Health coverage in the United States is marked by a blend of private and public insurance options that leaves about 8% of the population uninsured. This coverage system has evolved over the years, most recently with the implementation of the Affordable Care Act (ACA), which aimed to reduce the uninsured rate by expanding Medicaid, creating health insurance Marketplaces for individuals, and providing subsidies to make the coverage more affordable. Many factors, including economic conditions, federal and state policy changes, and significant health crises, such as the COVID-19 pandemic, influence the uninsured rate. The ACA and policy changes designed to protect coverage during the pandemic led to increased health coverage overall; however, passage of the 2025 Federal Budget Reconciliation Bill (referred to as the One Big Beautiful Bill Act) along with other policy changes are expected to increase significantly the number of people who are uninsured over the next ten years.

Health coverage in the U.S. is a complex patchwork of private and public insurance coverage options. In 2023, most residents had private insurance coverage, with nearly half covered by an employer-based plan. About 1 in 5 U.S. residents received coverage through the Medicaid program, the federal and state-financed comprehensive health coverage program for low-income people. Another roughly 15% of the population had health coverage from the federal Medicare program, which covers seniors and people under age 65 with long-term disabilities. About 6% of the population had private non-group insurance either purchased through the ACA Marketplace or off-market, and just over 1% of the population was covered through the military’s TRICARE or VA health care programs. The uninsured rate for the total population was 7.9% for the year (Figure 1). (In some cases, people have multiple forms of coverage. For example, about 12 million people are enrolled in both Medicare and Medicaid and are classified in these figures as covered by Medicaid.)

In 2023, there were 25.3 million uninsured residents ages 0-64, and the uninsured rate among the population ages 0-64 was 9.5%, the lowest rate in U.S. history (Figure 2). The analysis of the uninsured population focuses on coverage among people ages 0-64 since Medicare offers near-universal coverage for seniors—just 457,000, or less than 1%, of people over age 65 were uninsured.

Prior to the implementation of the ACA, gaps in the public insurance system and lack of access to affordable private coverage left over 40 million people without health insurance. The ACA expanded Medicaid coverage to nearly all adults with incomes up to 138% of the federal poverty level (FPL) (the poverty level in the continental U.S. is $15,650 for a single individual in 2025) and created new health insurance Marketplaces through which individuals can purchase coverage with financial help to afford premiums and cost-sharing. Following the passage of the ACA in 2010 and the rollout of the coverage provisions, the number of uninsured people ages 0-64 dropped to 27 million in 2016. The ACA envisioned that all states would adopt the Medicaid expansion; however, a Supreme Court ruling in 2012 made expansion optional for states. As of early 2025, 40 states and Washington, D.C. had adopted the ACA’s Medicaid expansion (Figure 3).

The declines in uninsured rates following implementation of the ACA coverage expansions were largest among poor and near-poor individuals, particularly adults. People of color, who had higher uninsured rates than White people prior to 2014, had larger coverage gains from 2013 to 2016 than White people, although the coverage disparities were not eliminated.

Before implementation of the ACA, expansions of Medicaid coverage and the enactment of the Children’s Health Insurance Program (CHIP) helped to lower the uninsured rate for children. Changes in the 1980s and early 1990s expanded Medicaid eligibility levels for children and pregnant people, and the establishment of CHIP in 1997 provided coverage for children with incomes above Medicaid thresholds. When states implemented CHIP, extensive outreach efforts along with the adoption of streamlined processes facilitated enrollment of children in Medicaid and CHIP and reduced the number of uninsured children.

After declining through 2016, the number of uninsured people and the uninsured rate began increasing in 2017 and continued to grow through 2019. Generally favorable economic conditions as well as policy changes during the Trump Administration, such as reduced funding for outreach and enrollment assistance, encouraging periodic Medicaid eligibility checks, changes to immigration policy related to public charge rules, and approval of some demonstration waivers to restrict enrollment led to a decline in Medicaid enrollment, which likely contributed to the increase in uninsured people.  

With the arrival of the COVID-19 pandemic, policies adopted to protect coverage drove a decline in the uninsured population from 2019 to 2023. The Families First Coronavirus Response Act required states to keep people continuously enrolled in Medicaid in exchange for enhanced federal funding. Medicaid continuous enrollment ended in March 2023, and most states completed renewals for individuals who enrolled during continuous enrollment by December 2024. In addition, the American Rescue Plan Act (ARPA) provided temporary enhanced ACA Marketplace subsidies to make Marketplace coverage more affordable, and these subsidies were renewed for another three years in the Inflation Reduction Act of 2022. These enhanced subsidies will expire at the end of December 2025 unless Congress acts to extend them.

Most people who are uninsured are adults under age 65, are in working low-income families, are people of color, and, reflecting geographic variation in income, immigration status, and the availability of public coverage, live in the South or West. In 2023, over 8 in 10 people ages 0-64 who were uninsured were adults and 16% were children.

Nearly three-quarters (73.7%) of the uninsured population ages 0-64 had at least one full-time worker in their family and an additional 11.2% had a part-time worker in their family (Figure 4). More than 8 in 10 (80.9%) people ages 0-64 who were uninsured were in families with incomes below 400% FPL in 2023 and nearly half (46.7%) had incomes below 200% FPL. People of color comprised 62.9% of the uninsured population ages 0-64 in 2023 despite making up about 46% of residents ages 0-64. Most uninsured individuals (74.2%) were U.S. citizens, while 25.8% were noncitizens in 2023. Nearly three-quarters lived in the South and West.

Adults ages 19 to 64 are more likely to be uninsured than children. The uninsured rate among children (5.3%) was less than half the rate among adults ages 19-64 (11.1%) in 2023, largely due to the broader availability of Medicaid and CHIP coverage for children than for adults. Among adults ages 19-64, men had higher uninsured rates than women in 2023 (12.6% vs. 9.5%).

Reflecting persistent disparities in coverage, people of color are generally more likely to be uninsured than White people. In 2023, American Indian and Alaskan Native (AIAN) and Hispanic people ages 0-64 had the highest uninsured rates at 18.7% and 17.9%, respectively, which were nearly three times higher than the uninsured rate for White people (6.5%). Uninsured rates for Native Hawaiian or Pacific Islander (NHPI) (12.8%) and Black people (9.7%) ages 0-64 were also higher than the rate for their White counterparts (Figure 5). These differences in uninsured rates are driven by lower rates of private coverage among these groups. Medicaid coverage helps to narrow these differences but does not fully offset them.

Noncitizens are more likely than citizens to be uninsured. Nearly one-third of noncitizen immigrants were uninsured in 2023 while the uninsured rate for U.S.-born citizens was 7.5% and 8.9% for naturalized citizens. One in 4 children has an immigrant parent, including over 1 in 10 (12%) who are citizen children with at least one noncitizen parent.

Uninsured rates vary by state and by region and were generally higher in states that had not taken up the ACA Medicaid expansion in 2023 (Figure 6). Economic conditions, availability of employer-sponsored coverage, and demographics are other factors contributing to variation in uninsured rates across states.

The fragmented U.S. health coverage system leads to gaps in coverage. While employer-based insurance is the prevalent source of coverage for the population ages 0-64, not all workers are offered coverage by their employer or, if offered, can afford their share of the premiums. Medicaid covers many low-income individuals, especially children, but eligibility for adults remains limited in most states that have not adopted the ACA Medicaid expansion. While subsidies for Marketplace coverage are available for many low and moderate-income people, few people can afford to purchase private coverage without financial assistance.

The cost of health coverage and care poses a challenge for the country broadly and is a significant barrier to coverage for people who are uninsured. In 2023, 63.2% of uninsured adults ages 18-64 said they were uninsured because coverage is not affordable, making it the most common reason cited for being uninsured (Figure 7). Other reasons included not being eligible for coverage (27.0%), not needing or wanting coverage (26.6%), and signing up being too difficult (23.9%).

Not all workers have access to coverage through their jobs. In 2023, 64.7% of uninsured workers worked for an employer that did not offer them health benefits. Among uninsured workers who are offered coverage by their employers, cost is often a barrier to taking up the offer. Low-income families with employer-based coverage spend a significantly higher share of their income toward premiums and out-of-pocket medical expenses compared to those with income above 200% FPL.

A decade after the implementation of the ACA coverage options, 10 states have not adopted the Medicaid expansion, leaving 1.4 million uninsured people without an affordable coverage option. A coverage gap exists in states that have not adopted the expansion for poor adults who earn too much to qualify for Medicaid coverage but not enough to be eligible for subsidies in the Marketplace.

Lawfully-present immigrants generally must meet a five-year waiting period after receiving qualified immigration status before they can qualify for Medicaid. States have the option to cover eligible children and pregnant people without a waiting period, and as of January 2025, 38 states have elected the option for children, and 32 states have taken up the option for lawfully-present pregnant individuals. Under current law, lawfully-present immigrants are eligible for Marketplace tax credits, including those who are not eligible for Medicaid because they have not met the five-year waiting period. Undocumented immigrants are ineligible for federally-funded coverage, including Medicaid and Marketplace coverage, although some states provide fully state-funded health coverage to these individuals.

Health care provisions in the 2025 reconciliation package narrow eligibility for federally-subsidized health coverage, including Medicaid and CHIP, Medicare, and Marketplace subsidies, to a limited group of lawfully-present immigrants. These changes take effect on January 1, 2027 and are expected to increase the number of lawfully residing immigrants without health coverage.

Though financial assistance is available to many of the remaining uninsured under the ACA, not everyone who is uninsured is eligible for free or subsidized coverage. Nearly 6 in 10 (14.5 million) uninsured individuals in 2023 were eligible for financial assistance through Medicaid or subsidized Marketplace coverage (Figure 8). However, over 4 in 10 uninsured (10.9 million) were outside the reach of the ACA because their state did not expand Medicaid, their immigration status made them ineligible, or they were deemed to have access to an affordable Marketplace plan or offer of employer coverage (Figure 8).

Lacking health insurance in the United States can impact a person’s access to health care, their financial situation, and their health status. It can also broadly impact a community’s public health (illustrated by the COVID-19 pandemic) and the economy through lower productivity.

Adults who are uninsured are almost five times more likely than adults with insurance to report not having a usual source of care, which is often a key entry point for accessing health care whether for preventive services or for treating existing conditions. Consequently, in 2023, nearly half (46.6%) of uninsured adults ages 18-64 reported not seeing a doctor or health care professional in the past 12 months compared to 15.6% with private insurance and 14.2% with public coverage (Figure 9). Uninsured individuals are also more likely to face cost barriers to accessing needed care. In 2023, uninsured adults were nearly three times more likely to report not getting medical care due to cost compared to publicly insured adults and four times more likely than privately insured adults (22.6% vs 7.7% and 5.1%, respectively).

The lack of access to health care and a delay in seeking care due to costs mean uninsured people are more likely to be hospitalized for avoidable health problems and to experience declines in their overall health. Research also shows that when they are hospitalized, uninsured people receive fewer diagnostic and therapeutic services and have higher mortality rates than those with insurance.

Uninsured individuals often face unaffordable medical bills when they do seek care, which can lead to medical debt and other forms of financial instability. Nearly half of uninsured adults reported difficulty paying for health care, compared to 21% of insured adults and over 8 in 10 (84%) uninsured adults said they worried that health care costs would put them in debt or increase their existing debt, compared to 71% of adults with insurance (Figure 10). Uninsured adults are also more likely to face negative consequences due to health care debt, such as using up savings, having difficulty paying other living expenses, or borrowing money.

Driven by pandemic-era policies to promote health coverage, the number of people without insurance and the uninsured rate dropped to historic lows in recent years. Although millions of people lost Medicaid coverage during the unwinding of continuous enrollment, Medicaid enrollment remains higher than in February 2020, before the start of the pandemic. Enhanced Marketplace subsidies adopted during the pandemic led to record Marketplace signups, with enrollment topping 25 million in 2025. States have also taken action to reduce the number of people who are uninsured. In 2023, two states, North Carolina and South Dakota, newly adopted the Medicaid expansion, and several states have expanded state-funded coverage for certain individuals regardless of immigration status.

However, actions by Congress and the Trump Administration threaten to reverse these recent coverage gains. Congress passed the 2025 Federal Budget Reconciliation package on July 3, 2025, which makes significant changes to Medicaid and ACA Marketplaces, and President Trump signed the reconciliation package into law on July 4, 2025.  The Congressional Budget Office (CBO) estimates that the law will increase the number of people without health insurance by 10 million. The expiration of the enhanced premium tax credits for Marketplace enrollees, which will happen at the end of 2025 unless Congress takes action to extend them, will further increase the number of people without health insurance. CBO projects that over 14 million more people will be uninsured in 2034 due to the combined effects of the reconciliation package and the expiration of the enhanced Marketplace subsidies. In addition to these potential coverage losses, the Trump administration’s increased immigration enforcement activities are likely to have a broad chilling effect that could cause immigrants to decide to disenroll or not enroll themselves or their children, most of whom are U.S. citizens, in health coverage programs even if they are eligible due to immigration-related fears.

Enactment of the ACA helped close some gaps in our fragmented health coverage system and led to a significant decline in the number of people who were uninsured. Recent efforts built on that success to further shrink the share of people without insurance. Yet, despite this success and the ACA’s continued favorability—the public has a favorable view of the ACA by a 2 to 1 margin—policymakers enacted cuts to federal support for Medicaid and ACA coverage to fund other budget priorities. The impact on health coverage and people’s ability to access needed health care services will be significant.

• Key Facts about the Uninsured Population 
• How Many Uninsured Are in the Coverage Gap and How Many Could be Eligible if All States Adopted the Medicaid Expansion?
• A Closer Look at the Remaining Uninsured Population Eligible for Medicaid and CHIP
• Health Coverage by Race and Ethnicity, 2010-2023
• Key Facts on Health Coverage of Immigrants
• How Does Cost Affect Access to Health Care?
• State-Funded Health Coverage for Immigrants
• How Will the One Big Beautiful Bill Act Affect the ACA, Medicaid, and the Uninsured Rate?

Tolbert, Jennifer, Bell, Clea, Cervantes, Sammy & Singh, Rakesh, The Uninsured Population and Health Coverage. In Altman, Drew (Editor), Health Policy 101, (KFF, October 2025) https://www.kff.org/health-policy-101-the-uninsured-population-and-health-coverage/ (date accessed).

Employer-sponsored health insurance (ESI) is the largest source of health coverage for non-elderly U.S. residents. Unlike many other nations, the U.S. relies on voluntary, private health insurance as the primary source of coverage for residents who are not elderly, poor or disabled. Providing health insurance through workplaces is an efficient way of offering coverage options to working families, and the tax benefits of employer-based coverage further enhance its attractiveness. Yet, ESI often results in uneven coverage, especially for those with low wages or those working at smaller firms. Overall, 60% of people under age 65, or about 164.7 million people, had employment-sponsored health insurance in 2023. The level of coverage varies significantly with income and other factors, even among working families.

