act (H.R. 1), did not extend them and instead tightened eligibility with stricter income verification, an end to automatic reenrollment in zero-premium plans, removal of the cap on how much excess advance credit the IRS can recoup, and new restrictions on subsidies for certain immigrants and for people denied Medicaid over work requirements. The return to pre-2021 subsidy levels is the main reason CBO projects marketplace spending to fall from about $140 billion in 2025 to about $112 billion in 2026.¹

Medicaid Expansion

The ACA let states extend Medicaid to adults with household incomes up to 138 percent of the federal poverty level, regardless of whether they have children or a disability.³ The federal government covers a far larger share of costs for this expansion population than it does for traditional Medicaid enrollees.

The statutory phase-down for the federal share ran as follows:

2014–2016: 100 percent federal funding
2017: 95 percent
2018: 94 percent
2019: 93 percent
2020 and every year after: 90 percent

That 90 percent match is now permanent, leaving states responsible for only 10 percent of expansion costs.⁴ The standard Federal Medical Assistance Percentage for traditional Medicaid ranges from a floor of 50 percent to a ceiling of 83 percent, depending on a state’s per capita income relative to the national average.⁵ Wealthier states get the 50 percent minimum; lower-income states get more. The 90 percent expansion match exceeds even the highest traditional rate, which makes each expansion enrollee more expensive to the federal treasury than a comparable traditional enrollee.

CBO projects total Medicaid spending at roughly $708 billion in fiscal year 2026, though that number covers all Medicaid, not just the expansion group.¹ Every additional expansion enrollee triggers a mandatory 90 percent federal match on their medical costs, so federal exposure in this category rises with both enrollment and medical inflation.

Taxes Still Funding the ACA

The law created several taxes to offset its spending. Two major ones remain in force, and a fee on drug manufacturers continues to bring in billions.

Net Investment Income Tax

A 3.8 percent tax applies to investment earnings such as interest, dividends, capital gains, and rental income for individuals whose modified adjusted gross income exceeds $200,000, or $250,000 for married couples filing jointly. Estates and trusts pay the same 3.8 percent rate on undistributed net investment income above a much lower threshold.⁶ It generated roughly $59.8 billion in tax year 2021, the most recent aggregate figure publicly available, making it the single largest ACA-related revenue source.

Additional Medicare Tax

An extra 0.9 percent sits on top of the standard 1.45 percent Medicare payroll tax for wages above $200,000 for single filers, or $250,000 for married couples filing jointly. The same 0.9 percent applies to self-employment income above those thresholds.⁷ Only the employee pays; employers do not match it. The thresholds are not indexed for inflation, so wage growth pulls more workers into the tax over time.

Branded Prescription Drug Fee

Manufacturers and importers of brand-name prescription drugs pay a collective annual fee of $2.8 billion, divided among companies in proportion to their sales to certain government health programs.⁸ It has been collected since 2011.

Taxes That Have Been Repealed

Several revenue sources built into the original law no longer exist, widening the gap between ACA spending and ACA receipts.

Individual mandate penalty. The Tax Cuts and Jobs Act of 2017 reduced the penalty for going without coverage to zero starting in 2019. The federal government collects nothing from this provision.
Health insurance provider fee. Insurers originally paid an annual fee based on market share. Congress repealed it effective 2021 in a government spending bill enacted in December 2019.
Medical device excise tax. A 2.3 percent excise tax on certain medical device sales was permanently repealed by the Further Consolidated Appropriations Act of 2020 after a multi-year moratorium.⁹
Cadillac tax. A 40 percent excise on high-cost employer-sponsored plans was repeatedly delayed and repealed in the same 2019 legislation. It never collected any revenue.

When those taxes were repealed, the Joint Committee on Taxation estimated that the three excise taxes alone — Cadillac, insurance provider fee, and medical device — would have generated about $373 billion in federal revenue over the following decade. That money is no longer available to offset ACA spending.

Marketplace Operating Costs

Healthcare.gov itself does not run primarily on annual congressional appropriations. It is funded by user fees charged to every insurer that sells plans on the platform. For the 2026 benefit year, the user fee is 2.5 percent of each enrollee’s monthly premium on the federally facilitated marketplace, and 2.0 percent for state-based marketplaces that use the federal technology platform.¹⁰

The IRS also devotes staff and resources to ACA work, including processing Form 1095-A, reconciling advance premium tax credits on individual returns, and collecting the branded prescription drug fee. Those costs sit inside the agency’s broader operating budget and are not broken out as a separate ACA line item.

1
Congressional Budget Office. Health Care
2
Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan
3
HealthCare.gov. Medicaid Expansion and What It Means for You
4
Office of the Law Revision Counsel. 42 USC 1396d – Definitions
5
eCFR. 42 CFR 433.10 – Rates of FFP for Program Services
6
Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
7
Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax
8
Federal Register. Statutory Updates to Branded Prescription Drug Fee Regulations
9
Internal Revenue Service. Medical Device Excise Tax
10
CMS. HHS Notice of Benefit and Payment Parameters for 2026 Final Rule