There are several ways people get private health insurance. One is by purchasing coverage directly from an insurer, often with the help of an insurance agent or through an online platform such as Healthcare.gov. Income-based premium assistance is available under the Affordable Care Act (ACA). This is called individual or non-group health insurance. The second is coverage under a policy or plan offered by a sponsoring group, such as an employer, union or trade association. This is called group health insurance. When an individual is sponsored specifically by an employer (or sometimes jointly by one or more employers and a union or by a group of employers), it is often referred to as employer-sponsored health insurance, or ESI.

The word “insurance” is something of a misnomer here. An employer providing health benefits for workers and their families (“plan enrollees”) can fund them in one of two ways. Employers may purchase a health insurance policy from a state-licensed health insurer, which is referred to as an insured plan. Alternatively, the employer can pay for health care for the plan enrollees directly with its own assets, referred to as a self-funded plan. Employers with self-funded plans often protect themselves from unexpected high claim amounts or volume by purchasing a type of insurance referred to as stop-loss coverage. As discussed below, most ESI plan enrollees are covered by large employers, and most large employers self-fund their health benefit plans.

Another confusing set of phrases used in conjunction with health insurance, including ESI, is “health plan” or just “plan”. The terms can refer to an entity offering coverage (e.g., Aetna) or a particular coverage option offered by an insurer or employer (e.g., the PPO plan option). However, the terms “employee benefit plan” and “plan” have specific meanings in federal law, and invoke several legal obligations for employers when they offer certain benefits to their workers and their family members. Under the Employee Retirement Income Security Act, or ERISA, an employee benefit plan, or plan, is created when a private employer creates a plan, fund or program to provide certain benefits, including health benefits, to employees. ERISA creates a structure of disclosure, enforcement and fair dealing regarding the promises made by employers to enrollees in employee benefit plans. However, ERISA does not apply to the health benefit plans created by public plans or churches, although the word plan is often still used to describe benefits offered in these settings.

ESI plans can be differentiated across several dimensions.

Comprehensive or limited benefits

Employers offer different types of health benefit options to employees. These include comprehensive benefit plans, which cover a large share of the cost of hospital, physician and prescription costs that a family might incur during a year; service-specific benefits, such as dental or vision care plans; and supplemental benefit plans, which may provide a limited additional benefit to enrollees if certain circumstances occur (e.g. $100 per day if hospitalized). The discussion here will be limited to comprehensive benefit plans.

Open or closed provider networks

Health plans contract with hospitals, physicians, pharmacies and other types of health providers to provide plan enrollees with access to medical care at a predetermined cost. Plan enrollees receiving services from one of these providers know that their financial liability is limited by their deductible and other cost sharing amounts specified in their benefit plan. A closed-network plan is one where, absent special circumstances, an enrollee is only covered if they receive care from a provider in their plan’s network of contracted providers. In an open-network plan, an enrollee still has some coverage if they receive care from a provider not in the plan network, although they will likely face higher cost sharing under their benefit plan, and the provider may ask them to pay an additional amount (known as balance billing). Health maintenance organization (HMO) and exclusive provider organization (EPO) plans are two types of closed network plans. Preferred provider organization (PPO) and point of service (POS) plans are two types of open network plans.

Small and large group markets

Federal and state laws divide ESI into the small group and the large group market, based on the number of full-time equivalent employees (FTEs) working for the employer sponsoring the plan. Federal regulation states that employers with fewer than 50 FTEs are often in the small group market and employers with at least 50 FTEs are in the large group market. However, states have the option to raise the small group market limit to fewer than 100 FTEs. The regulatory requirements for the small and large group markets differ somewhat. Generally, the small group insured market is subject to more extensive rules about benefits and ratings. Large employers are potentially subject to financial penalty under the ACA if they do not offer health insurance coverage meeting certain requirements to their full-time employees.

The drafters of the ACA intended to provide coverage options to those without access to employer-sponsored coverage without encouraging employers to drop coverage. To achieve this balance, the ACA requires that employers with at least 50 FTEs offer health benefits which meet minimum standards for value and affordability or pay a penalty. The so-called ‘employer mandate’ constitutes two separate penalties.

First, employers are taxed if they do not offer minimum essential coverage to 95% of their full-time employees and their dependent children. This generally requires that employers offer major-medical coverage and not a limited benefit plan. Employers face this penalty when at least one of their employees receives an advance premium tax credit (APTC) to purchase coverage on the health insurance exchange markets or Marketplaces. In 2024, this penalty stipulates that employers will be assessed a tax of $2,900 for each full-time employee after their first 30 employees.

Secondly, employers are penalized if the coverage they offer is not affordable or does not provide minimum value. Plans are considered to meet the minimum value standard if they cover 60% of the health spending of a typical population. In 2025, coverage was deemed to be affordable if the employee premium contribution is less than or equal to 9.02% of their household income. Employers may be charged $4,350 for each employee enrolling in subsidized Marketplace coverage.

Defining what constitutes ‘affordable’ has been the focus of considerable attention in recent years. The Obama Administration initially issued rules that workers and their dependents would be considered to have an affordable offer if self-only coverage met the affordability test. With many employers requiring much larger premium contributions to enroll dependents, this meant that as many as 5.1 million people were in households where they had to pay a larger share of their income to enroll in the plan offered by their employers without being eligible for premium tax credits. Recent rules have addressed the so-called “family glitch”, by considering the cost of family coverage when assessing affordability. While most large employers offer health benefits, many may encourage spouses and other dependents to enroll in other plans if possible. For more information on eligibility for premium credits see the Affordable Care Act chapter.

ESI is by far the most common source of private health insurance. There are two primary reasons for this. The first is that providing health insurance through the workplace is efficient, with advantages relating both to risk management and to the costs of administration. The second is that contributions towards premiums by employers and (in most cases) by employees are not subject to income or payroll taxes, providing a substantial federal and state subsidy towards the costs of ESI.

ESI Efficiencies

When people have choices about whether to buy insurance and the amount of coverage to buy, it is natural that people with the highest need for coverage (e.g., people in poorer health) will be more likely to purchase and be more willing to pay higher prices. This is called adverse selection. If insurers do not address these tendencies, their risk pools will become dominated by a relatively small share of people with the highest needs, and premiums will increase to levels that only make sense for those with very high expected costs.

There are several ways insurers seek to manage the risk profile of potential enrollees to avoid adverse selection. One is by examining the health profile of each applicant, which typically includes the applicant’s health history and pre-existing conditions. This strategy is reasonably effective, but an expensive and time-consuming process. A much lower-cost approach is to provide coverage to groups of people who are grouped together for reasons other than their health or their need for health insurance. Providing coverage through the workplace is a common way of doing this. Mostly, people choose a job because of the work, not because they need health insurance. Therefore, providing coverage through workplaces provides insurers with a fairly normal mix of healthy and less healthy enrollees if certain conditions are met. These conditions include enrolling a large share of the eligible workers in coverage (typically achieved by the employer paying a large share of the cost) and limiting the range of coverage options (to avoid adverse selection among plan types). Further, as the number of employees grows, the ability to predict future costs based on prior experience also increases, reducing the uncertainty in setting premiums for the group. As uncertainty decreases, insurers can reduce what they charge for insuring the group. Overall, the same scenario generally applies to situations where employers choose to offer a self-funded plan. Therefore, these advantages occur regardless of whether an insurer or an employer is taking on the risk.

In addition to the risk management advantages, ESI has many administrative advantages. Providing coverage through a workplace adds many employees to a risk pool through a single transaction, with no need to examine their health in most cases. Employers also provide and collect enrollment information to workers and collect the employee share of premiums, dramatically reducing the number of transactions and reducing the amount of unpaid premiums that typically occur when individuals purchase insurance directly from insurers.

Tax Advantages

Federal and state tax systems provide significant tax preferences for ESI. Generally, wages and other things of value employers provide as compensation to their workers are subject to federal and state taxes. The federal government taxes wages and other forms of income through a series of marginal rates that vary with income and the marital and filing status of the taxpayer. For example, the lowest marginal rate in 2024 for a single taxpayer was 10% for income below $11,601 and the highest rate was 37% for income above $609,350. Additionally, wages are subject to federal payroll taxes to support the Social Security and Medicare programs; employers and employees are each assessed 6.2% of wages up to a maximum wage for Social Security and 1.45% of wages with no wage limit for Medicare. Wages are also subject to state income and payroll taxes for unemployment which vary considerably.

Unlike wages, ESI provided by employers as part of their compensation to employees is not considered income under the federal income tax code, nor are they considered wages subject to federal payroll taxes (See 26 USC sections 105 and 106). Federal law also permits employers to establish programs that exclude employee contributions towards ESI from these taxes. These exclusions lower the cost of health insurance for employees. For example, just considering the federal tax advantages, if an employee earns annual wages of $100,000, an employer can provide the employee with a $20,000 family policy for an additional $20,000 in compensation. However, if ESI were subject to federal taxes, that same employee would need to earn an additional $27,460 in wages to be able to buy a $20,000 family policy with after-tax dollars, assuming a 22% marginal federal income tax rate and a combined 15.3% payroll tax for Social Security and Medicare. Looked at another way, for this employee, for every dollar that the employer raises the employee’s compensation, the employee can get a dollar of health benefits or just under 63 cents in wages after taxes. State tax laws, which follow federal definitions of income and wages in this situation, further lower the cost of ESI for workers, although the impacts are much smaller.

The exclusion of ESI from federal income tax is a long-standing and somewhat controversial part of federal tax policy, first appearing due to a decision by the War Labor Board in 1942, which in turn allowed employers to use fringe benefits to attract workers during the war. In 1954, ESI exclusion was enacted in the tax code. This tax policy, combined with the risk management and administrative advantages of group coverage, contributed to the rapid growth and continued market dominance of commercial hospital and medical insurance during this period. Detractors of the tax exclusion have argued that it encourages workers to over-consume health insurance by demanding health benefits that are richer than what they would want under a tax-neutral approach (e.g., if health benefits were taxed in the same way as wages). Richer benefits, it is argued, contribute to higher health care costs because people with better insurance use more health care than they otherwise would, since they are not facing the actual costs of care (sometimes called moral hazard). Another criticism is that the income tax exclusion favors higher-paid employees because they have higher marginal tax rates: the effective income tax benefit for a dollar of ESI is only 10 cents for a worker with very low wages, but can be up to 37 cents for those with the highest wages.

In contrast, the exclusion of health benefits from payroll taxes has the same dollar benefit for workers at all wage levels (up to the Social Security earning limit), which results in a higher percentage exclusion (share of wages) for those with lower wages. The tax exclusion was estimated to cost the federal government $312 billion (about $940 per person in the US) in income and payroll taxes in 2022.

As of March 2023, 60.4% of the non-elderly, or about 164.7 million people, had ESI. Of these, 84.2 million had ESI from their own job, 73.8 million were covered as a dependent by someone within their household, and 6.7 million were covered as a dependent by someone outside of their household.

A relatively small share of these people also held other coverage at that time: 3.2% were also covered by Medicaid or other public coverage and 0.6% were also covered by non-group coverage.

ESI coverage varies dramatically with income. In March 2023, more than 4 in 5 (84.2%) non-elderly adults with incomes at least 400% of the federal poverty level (FPL) had ESI, compared to 59.0% with incomes between 200% and 399% of the FPL and 23.9% with incomes below 200% of the FPL.

ESI also varies with age, as well as other worker characteristics. Among non-elderly people in March of 2023, people in younger age groups were less likely than those in older age groups to have ESI, and U.S. citizens were much more likely than non-citizens to have ESI. ESI coverage also varied across race and ethnic categories: compared to non-Hispanic White people, Hispanic people and non-Hispanic people who are Black, American Indian or Alaskan Native, or of mixed race were less likely to have ESI.

For people in working families to have ESI, one or more workers must work for an employer that makes coverage available to them. For workers to access ESI, they need to work for an employer that offers ESI and be eligible to enroll in coverage offered at their job. About four in five (80.8%) adult non-elderly workers worked for an employer that offered ESI to at least some employees as of March 2023. Most (93.1%) of these workers were eligible for the ESI offered at their job. Overall, in 2023, about 3 in 4 of all workers were eligible to enroll in the ESI offered at their job.

Both the share of workers working for employers offering coverage and the share of workers eligible for coverage at their jobs vary significantly by income. Among adult non-elderly workers, the share working for an employer offering ESI ranged from 60.6% for workers with incomes under 200% of the FPL to 88.2% for workers with incomes at least 400% of the FPL. Similarly, the share eligible for coverage ranged from 49.5% for workers with incomes under 200% of the FPL to 84.6% for workers with incomes of at least 400% of the FPL.

Working for an offering employer and being eligible for the offered coverage are dependent on a combination of characteristics. As of March 2023, non-elderly workers working in construction, service, sales, and farm, fishing and forestry-related occupations were less likely to be working for an employer offering ESI and to be eligible for ESI at their jobs. Full-time workers were much more likely to be working for an employer offering ESI and to qualify for coverage at their job. There also was significant variation in offer rates and eligibility within sex, age group, race and ethnicity, and citizenship.

Among non-elderly adult workers eligible for ESI at their jobs in March 2023, 74.4% were ESI policyholders. Of those who did not have ESI from their own job, 14.6% were covered by ESI as a dependent, 4.6% had Medicaid or other public coverage, 2.0% had non-group coverage, 1.1% had some other coverage, and 3.7% were uninsured. A small share of workers with ESI from their job also had other coverage at the same time: 2.4% also had Medicaid or other public coverage and 0.6% also had non-group coverage.

Among firms with three or more workers, just over half (54%) offered health benefits to at least some of their workers in 2024. Firm offer rates differed significantly with firm size. Only 46% of firms with three to nine workers offered health benefits while virtually all (98%) firms with at least 200 employees did so. While a large majority of firms are small, 84% of firms with three or more employees have fewer than 25 employees, and these firms employ just 16% of workers. Sixty-four percent of workers work for firms with 200 or more employees, where the employer offer rate is almost 100%.

Among firms offering health benefits, 25% of firms with fewer than 200 workers and 26% of larger firms offered health benefits to part-time workers in 2024.

Eighty-nine percent of firms offering health benefits offered them to dependents (e.g., spouses and children) of their workers in 2024.

Employer health insurance premiums are the total of what employers and employees pay to providers for health coverage through employment. Generally, premiums are the estimated cost of health spending for the covered population, as well as the administrative costs and fees associated with the plan. Therefore premiums usually increase when a covered population either uses more health services or the prices for health care increase. In 2024, the average total premiums for covered workers were $8,951 for single coverage and $25,572 for family coverage (for a family of four). Employer contributions to an employee’s health insurance premium are a sizeable share of an employee’s overall compensation (6.9% for private industry as of June 2023).

Premiums varied around these averages due to factors such as the age and the health of the workforce, the cost of the providers included in the network, and the generosity of the coverage. In 2024, 16% of covered workers worked at a firm with an average annual premium of at least $31,500 for family coverage. The robustness of plan offerings varies across firms, with some employers offering generous benefits to attract new employees, while others prioritize more affordable plan options. Some employers sponsor limited-benefit plans, which may cover a limited number of services but have lower costs. The average family premium for covered workers at firms with a relatively large share of lower-wage workers (firms where at least 35% of the workers earn $31,000 annually or less) is lower than at firms with fewer lower-wage workers. On the other hand, the average premiums for single and family coverage are relatively higher in the Northeast and in private not-for-profit firms. There is additional discussion of how premiums vary with firm characteristics here.

During the late 1990s and early 2000s, health insurance premiums grew at a rate considerably faster than inflation and workers’ wages. Recently, the rate of growth has moderated. For example, over the last five years, family premiums have grown 24%, roughly comparable to the rate of inflation (23%) and the change in wages (28%). When faced with higher premium costs employers can adjust their plan offerings, increase cost sharing, drop high-cost providers, or change how benefits are covered in other ways.

Workers contribute to health insurance in two ways. First, through a premium contribution, which is typically deducted from an employee’s paycheck. Then, secondly, through cost-sharing such as copays, coinsurance, and/or deductibles, which are paid when the employee utilizes services covered by their plan. While all workers enrolled in the plan must pay their premium (or have it paid by the employer), overall cost sharing is higher for workers who use more services.

Workers with health coverage in 2024, on average, were responsible for 16% of the premium for single coverage and 25% of the premium for family coverage. In dollar terms, the average annual contribution for covered workers was $1,368 for single coverage and $6,296 for family coverage.

Over time, the average premium contribution for covered workers has increased. For example, over the last 10 years, the single coverage average contribution has increased 27% and the family coverage average contribution increased 31%. At the same time, the share of the premium paid by workers has remained relatively consistent. In 2024, covered workers contributed, on average, 16% of the premium for single coverage and 25% of the premium for family coverage, which was similar to these averages a decade ago. This is because as premiums have increased over time, both employers and employees have faced similar increases on average.

There remains a lot of variation in how much workers are required to contribute to their health plan across firms, particularly within firm size. In 2024, 37% of covered workers at small firms were enrolled in a plan where the employer paid the entire premium for single coverage. This was only the case for 5% of covered workers at large firms. However, 26% of covered workers at small firms were in a plan where they must contribute more than half of the premium for family coverage, compared to 6% of covered workers at large firms. The family average contribution rate for covered workers in firms with fewer than 200 employees was 33%, which is higher than the average contribution rate of 23% for covered workers in larger firms. Small firms often approach the cost of health insurance differently than large firms, sometimes making the same employer contribution regardless of whether the employee enrolls any dependents. Similarly, some large employers encourage spouses and dependents to enroll in other plans, if they have access, through spousal surcharges.

In addition to any required premium contributions, most covered workers must pay a share of the cost of the medical services they use. The most common forms of cost-sharing are deductibles (an amount that must be paid before most services are covered by the plan), copayments (fixed dollar amounts), and coinsurance (a percentage of the charge for services). Some plans combine cost sharing forms, such as requiring coinsurance for a service up to a maximum amount or requiring either coinsurance or a copayment for a service, whichever is higher. The type and level of cost sharing may vary with the kind of plan in which the worker is enrolled. Cost sharing may also vary by the type of service, with separate classifications for office visits, hospitalizations, and prescription drugs. Plans often structure their cost sharing to encourage enrollees to reflect on their use, reducing overall utilization.

In recent years, general annual deductibles have grown in prominence in plan design. In 2024, 87% percent of covered workers were enrolled in a health plan that required an enrollee meet a deductible before the plan covered most services. The average deductible amount as of 2024 for workers with single coverage and a general annual deductible was $1,787. On average, covered workers at smaller firms face higher deductibles than those at large firms ($2,434 vs. $1,478). Generally, a substantial share of workers faced relatively high deductibles. Fifty percent of workers at small firms and 26% of workers at large firms had a general annual deductible of $2,000 or more. Over the last five years, the percentage of covered workers with a general annual deductible of $2,000 or more for single coverage has grown from 28% to 32%.

While average deductibles have not grown over the last few years, the growth over the last ten years outpaces the increases in premiums, wages and inflation. The rise in deductible costs has focused attention on consumerism in health care. Some believe that increasing deductibles will place a greater incentive on enrollees to shop for services, therefore reducing total plan spending. Alternatively, deductibles are less common in Health Maintenance Organization (HMO) plans, which use forms of gatekeeping to dissuade utilization. The growth of deductibles has had important consequences for the financial protection that health insurance provides. A multitude of plans require deductibles well in excess of the financial assets of many of their enrollees. As opposed to coinsurances and copays that accumulate throughout the year, deductible spending may require enrollees to finance relatively high expenses all at once.

In addition to looking at the average obligations enrollees face under their health plan, we can look at the actual spending incurred by enrollees in large group plans. In 2021, deductibles accounted for more than 58% of an enrollee’s cost-sharing liability, which is significantly greater than 35% of enrollee liability ten years ago.

The amount of cost sharing large group enrollees face varies, particularly around how many health services a person uses. Individuals who have a hospitalization, or a chronic condition which requires ongoing management, often incur higher cost-sharing over the year. For example, large group enrollees faced an average of $779 in cost sharing, but individuals with a diabetes diagnosis (even without complications) incurred costs of $1,585 in 2017.

While some employer health plans have relatively generous benefits, there remains a concern about affordability, particularly for lower-wage workers who do not have the assets to meet the cost-sharing required under their plan, as well as for individuals enrolling in family coverage at smaller firms. Overall, individuals in families with employer coverage spend 2.4% of their income on the worker contribution required to enroll in an employer-sponsored health plan, and another 1.4% of their income on typical out-of-pocket spending on cost-sharing. Individuals covered by employer-sponsored plans in households at or below 199% of the FPL contribute nearly 10% of their income on average towards their premiums and cost-sharing.

A key component of plan design is the out-of-pocket maximum, which caps the amount of money an enrollee spends on in-network covered benefits within a year.

The ACA requires that almost all plans have an out-of-pocket (OOP) maximum below a federally determined limit. In 2024, 14% of covered workers in plans with an OOP maximum had an OOP maximum of less than $2,000 for single coverage, while 24% of these workers had an OOP maximum above $6,000.

Today virtually all plans have preferential cost sharing for enrollees to visit providers participating in a preferred provider network. Some plans require enrollees to visit a primary care physician or other gatekeeper before they are referred to a specialist. Plans are often categorized based on these characteristics. 

Preferred Provider Organization (PPO)

PPO plans are the most common plan type. These plans typically have broader provider networks and do not require gatekeeping for specialist services. However, insurers may still use utilization management tools, such as prior authorization, to determine appropriate use and which services will be paid for under the plan. Point-of-service (POS) plans have a provider network like a PPO plan but require gatekeeping for referrals. POS plans are more common in the Northeast and among smaller firms. 

Health Maintenance Organization (HMO)

HMO plans represented 13% of covered workers in 2024. HMO enrollment has decreased over the past few decades, compared to nearly 3 in 10 workers who were enrolled in HMOs in the late 1990s. HMOs do not cover non-emergency out-of-network services, and some integrate health care financing and service delivery. Since providers in these plans are not paid on a fee-for-service basis, they are designed to encourage lower utilization to reduce costs.

High Deductible Health Plan with a Savings Option (HDHP-SO)

HDHP-SO is a relatively new plan type. This plan pairs a high deductible with either a Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA). HSA-qualified plans were first authorized in the Medicare Modernization Act of 2003 and grew precipitously until 2015. HDHP-SO plans now represent almost 3 in 10 covered workers, including almost a quarter enrolled in an HSA-qualified plan. These plans may be an HMO, PPO, or POS, meeting specified federal guidelines. HSA-qualified plans allow both employers and enrollees to contribute to a tax-preferred savings account, which enrollees can use to meet their cost-sharing requirements or save for future health spending. On average, HSA-qualified health plans have higher deductibles than other plan types and lower premiums. The growing enrollment in HSA-qualified plans has led to a growth in general annual deductibles overall. While having a higher deductible in other plan types generally increases enrollee out-of-pocket liability, this is not necessarily true for HDHP-SO plans. Many HDHP-SO enrollees receive an account contribution from their employers, reducing the higher cost-sharing in these plans. In 2024, 68% of employers offering single coverage and 77% of employers offering family coverage, as well as an HSA-qualified health plan, contributed to the enrollee’s account. On average, employers contributed $705 to single coverage HSA-qualified HDHPs and $1,297 to family coverage HSA-qualified HDHPs. Some employers may make their account contribution contingent on other factors, such as completing wellness programs. 

Employer plans typically include provider networks, in which enrollees face lower out-of-pocket expenses if they receive care from a designated provider. Firms and health plans structure their networks of providers to ensure access to care to encourage enrollees to use providers who are lower cost or who provide better care. Employees generally prefer broad network plans, and job-based plans are typically broader than those offered on the Marketplaces. Even so, some employers offer a health plan with a relatively small network of providers. These narrow network plans limit the number of providers that can participate to reduce costs and are more restrictive than standard HMO networks. In 2024, 6% percent of firms offering health benefits reported that they offer at least one narrow network plan to their employees.

More frequently, firms use tiered or high-performance networks in which providers are selected and then grouped within the network based on the quality, cost, and/or efficiency of care they deliver. Enrollees then receive lower cost sharing by choosing a provider in a lower tier.

Another way plans designate preferred providers is through “Centers of Excellence”, which are facilities or providers that health plans and employers single out as suppliers of exceptionally high-value specialty care for specific conditions. Plans and employers may encourage or require enrollees to use these designated providers to receive coverage for certain types of care.

As major purchasers of health care, many view employers as having considerable leverage in health care markets based on their network design. This leverage is dampened by a combination of factors, including the prevalence of highly concentrated provider markets, employees’ preferences for broad network plans, and the challenges of building networks capable of delivering timely access.

One specific concern is the availability of mental health providers. In 2023, most firms (91%) reported that they believed their largest plan offered timely access to primary care providers. However, only 67% of firms believed there were enough mental health providers in their largest plan’s network to provide timely access to services. As plan costs continue to rise for employers, these networks may be further limited as high-cost providers are removed to mitigate costs.

In addition to cost-sharing requirements and network design, many employers use other strategies to influence both the health of their workforce and the cost of their health plans.

One such strategy is utilization management, where insurers evaluate enrollees’ health care use. A common tool is prior authorization, where an insurer reviews the appropriateness of certain services or prescriptions before covering them. Plans may use prior authorization to limit the use of services they believe are often used inappropriately or to encourage lower-cost alternatives. In recent years, prior authorization has come under public scrutiny for delaying care and adding complexity for patients. Among large employers (those with 200 or more workers), 12% believe their employees have a high level of concern about the complexity of prior authorization requirements, and another 35% believe employees’ concern is moderate. In early 2025, many insurers pledged to voluntarily expedite their prior authorization processes and improve enrollee communication. How these changes will affect enrollees’ access to timely care remains to be seen, or if ultimately prior authorization becomes the target of new legislation.  While loosening restrictions could improve access, it may also lead to higher plan costs and premiums if more services are used.

Another approach is to promote population health, in order to improve the health and productivity of workers and their family members while also potentially reducing health care spending. Many employers try to achieve this through wellness programs, which may include initiatives such as exercise programs, health education classes, health coaching, and stress management counseling. Among large firms offering health benefits, 69% offer programs to help employees stop smoking or using tobacco, 62% offer programs to support weight loss, and 70% offer other forms of lifestyle or behavioral coaching. Overall, 79% of large firms offer at least one of these programs. Some wellness programs are tied to financial incentives or penalties, which can increase costs for enrollees who choose not to participate in wellness activities, decline health screenings, or, in some cases, fail to meet biometric targets.

While ESI seems likely to remain the dominant source of health insurance for working families, employers and working families each face challenges relating to affordability and access to care. These include: 

Ultimately, health care is expensive, and the cost of good ESI coverage can place a strain on employers and employees, particularly for workers with lower wages. Additionally, only about half of workers with incomes below 200% of the FPL are even eligible for ESI at their workplace. Can ESI be a source of affordable coverage for all working families, or are novel approaches to providing affordable coverage options needed for these families? 

Many ESI policies have significant deductibles and other out-of-pocket costs to keep the premium costs down, while increasing the cost of obtaining care for enrollees. Can and will employers continue to increase out-of-pocket costs, and, if not, how will they control the costs of ESI going forward? 

What avenues are available to employers to increase access to care for people with mental health and substance use care needs? Is telehealth a sufficient response? 

Can employers and health plans develop provider networks that provide quality health care at lower costs? 

• 2024 Employer Health Benefits Survey 
• 2024 Employer Health Benefits Chart Pack 
• Long-Term Trends in Employer-Based Coverage – Peterson-KFF Health System Tracker 
• Long-Term Trends in Employer-Based Coverage 
• Many Workers, Particularly at Small Firms, Face High Premiums to Enroll in Family Coverage, Leaving Many in the ‘Family Glitch’ 
• How many people have enough money to afford private insurance cost sharing? 
• The burden of medical debt in the United States 
• How affordability of employer coverage varies by family income 
• Increases in cost-sharing payments continue to outpace wage growth 
• What do we know about people with high out-of-pocket health spending? 
• Preventive services use among people with private insurance coverage 
• Out-of-pocket spending on insulin among people with private insurance 
• Employer Responsibility Under the Affordable Care Act 

Claxton, G., Rae, M., & Winger, A., Employer-Sponsored Health Insurance 101. In Altman, Drew (Editor), Health Policy 101, (KFF, October, 2025) https://www.kff.org/health-policy-101-employer-sponsored-health-insurance/ (date accessed).

Medicaid is the primary program providing comprehensive coverage of health and long-term care to about 80 million low-income people in the United States. Medicaid accounts for nearly one-fifth of health care spending (and over half of spending for long-term care) and a large share of state budgets. Medicaid is jointly financed by states and the federal government but administered by states within broad federal rules. Because states have the flexibility to determine what populations and services to cover, how to deliver care, and how much to reimburse providers, there is significant variation across states in program spending and the share of people covered by the program.  Changes to Medicaid and the Affordable Care Act included in the tax and spending budget reconciliation law enacted in July 2025 are expected to reduce federal Medicaid spending by $911 billion over 10 years and reduce the number of people with health insurance by 10 million (three-quarters of which stems from the cuts to Medicaid).

Medicaid is the primary program providing comprehensive coverage of health care and long-term care to about 80 million low-income people in the United States. Medicaid accounts for nearly one-fifth of health care spending (and half of spending for long-term care) and a large share of state budgets (Figure 1).

Subject to federal standards, states administer Medicaid programs and have flexibility to determine what populations and services to cover, how to deliver care, and how much to reimburse providers. States can obtain Section 1115 waivers to test and implement approaches that differ from what is required by federal statute if the Secretary of Health and Human Services (HHS) determines the waivers would advance program objectives. Because of this flexibility, there is significant variation across state Medicaid programs, and, as a result, the share of state residents covered by the program (Figure 2).

Title XIX of the Social Security Act and a large body of federal regulations and sub-regulatory guidance govern the program, defining federal Medicaid requirements and states’ options and authorities. At the federal level, the Centers for Medicare and Medicaid Services (CMS) within the Department of Health and Human Services (HHS) administers Medicaid and oversees states’ programs. States may choose to participate in Medicaid, but if they do, they must comply with core federal requirements. Not all states opted to participate in Medicaid immediately after its enactment in 1965, but by the 1980s, all states had opted in. Medicaid coverage was historically tied to cash assistance—either Aid to Families with Dependent Children (AFDC) or federal Supplemental Security Income (SSI). Over time, Congress expanded federal minimum requirements and provided new coverage requirements and options for states, especially for children, pregnant women, and people with disabilities. In 1996, legislation replaced Aid to Families with Dependent Children with Temporary Assistance to Needy Families (TANF) and severed the link between Medicaid eligibility and cash assistance for children, pregnant women, and low-income parents. The Children’s Health Insurance Program (CHIP) was established in 1997 to cover low-income children above the cut-off for Medicaid with an enhanced federal match rate (Figure 3).

In 2010, the Affordable Care Act (ACA) expanded Medicaid to nearly all nonelderly adults with income up to 138% FPL ($21,597 annually for an individual in 2025) through a new coverage pathway for parents with incomes above states’ mandatory eligibility levels for parents/caretakers and adults without dependent children who had traditionally been excluded from Medicaid coverage. However, the ACA Medicaid expansion coverage is effectively optional for states because of a 2012 Supreme Court ruling. As of July 2025, 41 states, including Washington, D.C., have expanded Medicaid (Figure 4). States receive a higher rate of federal matching funding for people who are enrolled through the expansion coverage pathway. Under the ACA, all states were also required to modernize and streamline Medicaid eligibility and enrollment processes to help individuals obtain and maintain coverage.

The COVID-19 pandemic profoundly affected Medicaid spending and enrollment. At the start of the pandemic, Congress enacted legislation that included a requirement that Medicaid programs keep people continuously enrolled in exchange for enhanced federal funding. As a result, Medicaid/CHIP enrollment grew substantially, and the uninsured rate dropped. The unwinding of these provisions started on April 1, 2023, and millions were disenrolled from Medicaid; however, Medicaid enrollment remains higher than prior to the start of the pandemic in February 2020.

Passage of the tax and spending reconciliation budget bill in July 2025 included significant changes to Medicaid that are expected to reduce federal Medicaid funding and reduce Medicaid enrollment over the next 10 years relative to what would have been expected under current law. For the first time, the law conditions Medicaid eligibility for Medicaid expansion enrollees on meeting work and reporting requirements.  These work requirements, which will go into effect on January 1, 2027, or sooner at state option, represent the largest source of federal Medicaid funding reductions and the largest source of enrollment declines in the law. The law makes other changes. Beyond work requirements, the largest cuts to Medicaid stem from provisions that would: reduce and limit provider taxes, a mechanism that nearly all states use to finance the state share of Medicaid; reduce the payments states require managed care organizations to make to health care providers (“state-directed payments”); delaying enforcement of certain provisions in the Biden administration’s rules simplifying Medicaid eligibility and renewal processes; and increasing frequencies of eligibility redeterminations for expansion enrollees. Combined, those changes and work requirements account for nearly 90% of the expected cuts in federal spending according to the Congressional Budget Office (CBO).

States are guaranteed federal matching dollars without a cap for qualified services provided to eligible enrollees. The match rate for most Medicaid enrollees is determined by a formula in the law that provides a match of at least 50% and provides a higher federal match rate for states with lower per capita income (Figure 5). States may receive a higher match rate for certain services and populations. The ACA expansion group is financed with a 90% federal match rate, so states pay 10%, and the American Rescue Plan Act included an additional temporary fiscal incentive to states that newly adopt the Medicaid expansion; however, the tax and spending law eliminated the incentive, effective January 1, 2026. In FY 2023, Medicaid spending totaled $880 billion of which 69% was federal spending. Medicaid spending growth typically accelerates during economic downturns as enrollment increases. Spending growth also peaked after the implementation of the ACA and, more recently, due to enrollment growth tied to the pandemic-related continuous enrollment provision.

Overall, Medicaid accounts for a large share of most states’ budgets and is often central to state fiscal decisions; however, state spending on Medicaid is second to state spending on elementary and secondary education, and the program is also the largest source of federal revenue for states. In state fiscal year 2023, Medicaid accounted for 30% of total state expenditures, 15% of expenditures from state funds (general funds and other funds), and 57% of expenditures from federal funds received by the state.

Social Security, Medicare , and Medicaid are the three main entitlement programs, accounting for 41% of all federal outlays in FFY 2024. Of these three programs, Medicaid is the smallest in terms of federal outlays, though it covers more people than Medicare or Social Security. Overall, federal spending on domestic and global health programs and services accounted for 29% of net federal outlays in FFY 2023, including spending on Medicare (13%), Medicaid and CHIP (10%), and other health spending (6%). Dating back to the 1980s, there have been efforts to limit federal financing for Medicaid either through a block grant to states or through a cap on spending per enrollee as a way to help reduce federal spending. Such efforts could shift costs to states, forcing them to make tough choices about whether to pay for the federal cuts, which would require higher taxes or reductions in non-Medicaid state spending, or to reduce Medicaid spending by limiting Medicaid eligibility, covering fewer benefits, or paying less to providers. Although early discussions over the tax and spending law included proposals that would have reduced the federal Medicaid match rate and imposed a cap on per-enrollee spending, these changes to Medicaid financing were not included in the final version of the bill that passed.

Medicaid is an entitlement, meaning individuals who meet eligibility requirements are guaranteed coverage. The federal government sets minimum eligibility standards, but states may expand coverage beyond these minimum requirements.  Federal minimum eligibility levels for children and pregnant individuals are set at 133% of the federal poverty level (FPL) with a mandatory 5 percentage point income disregard or effectively 138% FPL ($36,777 for a family of 3 in 2025); however, median eligibility levels for these groups were 255% FPL for children and 213% FPL for pregnant individuals as of January 2025. As a result of the ACA, the median coverage level for parents and adults without dependent children is 138% FPL, but for states that have not adopted the ACA expansion, the median eligibility for parents was 33% FPL. In non-expansion states, adults without dependent coverage are not eligible for Medicaid coverage and those with incomes below the FPL fall into the coverage gap.

Medicaid coverage is also available to certain individuals who qualify on the basis of being age 65 and older or having a disability. These coverage categories are referred to as “non-MAGI” pathways because they do not use the Modified Adjusted Gross Income (MAGI) financial methodology that applies to pathways for pregnant people, parents, and children with low incomes. In addition to considering advanced age, disability status, and income, many non-MAGI pathways also have asset limits. Medicaid generally covers individuals who qualify for Supplemental Security Income (SSI), but nearly all other non-MAGI pathways are optional, resulting in substantial state variation.  Each group has different rules about income and assets, making eligibility complex (Figure 6).

Medicaid coverage is limited for immigrants, and except for emergency services, Medicaid coverage is not available for undocumented immigrants. A number of states, however, use state funds to provide coverage to all or some undocumented immigrants.

While Medicaid covers 1 in 5 people living in the United States, Medicaid is a particularly significant source of coverage for certain populations. In 2023, Medicaid covered 4 in 10 children, 8 in 10 children in poverty,  1 in 6 nonelderly adults, and 6 in 10 nonelderly people in poverty. Relative to White children and adults, Medicaid covers a higher share of Black, Hispanic, and American Indian or Alaska Native (AIAN) children and adults. Medicaid covers over 1 in 3 people with disabilities overall (4 in 10 people with disabilities ages 19-64), who are defined as having one or more difficulty related to hearing, vision, cognition, ambulation, self-care, or independent living (Figure 7).

Medicaid provides coverage for a number of special populations.  For example, Medicaid covers 41% of all births in the United States, 42% of children with special health care needs, 5 in 8 nursing home residents, 29% of non-elderly adults with any mental illness, and 40% of non-elderly adults with HIV. Medicaid pays Medicare premiums and often provides wraparound coverage for services not covered by Medicare (like most long-term care) for nearly 1 in 5 Medicare beneficiaries (13 million).  Medicaid is a key source of coverage for individuals experiencing homelessness and those transitioning out of carceral settings, particularly in states that have adopted the Medicaid expansion.

Among the non-elderly covered by Medicaid, nearly half are children under age 19, 6 in 10 are people of color, 57% are female, and three-quarters are in a family with a full- or part-time worker. Even though most adult Medicaid enrollees are working, many do not have an offer of employer-sponsored coverage, or it is not affordable.

Medicaid covers a broad range of services to address the diverse needs of the populations it serves. In addition to covering the services required by federal Medicaid law, all states elect to cover at least some services that are not mandatory (Figure 8). All states cover prescription drugs, and most states cover physical therapy, eyeglasses, and dental care. Medicaid provides comprehensive benefits for children, known as Early Periodic Screening Diagnosis and Treatment (EPSDT) services. EPSDT is especially important for children with disabilities because it allows children access to a broader set of benefits to address complex health needs than what is traditionally covered by private insurance. Unlike commercial health insurance and Medicare, Medicaid also covers non-emergency medical transportation, which helps enrollees get to appointments, and long-term care, including nursing home care and many home care services (also known as home and community-based services, or HCBS). Coverage for long-term care is mandatory for nursing facilities, but most coverage of home care is optional. In recent years, states have expanded coverage of behavioral health services and benefits to help enrollees address social determinants of health (SDOH) like nutrition or housing.

Most people age 65 and older and many people under age 65 with disabilities have Medicare, but Medicare does not cover most LTC; instead, Medicaid is the primary payer for LTC. LTC encompasses the broad range of paid and unpaid medical and personal care services that assist with activities of daily living (such as eating, bathing, and dressing) and instrumental activities of daily living (such as preparing meals, managing medication, and housekeeping). They are provided to people who need such services because of aging, chronic illness, or disability. These services include nursing facility care, adult daycare programs, home health aide services, personal care services, transportation, and supported employment. They may be provided over several weeks, months, or years, depending on an individual’s health care coverage and level of need. There have been longstanding challenges finding enough workers to provide LTC for all people who need such services, and the COVID-19 pandemic exacerbated those issues considerably. As the population ages and advances in medicine and technology enable people with serious disabilities to live longer, the number of people in need of LTC is expected to grow.

In 2024, the median annual costs of care in the U.S. were $127,750 for a private room in a nursing home, $70,800 for an assisted living facility, and $77,792 for a home health aide. Medicare provides home health and skilled nursing facility care under specific circumstances, but the Medicare benefit is considered “post-acute” care and generally not available for people needing services on an ongoing basis. Medicaid plays a key role in access to LTC for people who qualify because LTC costs are difficult for most people to afford when paying out-of-pocket. In some cases, people only qualify for Medicaid after exhausting their savings on the costs of LTC. In 2023, Medicaid paid 61% of the $459 billion spent on LTC in the U.S. (Figure 9).

LTC may be provided in various settings broadly categorized as institutional or non-institutional. Institutional settings include nursing facilities and intermediate care facilities for people with intellectual disabilities. Services provided in non-institutional settings are known as home care (also known as home and community-based services, or HCBS), and these settings may include a person’s home, adult day care centers, assisted living settings, and group homes. Federal Medicaid statutes require states to cover institutional LTC and home health, but nearly all home care is optional. Even without a mandate to cover home care, Medicaid LTC spending has shifted from institutional to non-institutional settings over time. In 2023, most spending for LTC in the U.S. was for home care (Figure 9). That shift reflects beneficiary preferences for receiving care in non-institutional settings and requirements for states to provide services in the least restrictive setting possible stemming from the Olmstead decision. In 2023, there were 6.3 million people who used Medicaid LTC, of which 4.9 million (77%) used home care and 1.4 million (23%) used institutional care (Figure 10). While overall, over three-quarters of people who used Medicaid LTC exclusively used home care services, the share varied across states (Figure 10).  To qualify for coverage of LTC under Medicaid, people must meet state-specific eligibility requirements regarding their levels of income, wealth, and functional limitations.

Managed care is the dominant delivery system for Medicaid enrollees with 75% of Medicaid beneficiaries enrolled in comprehensive managed care organizations (MCOs). Medicaid MCOs provide comprehensive acute care and, in some cases, LTC to Medicaid beneficiaries and are paid a set per member per month payment for these services. In FFY 2023, payments to managed care and health plans accounted for the largest share (55%) of Medicaid spending, with capitated payments to comprehensive MCOs accounting for 52% of Medicaid spending and payments to other Medicaid managed care (e.g., primary care case management (PCCM) arrangements or specialty plans) accounting for another 3% (Figure 11). Smaller shares of total Medicaid spending in FFY 2023 were for fee-for-service acute care (21%), fee-for-service LTC (19%), Medicaid spending for Medicare premiums on behalf of enrollees who also have Medicare (3%), and disproportionate share hospital (DSH) payments (2%).

Medicaid spending is driven by multiple factors, including the number and mix of enrollees, their use of health care and long-term care, the prices of Medicaid services, and state policy choices about benefits, provider payment rates, and other program factors. During economic downturns, enrollment in Medicaid grows, increasing state Medicaid costs while state tax revenues are declining. Due to the federal match, as spending increases during economic downturns, so does federal funding. During the pandemic-induced recession and the two economic downturns prior to the pandemic, Congress enacted legislation that temporarily increased the federal share of Medicaid spending to provide increased support for states to help fund Medicaid. High enrollment growth rates, tied first to the Great Recession, then ACA implementation, and later the pandemic, were the primary drivers of total Medicaid spending growth over the last two decades (Figure 12).

People eligible based on being age 65 or older or based on a disability comprise about 1in 5 enrollees but account for more than half of Medicaid spending, reflecting high health care needs and in many cases, use of LTC (Figure 13).

Across the states, spending per full-benefit enrollee ranged from a low of $4,780 in Alabama to $12,295 in the District of Columbia in 2023. Variation in spending across the states reflects considerable flexibility for states to design and administer their own programs – including what benefits are covered and how much providers are paid — and variation in the health and population characteristics of state residents. Within each state, there is also substantial variation in the average costs for each eligibility group, and within each eligibility group, per-enrollee costs may vary significantly, particularly for individuals eligible based on disability (Figure 14).

In 2023, people who used Medicaid LTC comprised 6% of Medicaid enrollment but 36% of federal and state Medicaid spending (Figure 15). High per-person Medicaid spending among enrollees who use LTC likely reflects the generally high cost of LTC and more extensive health needs among such groups that lead to higher use of other health care services and drugs as well.

As of July 2024, 42 states (including Washington, D.C.) contract with comprehensive, risk-based managed care plans – often administered by private insurance companies – to provide care to at least some of their Medicaid beneficiaries (Figure 16). Medicaid MCOs provide comprehensive acute care (i.e., most physician and hospital services) and, in some cases, LTC to Medicaid beneficiaries and are paid a set per member per month payment for these services. Medicaid MCOs represent a mix of private for-profit, private non-profit, and government plans. States have increased their reliance on MCOs with the aim of improving access to certain services, enhancing care coordination and management, and making future costs more predictable. While the shift to MCOs has increased budget predictability for states, the evidence about the impact of managed care on access to care, costs, and outcomes is both limited and mixed. Children and adults are more likely to be enrolled in MCOs than adults aged 65 and older and people eligible because of a disability; however, states are increasingly including beneficiaries with complex needs in MCOs. States are also increasingly leveraging Medicaid MCOs to help identify and address social determinants of health and to reduce health disparities.

A large body of research shows that Medicaid enrollees have substantially better access to care than people who are uninsured (who are also primarily low-income) and are less likely to postpone or go without needed care due to cost. Key measures of access to care and satisfaction with care among Medicaid enrollees are generally comparable to rates for people with private insurance (Figure 17). Given Medicaid enrollees have low incomes, federal rules include protections to limit out-of-pocket costs that can help improve access.  A 2023 KFF Survey of Consumer Experiences with Health Insurance found Medicaid enrollees report fewer cost-related problems compared to those with Marketplace or employer coverage. While most Medicaid enrollees will continue to be protected against large out-of-pocket costs, the tax and spending law newly requires states to impose cost sharing of up to $35 on certain services on Medicaid expansion adults who have incomes 100% – 138% FPL.

Longstanding research shows that Medicaid eligibility during childhood is associated with positive effects on health (including reduced avoidable hospitalizations and mortality) and impacts beyond health, such as improved long-run educational attainment. Early and updated research findings show that state Medicaid expansions to low-income adults are associated with increased access to care, increased economic security, improved self-reported health status, and other outcomes including increased early-stage cancer diagnosis rates, lower mortality rates for certain conditions (e.g., cancer, cardiovascular disease, liver disease), decreased maternal mortality, improved treatment management for conditions (e.g., diabetes, HIV), and improved outcomes related to substance use disorders. Gaps in access to certain providers (e.g., psychiatrists and dentists) are an ongoing challenge in Medicaid that may reflect system-wide problems, but may be exacerbated by provider shortages in low-income communities, Medicaid’s lower physician payment rates, and lower Medicaid physician participation compared with private insurance. In 2021, MACPAC found physicians were less likely to accept new Medicaid patients (74%) than those with Medicare (88%) or private insurance (96%), but these rates may vary by state, provider type, and setting. Medicaid acceptance was much higher where physicians practiced in community health centers, mental health centers, non-federal government clinics, and family clinics compared to the average for all settings. Provider participation rates may contribute to findings that Medicaid enrollees may experience more difficulty obtaining health care than those with private insurance.  A 2023 KFF Survey of Consumers found Medicaid enrollees report more problems with prior authorization and provider availability compared to people with other insurance types.

Section 1115 demonstration waivers offer states the ability to test new approaches in Medicaid that differ from what is required by federal statute, if CMS determines that such proposals are “likely to assist in promoting the objectives of the Medicaid program.” Nearly all states have at least one active Section 1115 waiver and some states have multiple 1115 waivers. Section 1115 waivers have been used over time and generally reflect priorities identified by the states as well as changing priorities from one presidential administration to another (Figure 18). Waivers have been used to expand coverage or benefits, change policies for existing Medicaid populations (e.g., testing premiums or other eligibility requirements), modify delivery systems, restructure financing or authorize new payments (e.g., supplemental payments or incentive-based payments), as well as make other program changes. 

Activity from the first Trump administration and the Biden administration tested how 1115 waivers can be used to advance administrative priorities and also tested the balance between states’ flexibility and discretion by the federal government. The first Trump administration’s Section 1115 waiver policy emphasized work requirements and other eligibility restrictions, payment for institutional behavioral health services, and capped financing. The Biden administration withdrew waiver approvals with work requirements, phased out approval of premium requirements, and instead encouraged states to propose waivers that expand coverage, reduce health disparities, advance “whole-person care,” and improve access to behavioral health care. Areas of focus during the Biden administration included leveraging Medicaid to address health-related social needs (including housing instability, homelessness, nutrition insecurity) and to provide health care to individuals transitioning from incarceration back into the community. Several states also received approval to provide multi-year continuous Medicaid coverage for children. Recent actions from the new Trump administration could signal efforts to curtail waivers related to social determinants of health, continuous eligibility and to limit 1115 waiver financing tools and flexibility. In addition, several states are seeking approval for work requirements waivers. Although the tax and spending reconciliation law now includes a national work requirement, some states may continue to pursue waivers to implement work requirements prior to January 1, 2027 when the national requirement goes into effect.

Various types of waivers and other emergency authorities can also be used to respond to emergencies. These authorities can help expand Medicaid capacity and focus on specific services, providers, or groups of enrollees that may be particularly impacted. During the COVID-19 pandemic, all 50 states and Washington, D.C. received approval to make changes using emergency authorities to facilitate access to care by expanding telehealth, eligibility, benefits and help address workforce issues for home- and community-based services.

Looking to the future, Medicaid faces a number of challenges, including: 

• How will the new work requirements, eligibility and cost sharing changes affect Medicaid enrollment and access to care, particularly for adults covered through the Medicaid expansion?
• What impact will the Medicaid changes have on the number of people without health insurance?
• How will states respond to federal Medicaid spending cuts and limits on their ability to use provider taxes to help finance the non-federal share of Medicaid spending?
• How will the cuts in Medicaid spending and enrollment affect health care providers (including rural providers) and the broader health care system? To what extent will a new temporary rural health fund totaling $50 billion blunt some of the effects of the cuts?
• Will administrative actions and federal funding cuts for Medicaid as well as broader federal changes in immigration policy affect Medicaid payment rates for long-term care and the long-term care workforce?
• Will Congress move to reverse some of the Medicaid cuts before they go into effect?

Policy changes to Medicaid have implications for the roughly 80 million people who rely on the program for health coverage, state and federal budgets and spending, and health care providers, including nursing facilities and home care providers. As the source of nearly one fifth of total health care spending, these changes will also have implications for the broader health care system. Changes in Medicaid enrollment will also affect overall coverage trends. Declines in Medicaid enrollment can be expected to increase the number of people who are uninsured, jeopardizing improvements in the affordability of and access to care for potentially millions of people.  

• 10 Things to Know About Medicaid
• Medicaid: What to Watch in 2025 | KFF
• Medicaid Financing: The Basics
• 10 Things to Know About Medicaid Managed Care
• 10 Things About Long-Term Services and Supports (LTSS)
• 50-State Medicaid Budget Survey Archives
• 50-State Medicaid Eligibility Survey Archives
• 50-State Survey Archives: Medicaid HCBS and Eligibility Based on Disability or Age 65+
• Status of State Medicaid Expansion Decisions: Interactive Map
• Medicaid Waiver Tracker: Approved and Pending Section 1115 Waivers by State
• Allocating CBO’s Estimates of Federal Medicaid Spending Reductions Across the States: Enacted Reconciliation Package | KFF
• Health Provisions in the 2025 Federal Budget Reconciliation Law
• Implementation Dates for 2025 Budget Reconciliation Law

Rudowitz, R., Tolbert, J., Burns, A., Hinton, E., Chidambaram, P., & Mudumala, A., Medicaid 101. In Altman, Drew (Editor), Health Policy 101, (KFF, October 2025) https://www.kff.org/health-policy-101-medicaid/ (date accessed)

Medicare is the federal health insurance program established in 1965 under Title XVIII of the Social Security Act for people age 65 or older, regardless of income or medical history, and later expanded to cover people under age 65 with long-term disabilities. Today, Medicare provides health insurance coverage to 68 million people, including 61 million people age 65 or older and 7 million people under age 65. Medicare covers a comprehensive set of health care services, including hospitalizations, physician visits, and prescription drugs, along with post-acute care, skilled nursing facility care, home health care, hospice, and preventive services. People with Medicare can choose to get coverage under traditional Medicare or Medicare Advantage private plans.

Medicare spending comprised 13.5% of the federal budget in 2024 and 21.2% of national health care spending in 2023. Funding for Medicare comes primarily from government contributions, payroll tax revenues, and premiums paid by beneficiaries. Over the longer term, the Medicare program faces financial pressures associated with higher health care costs, growing enrollment, and an aging population.

Most people become eligible for Medicare when they reach age 65, regardless of income, health status, or medical conditions. Residents of the U.S., including citizens and permanent residents, are eligible for premium-free Medicare Part A if they have worked at least 40 quarters (10 years) in jobs where they or their spouses paid Medicare payroll taxes and are at least 65 years old. People under age 65 who receive Social Security Disability Insurance (SSDI) payments generally become eligible for Medicare after a two-year waiting period. People diagnosed with end-stage renal disease (ESRD) and amyotrophic lateral sclerosis (ALS) become eligible for Medicare with no waiting period.

Medicare covers a diverse population in terms of demographics and health status, and this population is expected to grow larger and more diverse in the future as the U.S. population ages. Currently, most people with Medicare are White, female, and between the ages of 65 and 84 (Figure 1). The share of U.S. adults who are age 65 or older is projected to grow from 17% in 2022 to nearly a quarter of the nation’s total population (24%) in 2060. Among people ages 65 and older, the share of people ages 80 and older will increase from 23% in 2022 to 34% in 2060. As the U.S. population ages, the number of Medicare beneficiaries is projected to grow by more than one-third from 68 million people in 2024 to more than 93 million people in 2060. The Medicare population will also grow more racially and ethnically diverse. By 2060, people of color will comprise 44% of the U.S. population ages 65 and older, up from a quarter in 2022.

While many Medicare beneficiaries enjoy good health, others live with health problems that affect their quality of life, including multiple chronic conditions, limitations in their activities of daily living, and cognitive impairments. In 2022, nearly half (45%) of Medicare beneficiaries had four or more chronic conditions, more than a quarter (28%) had a functional impairment, and 17% had a cognitive impairment (Figure 2).

Most Medicare beneficiaries have limited financial resources, including income and assets. In 2024, one in four Medicare beneficiaries – 16.5 million people with Medicare – lived on incomes below $24,600 per person, and half (32.9 million) of all Medicare beneficiaries lived on incomes below $43,200 per person; one in four Medicare beneficiaries had savings below $18,950 per person in 2024, while half had savings below $110,100 per person. Income among Medicare beneficiaries is generally lower for women than men, for people of color than White beneficiaries, and for beneficiaries under age 65 with disabilities than older beneficiaries (Figure 3).

Benefits. Medicare covers a comprehensive set of medical care services, including hospital stays, physician visits, and prescription drugs. Medicare benefits are divided into four parts: 

• Part A, also known as the Hospital Insurance (HI) program, covers inpatient care provided in hospitals and short-term stays in skilled nursing facilities, hospice care, post-acute home health care, and pints of blood received at a hospital or skilled nursing facility. An estimated 67.5 million people were enrolled in Part A in 2024. In 2023, 13% of beneficiaries in traditional Medicare had an inpatient hospital stay, while 7% used home health care services (which are also covered under Part B), and 3% had a skilled nursing facility stay (Figure 4). (Comparable utilization data for beneficiaries in Medicare Advantage is not available.)
• Part B,the Supplementary Medical Insurance (SMI) program, covers outpatient services such as physician visits, outpatient hospital care, and preventive services (e.g., mammography and colorectal cancer screening), among other medical benefits. An estimated 62 million people were enrolled in Part B in 2024. A larger share of beneficiaries use Part B services compared to Part A services. For example, in 2023, more than 9 in 10 (92%) traditional Medicare beneficiaries used physician and other services covered under Part B and 59% used outpatient hospital services.
• Part C, more commonly referred to as the Medicare Advantage program, allows beneficiaries to enroll in a private plan, such as a health maintenance organization (HMO) or preferred provider organization (PPO), as an alternative to traditional Medicare. Medicare Advantage plans cover all benefits under Medicare Part A, Part B, and, in most cases, Part D (Medicare’s outpatient prescription drug benefit), and typically offer extra benefits, such as dental services, eyeglasses, and hearing exams. In 2025, 34.1 million beneficiaries are enrolled in Medicare Advantage, which is 54% of Medicare beneficiaries who are eligible to enroll in Medicare Advantage plans. (See “What Is Medicare Advantage and How Is It Different From Traditional Medicare?” for additional information.) 
• Part D is a voluntary outpatient prescription drug benefit delivered through private plans that contract with Medicare, either stand-alone prescription drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD) plans. In 2025, 54.8 million beneficiaries are enrolled in Part D, with 58% enrolled in MA-PDs and 42% enrolled in PDPs. In 2023, over 9 in 10 Medicare beneficiaries enrolled in Part D (93%) used prescription drugs. (See “What Is the Medicare Part D Prescription Drug Benefit?” for additional information.)

Although Medicare covers a comprehensive set of medical benefits, Medicare does not cover long-term care services. Additionally, coverage of vision services, dental care, and hearing aids is not part of the standard benefit, though most Medicare Advantage plans offer some coverage of these services.

Premiums and cost sharing. Medicare has varying premiums, deductibles, and coinsurance amounts that typically change each year to reflect program cost changes.

• Part A: Most beneficiaries do not pay a monthly premium for Part A services, but are required to pay a deductible for inpatient hospitalizations ($1,676 in 2025). (People who are working contribute payroll taxes to Medicare and qualify for premium-free Part A at age 65 based on having paid 1.45% of their earnings over at least 40 quarters.) Beneficiaries are generally subject to cost sharing for Part A benefits, including extended inpatient stays in a hospital ($419 per day for days 61-90 and $838 per day for days 91-150 in 2025) or skilled nursing facility ($209.50 per day for days 21-100 in 2025). There is no cost sharing for home health visits.
• Part B: Beneficiaries enrolled in Part B, including those in traditional Medicare and Medicare Advantage plans, are generally required to pay a monthly premium ($185 in 2025). Beneficiaries with annual incomes greater than $106,000 for a single person or $212,000 for a married couple in 2025 pay a higher, income-related monthly Part B premium, ranging from $259 to $628.90. Approximately 8% of Medicare beneficiaries with Part B coverage are expected to pay income-related Part B premiums in 2025. Part B benefits are subject to an annual deductible ($257 in 2025), and most Part B services are subject to coinsurance of 20 percent.
• Part C: In addition to paying the Part B premium, Medicare Advantage enrollees may be charged a separate monthly premium for their Medicare Advantage plan, although three-quarters (76%) of enrollees are in plans that charge no additional premium in 2025. Medicare Advantage plans are generally prohibited from charging more than traditional Medicare, but vary in the deductibles and cost-sharing amounts they charge. Medicare Advantage plans typically establish provider networks and may require higher cost sharing for services received from non-network providers.
• Part D: Part D plans vary in terms of premiums, deductibles, and cost sharing. People in traditional Medicare who are enrolled in a separate stand-alone Part D plan generally pay a monthly Part D premium unless they qualify for full benefits through the Part D Low-Income Subsidy (LIS) program and are enrolled in a premium-free (benchmark) plan. In 2025, the average enrollment-weighted premium for stand-alone Part D plans is $39 per month, substantially higher than the enrollment-weighted average monthly portion of the premium for drug coverage in MA-PDs ($7 in 2025).

Sources of coverage. Most people with Medicare have some type of coverage that may protect them from unlimited out-of-pocket costs and may offer additional benefits, whether it’s coverage in addition to traditional Medicare or coverage from Medicare Advantage plans, which are required to have an out-of-pocket cap and typically offer supplemental benefits (Figure 5). However, based on KFF analysis of data from the 2022 Medicare Current Beneficiary Survey, 3.2 million people with Medicare have no additional coverage, which places them at risk of facing high out-of-pocket spending or going without needed medical care due to costs. 

• Medicare Advantage plans now cover more than half (54%) of all Medicare beneficiaries enrolled in both Part A and Part B, or 34 million people (in 2022, Medicare Advantage enrollment was just under half of beneficiaries, or 29.9 million people). (See “What Is Medicare Advantage and How Is It Different From Traditional Medicare?” for additional information.)
• Employer and union-sponsored plans provided some form of coverage to 14.5 million Medicare beneficiaries – nearly a quarter (24%) of Medicare beneficiaries overall in 2022. Of the total number of beneficiaries with employer coverage, 9.1 million beneficiaries had this coverage in addition to traditional Medicare (31% of beneficiaries in traditional Medicare), while 5.4 million beneficiaries were enrolled in Medicare Advantage employer group plans. (These estimates exclude 5.6 million Medicare beneficiaries with Part A only in 2022, primarily because they or their spouse were active workers and had primary coverage from an employer plan and Medicare as a secondary payer.) 
• Medicare supplement insurance, also known as Medigap, covered 2 in 10 (21%) Medicare beneficiaries overall, or 42% of those in traditional Medicare (12.5 million beneficiaries) in 2022. Medigap policies, sold by private insurance companies, fully or partially cover Medicare Part A and Part B cost-sharing requirements, including deductibles, copayments, and coinsurance. 
• Medicaid, the federal-state program that provides health and long-term services and supports coverage to low-income people, was a source of coverage for 11.6 million Medicare beneficiaries with low incomes and modest assets in 2022 (19% of all Medicare beneficiaries), including 7.0 million enrolled in Medicare Advantage and 4.6 million in traditional Medicare. (This estimate is somewhat lower than KFF estimates published elsewhere due to different data sources and methods used.) For these beneficiaries, referred to as dual-eligible individuals, Medicaid typically pays the Medicare Part B premium and may also pay a portion of Medicare deductibles and other cost-sharing requirements. Most dual-eligible individuals are eligible for full Medicaid benefits, including long-term services and supports.

Medicare Advantage, also known as Medicare Part C, allows beneficiaries to receive their Medicare benefits from a private health plan, such as a health maintenance organization (HMO) or preferred provider organization (PPO). Medicare pays private insurers to provide Medicare-covered benefits (Part A and B, and often Part D) to enrollees. Virtually all Medicare Advantage plans include an out-of-pocket limit for benefits covered under Parts A and B, and most offer additional benefits not covered by traditional Medicare, such as vision, hearing, and dental. The average Medicare beneficiary can choose from 34 Medicare Advantage plans with prescription drug coverage offered by eight insurance companies in 2025. These plans vary across many dimensions, including premiums, cost-sharing requirements, out-of-pocket limits, extra benefits, provider networks, prior authorization and referral requirements, denial rates, and prescription drug coverage.

More than half of all eligible Medicare beneficiaries (54%) are currently enrolled in a Medicare Advantage plan, up from 25% in 2010 (Figure 6). The share of eligible Medicare beneficiaries in Medicare Advantage plans varies across states, ranging from 2% in Alaska to 63% in Alabama and Michigan.  Growth in Medicare Advantage enrollment is due to a number of factors. Medicare beneficiaries are attracted to Medicare Advantage due to the multitude of extra benefits, the simplicity of one-stop shopping (in contrast to traditional Medicare where beneficiaries might also purchase a Part D plan and a Medigap plan), and the availability of plans with no premiums beyond the Part B premium, driven in part by the current payment system that generates high gross margins in this market (see “How Does Medicare Pay Private Plans in Medicare  Advantage and Medicare Part D?” for additional information). Insurers market these plans aggressively, airing thousands of TV ads for Medicare Advantage during the Medicare open enrollment period. In some cases, Medicare beneficiaries have no choice but to be enrolled in a Medicare Advantage plan for their retiree health benefits as some employers are shifting their retirees into these plans; if they are dissatisfied with this option, they may have to give up retiree benefits altogether, although they would retain Medicare and have the option to choose traditional Medicare (potentially with a Medigap supplement).

There are several differences between Medicare Advantage and traditional Medicare. Medicare Advantage plans can establish provider networks, the size of which can vary considerably for both physicians and hospitals, depending on the plan and the county where it is offered. These provider networks may also change over the course of the year. Medicare Advantage enrollees who seek care from an out-of-network provider might be required to pay higher cost sharing or pay in full out of pocket for their care. In contrast, traditional Medicare beneficiaries can see any provider that accepts Medicare and is accepting new patients. In 2019, 89% of non-pediatric office-based physicians accepted new Medicare patients, with little change over time. Only 1% of all non-pediatric physicians formally opted out of the Medicare program in 2024.

Medicare Advantage plans also often use tools to manage utilization and costs, such as requiring enrollees to receive prior authorization before a service will be covered and requiring enrollees to obtain a referral for specialists or mental health providers. In 2024, virtually all Medicare Advantage enrollees were in plans that required prior authorization for some services, most often higher-cost services. Medicare Advantage insurers made nearly 50 million prior authorization determinations in 2023 (Figure 7). Prior authorization and referrals to specialists are used less frequently in traditional Medicare, with prior authorization generally applying to a limited set of services.

Medicare Advantage plans are required to use payments from the federal government that exceed their costs of covering Part A and B services (known as rebates) to provide supplemental benefits to enrollees, such as lower cost sharing, extra benefits not covered by traditional Medicare, or reducing the amount of Part B and/or Part D premiums. Examples of extra benefits include eyeglasses, hearing exams, preventive dental care, and gym memberships (Figure 8). (See “How Does Medicare Pay Private Plans in Medicare Advantage and Medicare Part D?” for a discussion of how Medicare pays Medicare Advantage plans.) Medicare Advantage plans must also include a cap on out-of-pocket spending, which provides protection from catastrophic medical expenses. Traditional Medicare does not have an out-of-pocket limit, though purchasing a Medigap policy effectively provides protection from catastrophic costs for beneficiaries in traditional Medicare. (See “What Does Medicare Cover and How Much Do People Pay for Medicare Benefits?” for a brief discussion of Medigap.)

Medicare Part D, Medicare’s voluntary outpatient prescription drug benefit, was established by the Medicare Modernization Act of 2003 (MMA) and launched in 2006. Before the addition of the Part D benefit, Medicare did not cover the cost of outpatient prescription drugs. Under Part D, Medicare helps cover prescription drug costs through private plans that contract with Medicare to offer the Part D benefit to enrollees, which is unlike coverage of Part A and Part B benefits under traditional Medicare, and beneficiaries must enroll in a Part D plan if they want this benefit.

A total of 54.8 million people with Medicare are currently enrolled in plans that provide the Medicare Part D drug benefit, including plans open to everyone with Medicare (stand-alone prescription drug plans, or PDPs, and Medicare Advantage drug plans, or MA-PDs) and plans for specific populations (including retirees of a former employer or union and Medicare Advantage Special Needs Plans, or SNPs). Nearly 6 in 10 Part D enrollees are in MA-PDs, as overall enrollment in Medicare Advantage plans has grown in recent years. Just over 13 million low-income beneficiaries receive extra help with their Part D plan premiums and cost sharing through the Part D Low-Income Subsidy Program (LIS).

For 2025, the average Medicare beneficiary has a choice of 14 stand-alone Part D plans and 34 Medicare Advantage drug plans. These plans vary in terms of premiums, deductibles and cost sharing, the drugs that are covered, any utilization management restrictions that apply, and pharmacy networks. People in traditional Medicare who are enrolled in a separate stand-alone Part D plan generally pay a monthly Part D premium unless they qualify for full benefits through the Part D LIS program and are enrolled in a premium-free (benchmark) plan. In 2025, the average enrollment-weighted premium for stand-alone Part D plans is $39 per month. In 2025, most stand-alone Part D plans include a deductible, averaging $491. Plans generally impose a tiered structure to define cost-sharing requirements and cost-sharing amounts charged for covered drugs, typically charging lower cost-sharing amounts for generic drugs and preferred brands and higher amounts for non-preferred and specialty drugs, and a mix of flat dollar copayments and coinsurance (based on a percentage of a drug’s list price) for covered drugs.

The standard design of the Medicare Part D benefit currently has three distinct phases, where the share of drug costs paid by Part D enrollees, Part D plans, drug manufacturers, and Medicare varies. Based on changes in the Inflation Reduction Act, these shares changed in 2024 and 2025 (Figure 9). Most notably, the Part D benefit now includes a $2,000 out-of-pocket spending cap, meaning Part D enrollees face no additional costs once their out-of-pocket costs exceed $2,000 in 2025. Previously, enrollees with high drug costs who did not receive low-income subsidies were responsible for paying 5% of their total drug costs when they reached the catastrophic coverage phase. This new out-of-pocket spending cap is projected to help an estimated 11 million Part D enrollees in 2025, including 6.1 million enrollees not receiving low-income subsidies.

The Inflation Reduction Act of 2022, signed into law by President Biden on August 16, 2022, includes several provisions to lower prescription drug costs for people with Medicare and reduce drug spending by the federal government, including several changes related to the Part D benefit. These provisions include (but are not limited to) (Figure 10):

• Requiring the Secretary of the Department of Health and Human Services to negotiate the price of some Part D and Part B drugs covered under Medicare. The law that established the Part D benefit included a provision known as the “noninterference” clause, which prevented the HHS Secretary from being involved in price negotiations between drug manufacturers and pharmacies and Part D plan sponsors. In addition, the Secretary of HHS does not currently negotiate prices for drugs covered under Medicare Part B (administered by physicians). To date, Medicare has completed one round of price negotiation on 10 Part D drugs, with negotiated prices available in 2026, and selected 15 more Part D drugs for price negotiation in the second round, with negotiated prices available in 2027.
• Adding a hard cap on out-of-pocket drug spending under Part D, which phased in beginning in 2024, and was limited to $2,000 in 2025 (increasing to $2,100 in 2026). As noted above, under the original design of the Part D benefit, enrollees had catastrophic coverage for high out-of-pocket drug costs, but there was no limit on the total amount that beneficiaries paid out of pocket each year.  
• Limiting the out-of-pocket cost of insulin products to no more than $35 per month in all Part D plans and in Part B and making adult vaccines covered under Part D available for free as of 2023. Until these provisions took effect, beneficiary costs for insulin and adult vaccines were subject to varying cost-sharing amounts.
• Expanding eligibility for full benefits under the Part D Low-Income Subsidy program in 2024, eliminating the partial LIS benefit for individuals with incomes between 135% and 150% of poverty. Beneficiaries who receive full LIS benefits pay no Part D premium or deductible and only modest copayments for prescription drugs until they reach the catastrophic threshold, at which point they face no additional cost sharing.
• Requiring drug manufacturers to pay a rebate to the federal government if prices for drugs covered under Part D and Part B increase faster than the inflation rate, with the initial period for measuring Part D drug price increases running from October 2022-September 2023. Previously, Medicare had no authority to limit annual price increases for drugs covered under Part B or Part D. Year-to-year drug price increases exceeding inflation are not uncommon and affect people with both Medicare and private insurance.

In 2024, Medicare was estimated to spend $464 billion on benefits covered under Part A and Part B for beneficiaries in traditional Medicare. Medicare pays providers in traditional Medicare using various payment systems depending on the setting of care (Figure 11).

Medicare relies on a number of different approaches when determining payments to providers for Part A and Part B services delivered to beneficiaries in traditional Medicare. These providers include hospitals (for both inpatient and outpatient services), physicians, skilled nursing facilities, home health agencies, and several other types of providers. Of the $464 billion in estimated spending on Medicare benefits covered under Part A and Part B in traditional Medicare in 2024, $149 billion (32%) was for hospital inpatient services and $68 billion (15%) was for hospital outpatient services, $71 billion (15%) was for services covered under the physician fee schedule, and $176 billion (38%) was for all other Part A or Part B services for beneficiaries in traditional Medicare.

Medicare uses prospective payment systems for most providers in traditional Medicare. These systems generally require that Medicare pre-determine a base payment rate for a given unit of service (e.g., a hospital stay, an episode of care, a particular service). Then, based on certain variables, such as the provider’s geographic location and the complexity of the patient receiving the service, Medicare adjusts its payment for each unit of service provided. Medicare updates payment rates annually for most payment systems to account for inflation adjustments. 

The main features of hospital, physician, outpatient, and skilled nursing facility payment systems (altogether accounting for 69% of spending on Part A and Part B benefits in traditional Medicare) are described below:

• Inpatient hospitals (acute care): Medicare pays hospitals per beneficiary discharge using the Inpatient Prospective Payment System. The rate for each discharge corresponds to one of over 770 different categories of diagnoses – called Medicare Severity Diagnosis Related Groups (MS-DRGs), which reflect the principal diagnosis, secondary diagnoses, procedures performed, and other patient characteristics. DRGs that are likely to incur more intense levels of care and/or longer lengths of stay are assigned higher payments. Medicare’s payments to hospitals also account for a portion of hospitals’ capital and operating expenses.
• Medicare also makes additional payments to hospitals in particular situations. These include additional payments for rural or isolated hospitals that meet certain criteria. Further, Medicare makes additional payments to help offset costs incurred by hospitals that are not otherwise accounted for in the inpatient prospective payment system. These include add-on payments for treating a disproportionate share (DSH) of low-income patients, as well as for covering costs associated with care provided by medical residents, known as indirect medical education (IME). While not part of the Inpatient Prospective Payment System, Medicare also pays hospitals directly for the costs of operating residency programs, known as Graduate Medical Education (GME) payments.
• Physicians and other health professionals: Medicare reimburses physicians and other health professionals (e.g., nurse practitioners) based on the Physician Fee Schedule for over 10,000 services. Payment rates for these services are based on three components: (1) clinician work, (2) practice expenses, and (3) professional liability insurance (also known as medical malpractice insurance), which are measured in terms of “relative value units” (RVUs). Each component is adjusted to account for differences across geography and then multiplied by a conversion factor. Payment rates for individual services may be updated each year based in part on the recommendations of the AMA/Specialty Society RVS Update Committee (RUC), a volunteer committee of physicians and other professionals overseen by the American Medical Association (AMA). CMS also makes annual updates to the conversion factor based on statutory factors, as well as adjustments to preserve budget neutrality, which may result in payment cuts for physicians and other clinicians whenever the projected cost of all Physician Fee Schedule spending is expected to increase by more than $20 million for the year.
• Payment rates specified under the Physician Fee Schedule are subject to further adjustments under the Quality Payment Program, established by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Clinicians can receive payment increases if they participate in qualified advanced alternative payment models (A-APMs), which bear some financial risk for the costs of patient care, while those who participate in the Merit-based Incentive Payment System (MIPS) may receive payment increases or decreases (or no change) depending on their performance on specific quality measures. (See “What Is Medicare Doing to Promote Alternative Payment Models?” for more information about alternative payment models in Medicare.)
• While not part of the Physician Fee Schedule, Medicare also pays for a limited number of drugs that physicians and other health care providers administer. For drugs administered by physicians, which are covered under Part B, Medicare reimburses providers based on a formula set at 106% of the Average Sales Price (ASP), which is the average price to all non-federal purchasers in the U.S, inclusive of rebates (other than rebates paid under the Medicaid program).

• Hospital outpatient departments: Medicare pays hospitals for ambulatory services provided in outpatient departments, using the Hospital Outpatient Prospective Payment System, based on the classification of individual services into Ambulatory Payment Classifications (APC) with similar characteristics and expected costs. Final determination of Medicare payments for outpatient department services is complex. It incorporates both individual service payments and payments “packaged” with other services, partial hospitalization payments, as well as numerous exceptions, such as payments for new technologies. Medicare payment rates for services provided in hospital outpatient departments are typically higher than for similar services provided in physicians’ offices, and evidence indicates that providers have shifted the billing of services to higher-cost settings. There is bipartisan interest in proposals to expand so-called “site-neutral” payments, meaning that Medicare would align payment rates for the same service across settings.
• Skilled Nursing Facilities (SNFs): SNFs are freestanding or hospital-based facilities that provide post-acute inpatient nursing or rehabilitation services. Medicare pays SNFs based on the Skilled Nursing Facility Prospective Payment System, and payments to SNFs are determined using a base payment rate, adjusted for geographic differences in labor costs, case mix, and, in some cases, length of stay. Daily rates consider six care components – nursing, physical therapy, occupational therapy, speech–language pathology services, nontherapy ancillary services and supplies, and non–case mix (room and board services).

Medicare Advantage. Medicare pays firms offering Medicare Advantage plans a set monthly amount per enrollee. The payment is determined through an annual process in which plans submit “bids” for how much they estimate it will cost to provide benefits covered under Medicare Parts A and B for an average beneficiary. The bid is compared to a county “benchmark”, which is the maximum amount the federal government will pay for a Medicare Advantage enrollee and is a percentage of estimated spending in traditional Medicare in the same county, ranging from 95 percent in high-cost counties to 115 percent in low-cost counties. When the bid is below the benchmark in a given county, plans receive a portion of the difference (the “rebate”), which they must use to lower cost sharing, pay for extra benefits, or reduce enrollees’ Part B or Part D premiums. Payments to plans are risk adjusted, based on the health status and other characteristics of enrollees, including age, sex, and Medicaid enrollment. In addition, Medicare adopted a quality bonus program that increases the benchmark for plans that receive at least four out of five stars under the quality rating system, which increases plan payments.

Generally, Medicare pays more to private Medicare Advantage plans for enrollees than their costs would be in traditional Medicare. The Medicare Payment Advisory Commission (MedPAC) reports that while it costs Medicare Advantage plans 83% of what it costs traditional Medicare to pay for Medicare-covered services, plans receive payments from CMS that are 120% of spending for similar beneficiaries in traditional Medicare, on average. The higher spending stems from features of the formula used to determine payments to Medicare Advantage plans, including setting benchmarks above traditional Medicare spending in half of counties and higher benchmarks due to the quality bonus program, resulting in bonus payments of at least $12.7 billion in 2025. This amount is four times greater than spending on bonus payments in 2015 (Figure 12).

The higher spending in Medicare Advantage is also related to the impact of coding intensity, where Medicare Advantage enrollees look sicker than they would if they were in traditional Medicare, resulting in plans receiving higher risk adjustments to their monthly per person payments, translating to an estimated $84 billion in excess payments to plans in 2025.

Higher payments to Medicare Advantage plans allow them to offer extra benefits attractive to enrollees. However, these benefits come at a cost to all beneficiaries through higher Part B premiums – amounting to $13 billion in 2025 alone – and contribute to the strain on the Medicare Part A Hospital Insurance Trust Fund. (See “How Much Does Medicare Spend and How Is the Program Financed?” for additional information .)

Medicare Part D. Medicare pays Part D plans, both stand-alone prescription drug plans and Medicare Advantage plans that offer drug coverage, based on an annual competitive bidding process. Plans submit bids yearly to Medicare for their expected costs of providing the drug benefit plus administrative expenses. Plans receive a direct subsidy per enrollee, which is risk-adjusted based on the health status of their enrollees, plus reinsurance payments from Medicare for the highest-cost enrollees and adjustments for the low-income subsidy (LIS) status of their enrollees. (Unlike Medicare Advantage, there is no quality bonus program that provides higher payments to Part D plans with higher Part D quality ratings.) Risk-sharing arrangements with the federal government (“risk corridors”) limit plans’ potential total losses or gains.

Under reinsurance, Medicare subsidizes 20% of total drug spending incurred by Part D enrollees with relatively high drug spending above the catastrophic coverage threshold, as of 2025, down from 80% in prior years, based on a provision of the Inflation Reduction Act. This provision was designed to shift more of the responsibility for catastrophic drug costs to Part D plans and drug manufacturers. Plans now pay 60% of total drug costs above the catastrophic threshold, up from 15% to 20% in prior years. (See “What Is the Medicare Part D Prescription Drug Benefit?” for more detail on plan liability under various phases of the Part D benefit and more information on changes to Part D included in the Inflation Reduction Act.) In the aggregate, Medicare’s reinsurance payments to Part D plans in 2025 are estimated to account for 18% of total Part D spending, down from close to half of total Part D spending (46%) in 2024 (Figure 13).

For 2025, Medicare’s actuaries estimate that Part D plans will receive direct subsidy payments averaging $1,855 per enrollee overall, $1,313 for enrollees receiving the LIS, and $517 in reinsurance payments for very high-cost enrollees.

While Medicare has traditionally paid providers on a fee-for-service basis, the program is implementing various alternative payment models designed to tie payments under traditional Medicare to provider performance on quality and spending. Although the overarching goals of these various models are similar—improving the quality and affordability of patient care, increasing coordination between care teams, and reducing health care costs—the specific aims vary by model.

A notable example of an alternative payment model within Medicare is the Medicare Shared Savings Program (MSSP), a permanent accountable care organization (ACO) program in traditional Medicare established by the Affordable Care Act (ACA) that offers financial incentives to providers for meeting or exceeding savings targets and quality goals. ACOs are groups of doctors, hospitals, and other health care providers who voluntarily form partnerships to collaborate and share accountability for the quality and cost of care delivered to their patients. The MSSP currently offers different participation options to ACOs, allowing these organizations to share in savings only or both savings and losses, depending on their level of experience and other factors.

ACOs have a defined patient population for the purpose of calculating annual savings or losses. Beneficiaries in traditional Medicare may choose to align themselves to an ACO (voluntary alignment) or may be assigned to a particular ACO based on where they received a plurality of their primary care services. In either case, beneficiaries are free to seek treatment from any provider who accepts Medicare and are not limited to ACO-affiliated providers. This contrasts with enrollment in Medicare Advantage, where beneficiaries are generally limited to seeing providers in their plan’s network or face higher out-of-pocket costs for seeing out-of-network providers.

In 2023, the Medicare Shared Savings Program saved Medicare an estimated $2.1 billion relative to annual spending targets. As of 2025, there are 476 MSSP ACOs nationwide, with over 643,000 participating clinicians and 10.8 million beneficiaries aligned to MSSP ACOs (Figure 14).

The ACA also established the Center for Medicare and Medicaid Innovation (CMMI, also known as the Innovation Center), an operating center within the Centers for Medicare & Medicaid Services tasked with designing and testing alternative payment models to address concerns about rising health care costs, quality of care, and inefficient spending within the Medicare, Medicaid, and CHIP programs. Since its start in 2010, CMMI has launched more than 80 models across six different categories, including accountable care models, disease-specific models, health plan models, and others (Figure 15). CMMI models are designed to be tested over a limited number of years, but Congress gave CMMI the authority to expand models nationwide permanently if they meet certain quality and savings criteria. As of the most recent estimate, six models have shown statistically significant savings, and four have met the requirements for permanent expansion into the wider Medicare program, including the Medicare Diabetes Prevention Program and the Home Health Value-Based Purchasing Model.

While the overall aims of CMMI are set in law, changes of administration have brought about changes in the strategic direction of the Innovation Center and the types of models that have been pursued, along with the reframing or termination of certain models from the previous administration. For example, the Biden administration placed a greater emphasis on health equity in CMMI models, while the second Trump administration is prioritizing evidence-based preventive care, empowering consumers with data and information to make health decisions, and promoting choice and competition in health care markets.

According to the Congressional Budget Office (CBO), the activities of CMMI increased federal spending by $5.4 billion from 2011 to 2020, which CBO attributes in part to the mixed success of many models at generating sufficient savings to offset their high upfront costs. (CBO had initially projected that CMMI would reduce federal spending by $2.8 billion in its first decade of operation.) However, evidence suggests that savings vary by model type, with the greatest savings found among state and community-based models. Further, a review of select CMMI models provides evidence of improvements in care coordination, team-based care, and other care delivery changes, even in the absence of savings. CBO projects that CMMI’s activities will come closer to the breakeven point regarding federal spending over the course of the current decade (2024-2033).

Spending. Medicare plays a significant role in the health care system, accounting for 21% of total national health spending in 2023, a quarter of spending on both hospital care and physician and clinical services, and 32% of spending on retail prescription drug sales (Figure 16).

In 2024, Medicare spending, net of income from premiums and other offsetting receipts, totaled $910 billion and accounted for 13% of the federal budget — a similar share as spending on Medicaid, the ACA, and the Children’s Health Insurance Program combined, and defense spending (Figure 17).

In 2025, Medicare benefit payments are estimated to total $1.1 trillion, up from $632 billion in 2015 (including spending for Part A, Part B, and Part D benefits in both traditional Medicare and Medicare Advantage). Medicare spending per person has also grown, increasing from $5,800 to $16,700 between 2000 and 2023 – or 4.7% average annual growth over the 23-year period. In recent years, however, growth in spending per person has been lower in Medicare than in private health insurance .

Spending on Medicare Part A benefits (mainly hospital inpatient services) has decreased as a share of total Medicare spending over time as care has shifted from inpatient to outpatient settings, leading to an increase in spending on Part B benefits (including physician services, outpatient services, and physician-administered drugs). Spending on Part B services now accounts for the largest share of Medicare benefit spending (50% in 2024) (Figure 18). Moving forward, Medicare spending on physician services and other services covered under Part B is expected to grow to more than half of total Medicare spending by 2034, while spending on hospital care and other services covered under Part A is projected to decrease further as a share of the total.

Payments to Medicare Advantage plans for Part A and Part B benefits tripled as a share of total Medicare spending between 2014 and 2024, from $156 billion to $462 billion, partly due to steady enrollment growth in Medicare Advantage plans. Growth in spending on Medicare Advantage also reflects that Medicare pays more to private Medicare Advantage plans for enrollees than their costs in traditional Medicare, on average. (See “How Does Medicare Pay Private Plans in Medicare Advantage and Medicare Part D?” for additional information.) These higher payments have contributed to growth in spending on Medicare Advantage and overall Medicare spending. In 2024, half of all Medicare program spending for Part A and Part B benefits was for Medicare Advantage plans, up from just under 30% in 2014. Between 2024 and 2034, Medicare Advantage payments are projected to total close to $9 trillion, $2.5 trillion more than spending under traditional Medicare (Figure 19).

Financing. Medicare funding, which totaled $1.1 trillion in 2024, comes primarily from government contributions (44%), payroll tax revenues (35%), and premiums paid by beneficiaries (15%). Other sources include taxes on Social Security benefits, payments from states, and interest.

The different parts of Medicare are funded in varying ways, and revenue sources dedicated to one part of the program cannot be used to pay for another part (Figure 20).

• Part A, which covers inpatient hospital stays, skilled nursing facility (SNF) stays, some home health visits, and hospice care, is financed primarily through a 2.9% tax on earnings paid by employers and employees (1.45% each). Higher-income taxpayers (more than $200,000 per individual and $250,000 per couple) pay a higher payroll tax on earnings (2.35%). Payroll taxes accounted for 88% of Part A revenue in 2024.
• Part B, which covers physician visits, outpatient services, preventive services, and some home health visits, is financed primarily through a combination of government contributions (72% in 2024) and beneficiary premiums (26%) (and 2% from interest and other sources). The standard Part B premium that most Medicare beneficiaries pay is calculated as 25% of annual Part B spending, while beneficiaries with annual incomes over $106,000 per individual or $212,000 per couple pay a higher, income-related Part B premium reflecting a larger share of total Part B spending, ranging from 35% to 85%.
• Part D, which covers outpatient prescription drugs, is financed primarily by government contributions (75%) and beneficiary premiums (13%), with an additional 12% of revenues coming from state payments for beneficiaries enrolled in both Medicare and Medicaid. Higher-income enrollees pay a larger share of the cost of Part D coverage, as they do for Part B.
• The Medicare Advantage program (sometimes referred to as Part C) does not have its own separate revenue sources. Funds for Part A benefits provided by Medicare Advantage plans are drawn from the Medicare HI trust fund. Funds for Part B and Part D benefits are drawn from the Supplementary Medical Insurance (SMI) trust fund. Beneficiaries enrolled in Medicare Advantage plans pay the Part B premium and may pay an additional premium if required by their plan. In 2025, 76% of Medicare Advantage enrollees pay no additional premium.

Measuring the level of reserves in the Medicare Hospital Insurance trust fund, out of which Part A benefits are paid, is a common way of measuring Medicare’s financial status. Each year, Medicare’s actuaries provide an estimate of the year when the reserves are projected to be fully depleted. In 2025, the Medicare Trustees projected sufficient funds would be available to pay for Part A benefits in full until 2033, 8 years from now – three years earlier than the 2024 projection. At that point, in the absence of Congressional action, Medicare will be able to pay 89% of costs covered under Part A using payroll tax revenues. At the same time, the Congressional Budget Office has recently updated its projection of the Part A trust fund, extending the year of trust fund depletion to 2052, based on changes in its projections of Part A spending and revenues and a change in CBO’s modeling related to graduate medical education payments. OACT projects both lower income and higher spending under Part A than CBO, as well as faster Part A spending growth, which helps to account for the difference in the projected HI trust fund depletion dates.

Since 2010, the projected year of trust fund reserve depletion, based on projections by Medicare’s actuaries, has ranged from 5 years out (in 2021) to 19 years out (in 2010) (Figure 21).

The level of reserves in the Part A Trust Fund is affected by growth in the economy, which affects revenue from payroll tax contributions, health care spending and utilization trends, and demographic trends: an increasing number of beneficiaries as the population ages, especially between 2010 and 2030 when the baby boom generation reaches Medicare eligibility age, and a declining ratio of workers per beneficiary making payroll tax contributions. 

Part B and Part D do not have financing challenges similar to Part A, because both are funded by beneficiary premiums and government contributions that are set annually to match expected outlays. However, future increases in spending under Part B and Part D will require increases in government (and taxpayer) funding and higher premiums paid by beneficiaries.

Looking to the future, Medicare faces a number of challenges from the perspective of beneficiaries, health care providers and private plans, and the federal budget. These include:

• How best to address the fiscal challenges arising from an aging population and increasing health care costs through spending reductions and/or revenue increases.
• Whether and how to improve coverage for Medicare beneficiaries, including an out-of-pocket limit in traditional Medicare, enhanced financial support for lower-income beneficiaries, and additional benefits, such as dental and vision.
• How to control spending while ensuring fair and adequate payments to hospitals, physicians and other providers, and Medicare Advantage plans, including whether and how to reduce overpayments to Medicare Advantage plans.
• How to address the implications for traditional Medicare of the predominant role that Medicare Advantage now plays in covering Medicare beneficiaries.

Any potential changes to Medicare to address these challenges could have implications for federal spending and taxpayers, the solvency of the Medicare Hospital Insurance trust fund, total health care spending, the affordability of health care for Medicare’s growing number of beneficiaries, many of whom have limited incomes, and access to high-quality medical care.

• What to Know about Medicare Spending and Financing
• A Current Snapshot of the Medicare Part D Prescription Drug Benefit
• Medicare Advantage in 2025: Enrollment Update and Key Trends 
• Key Facts About Medicare Part D Enrollment, Premiums, and Cost Sharing in 2025 
• What to Know about the Medicare Open Enrollment Period and Medicare Coverage Options
• Explaining the Prescription Drug Provisions in the Inflation Reduction Act
• A Snapshot of Sources of Coverage Among Medicare Beneficiaries
• Medicare Advantage Quality Bonus Payments Will Total at Least $12.7 Billion in 2025
• FAQs about the Inflation Reduction Act’s Medicare Drug Price Negotiation Program
• How Many Physicians Have Opted Out of the Medicare Program?
• The Facts About Medicare Spending
• Medicare Part D in 2025: A First Look at Prescription Drug Plan Availability, Premiums, and Cost Sharing
• Medicare Advantage 2025 Spotlight: A First Look at Plan Offerings 
• Income and Assets of Medicare Beneficiaries
• What to Know About How Medicare Pays Physicians 
• Medicare Advantage Insurers Made Nearly 50 Million Prior Authorization Determinations in 2023 
• Implementation Dates for 2025 Reconciliation Law 
• Health Provisions in the 2025 Reconciliation Law 

Cubanski, J., Freed, M., Ochieng, N., Cottrill, A., Fuglesten Biniek, J., & Neuman, T., Medicare 101. In Altman, Drew (Editor), Health Policy 101, (KFF, October 2025) https://www.kff.org/health-policy-101-medicare/ (date accessed).

On March 23, 2010, President Obama signed the Affordable Care Act (ACA) into law, marking a significant overhaul of the U.S. health care system. Prior to the ACA, high rates of uninsurance were prevalent due to unaffordability and exclusions based on preexisting conditions. Additionally, some insured people faced extremely high out-of-pocket (OOP) costs and coverage limits. The ACA aimed to address these issues, though it did not eliminate all of them.

The ACA affects virtually all aspects of the health system, including insurers, providers, state governments, employers, taxpayers, and consumers. The law built on the existing health insurance system, making changes to Medicare, Medicaid, and employer-sponsored coverage. A fundamental change was the introduction of regulated health insurance exchange markets, or Marketplaces, which offer financial assistance for ACA-compliant coverage to those without traditional insurance sources. This chapter has a special focus on these Marketplaces that are integral to the ACA’s framework.

A key goal of the ACA was to expand health insurance coverage. It did so by expanding Medicaid to people with incomes up to 138% of the federal poverty level (the poverty level in the continental U.S. is $15,650 for a single individual in 2025); creating new health insurance exchange markets through which individuals can purchase coverage and receive financial help to afford premiums and cost sharing, in addition to separate exchange markets through which small businesses can purchase coverage; and requiring employers that do not offer affordable coverage to pay penalties, with exceptions for small employers. In the years leading up to the passage of the ACA, about 14-16% of people in the United States were uninsured (across all ages). By 2023, the uninsured rate had fallen to a record low of 7.7%. Most of the gains in insurance coverage have come from the ACA’s expansion of Medicaid, followed by the creation of the exchange markets.

For people with private health insurance, the ACA also includes several consumer protections and market rules (discussed in more detail in the chapter on regulation of private insurance). For example, the ACA prohibits health plans from denying people coverage, charging them higher premiums, as well as rescinding or imposing exclusions to coverage due to preexisting health conditions. The ACA also prohibits annual and lifetime limits on the dollar amount of coverage and restricts the amount of out-of-pocket costs individuals and families may incur each year for in-network care. Additionally, the law requires most health plans to cover preventive health services with no out-of-pocket costs. Health insurers must also issue rebates to enrollees and businesses each year if they fail to meet Medical Loss Ratio standards. Moreover, people with private coverage can keep their young adult children on their health plan up to age 26.

The ACA imposes additional new regulations on private health plans sold to individuals and small businesses. These rules significantly limit the ways in which health plans can charge higher premiums. ACA-compliant health plans sold on the individual and small group markets can only vary premiums based on location, family size, tobacco use, and age (with older adults being charged no more than three times younger adults). This means that people with preexisting conditions cannot be charged higher premiums, nor can insurers charge higher rates based on gender or other factors. The ACA requires individual and small group insurers planning to increase premiums significantly to justify those rate increases publicly and also included grants for states to improve their rate review programs. The ACA also created risk programs in the individual and small group markets to mitigate adverse selection and to reduce health insurers’ incentives to avoid attracting sicker enrollees.

While Medicaid expansion is one of the most impactful provisions of the ACA, the law changed Medicaid in other ways too. For example, people gaining coverage through the Medicaid expansion are guaranteed a benchmark benefit package that covers essential health benefits. Furthermore, the ACA required state Medicaid programs to cover preventive services without cost sharing. The law also increased Medicaid payments to primary care providers, provided new options for states to cover in-home and community-based care, increased Medicaid drug rebates, and extended those rebates to Medicaid managed care plans.

The ACA also made a number of changes to Medicare. Notably, the ACA phased out the Medicare Part D prescription drug benefit coverage gap (colloquially known as the “donut hole”) and provides preventive benefits for Medicare enrollees without cost sharing. The ACA also includes several changes aimed at reducing the growth in Medicare spending. For example, the ACA includes reductions in the growth of Medicare payments to hospitals and other providers, and to Medicare Advantage plans. The law also created an Innovation Center within the Centers for Medicare and Medicaid Services (CMS) tasked with developing and testing new health care payment and delivery models and established the Medicare Shared Savings Program, a permanent accountable care organization (ACO) program in traditional Medicare that offers financial incentives to providers for meeting or exceeding savings targets and quality goals.

Finally, the ACA includes many other provisions that do not relate directly to health coverage. For example, the ACA authorizes the Food and Drug Administration to approve generic versions of biologic drugs. There are also provisions that aim to reduce waste and fraud, expand the health care workforce, increase data collection and reporting on health disparities, and improve public health preparedness.

When passed, the ACA was designed to be budget neutral, with health insurance subsidies and expansions of public programs financed through a variety of taxes and fees on individuals, employers, insurers, and certain businesses in the health sector, as well as savings from the Medicare program. As discussed in more detail below, some of these taxes or fees have since been repealed or reduced to zero dollars, including the individual mandate penalty, the medical device tax, and the so-called “Cadillac Tax,” which would have imposed an excise tax on high-cost employer health plans. Additionally, at times, a tax on health insurance carriers has been temporarily put on hold.

Health Insurance Marketplaces (also known as exchanges) are organizations set up to create more organized and competitive markets for individuals and families buying their own health insurance. The Marketplaces offer a choice of different health plans, certify plans that participate, and provide information and in-person assistance to help consumers understand their options and apply for coverage. Premium and cost-sharing subsidies based on income are available through the Marketplace to make coverage more affordable for individuals and families. People with very low incomes can also find out if they are eligible for coverage through Medicaid and CHIP while shopping on the Marketplace.

Some small businesses can buy coverage for their employees through separate exchanges called Small Business Health Options Program (SHOP) Marketplace plans, but this chapter focuses primarily on the Marketplaces for individuals and families.

There is a health insurance Marketplace in every state for individuals and families and for small businesses. Some enrollment websites are operated by the state government or quasi-governmental bodies at the state level and have a special state name (such as Covered California or The Maryland Health Benefit Exchange). In 28 states where the federal government runs the enrollment website, it is called HealthCare.gov. As of early 2025, three state-based Marketplaces (Arkansas, Illinois, and Oregon) use the federal platform.

The Marketplaces exist alongside other coverage that is also sold to individuals or small businesses. The Marketplaces for individuals and families are part of what is called the “individual insurance market,” which also includes ACA-compliant and non-compliant insurance sold off the Marketplace (also called off-exchange coverage). Similarly, the “small group insurance market” includes the SHOP Marketplace plans as well as other ACA-compliant and non-compliant coverage sold to small businesses.

While many Americans are allowed to purchase unsubsidized coverage on the ACA Marketplaces, these markets primarily exist to fill a gap in coverage options for people who cannot get insurance through work or public programs. Some people who sign up for Marketplace coverage are unemployed or between jobs, while others are students, self-employed or work at businesses that do not offer coverage (e.g., very small companies) or offer coverage that is deemed unaffordable.

To receive the premium tax credit for coverage starting in 2025, a Marketplace enrollee must meet the following criteria:

• Have a household income at least equal to the Federal Poverty Level (FPL), which for the 2025 benefit year will be determined based on 2024 poverty guidelines.
• Not have access to affordable coverage through an employer (including a family member’s employer).
• Not be eligible for coverage through Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP).
• Have U.S. citizenship or proof of legal residency (lawfully present immigrants whose household income is below 100 percent FPL can also be eligible for tax subsidies through the Marketplace if they meet all other eligibility requirements, though this exception is set to end starting in 2026).
• If married, must file taxes jointly.

Employer coverage: If a person’s employer offers health coverage but that coverage is deemed unaffordable or of insufficient value, the employee and/or their family may be able to receive subsidies to buy Marketplace coverage. Employer coverage is considered affordable if the required premium contribution is no more than 9.02 percent of household income in 2025. The Marketplace will look at both the required employee contribution for self-only and (if applicable) for family coverage. If the required employee contribution for self-only coverage is affordable, but the required employee contribution for family coverage is more than 9.02 percent of household income, the dependents can purchase subsidized exchange coverage while the employee stays on employer coverage.

The employer’s coverage must also meet a minimum value standard that requires the plan to provide substantial coverage for physician services and for inpatient hospital care with an actuarial value of at least 60 percent (meaning the plan pays for an average of at least 60 percent of all enrollees’ combined health spending, similar to a bronze plan). The plan must also have an annual OOP limit on cost sharing of no more than $9,200 for self-only coverage and $18,400 for family coverage in 2025.

People offered employer-sponsored coverage that fails to meet either the affordability threshold or minimum value requirements can qualify for Marketplace subsidies if they meet the other criteria listed above.

Eligibility for Medicaid: In states that have expanded Medicaid under the ACA, adults with income up to 138 percent FPL are generally eligible for Medicaid and, therefore, are ineligible for Marketplace subsidies. In the states that have not adopted the Medicaid expansion, adults with income as low as 100 percent of FPL can qualify for Marketplace subsidies, but those with lower incomes are not eligible for tax credits and generally not eligible for Medicaid unless they meet other state eligibility criteria.

Starting in 2026, federal policy changes will restrict premium tax credit eligibility for legal immigrants who are ineligible for Medicaid due to their alien status. An exception to the rule restricting tax credit eligibility for adults with income below the FPL was previously made for certain lawfully present immigrants. Other federal rules restrict Medicaid eligibility for lawfully present immigrants, other than pregnant women, refugees, and asylees, until they have resided in the U.S. for at least five years. Prior to the implementation of this policy change, immigrants who would otherwise have been eligible for Medicaid but had not yet completed their five-year waiting period instead qualified for tax credits through the Marketplace. If an individual in this circumstance has an income below 100 percent of FPL, for the purposes of tax credit eligibility, their income would have been treated as though it was equal to the FPL. Immigrants who are not lawfully present are ineligible to enroll in health insurance through the Marketplace, receive tax credits through the Marketplace, or enroll in non-emergency Medicaid and CHIP. In November 2024, the Biden administration published new rules that deemed Deferred Action for Childhood Arrivals (DACA) recipients as lawfully present, making them eligible for subsidized ACA Marketplace coverage. However, finalized Marketplace Integrity and Affordability rules undo this change.

The ACA requires all qualified health benefits plans to cover essential health benefits, including those offered through the Marketplaces and those offered in the individual and small group markets off-exchange. Grandfathered individual and employer-sponsored plans (which existed before the ACA was passed) and non-compliant plans (which include short-term plans) do not have to cover essential health benefits.

The law specifies that the essential health benefits package must include at least 10 categories of items and services: ambulatory patient services; emergency services; hospitalization; pregnancy, maternity, and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. It also requires that the scope of benefits be equal to that of a “typical employer plan.”

These categories are broad and subject to interpretation. For example, there could be limits on the number of physical therapy services an enrollee receives in a year. For more specific guidance on how to interpret these requirements, the federal government allows states to select a “benchmark” health plan (often one that was already offered to small businesses) as a standard.

Essential health benefits are a minimum standard. Plans can offer additional health benefits, like vision, dental, and medical management programs (for example, for weight loss). The ACA prohibits abortion coverage from being required as part of the essential health benefits package. The premium subsidy does not cover non-essential health benefits, meaning that people enrolling in a plan with non-essential benefits may have to pay a portion of the premium for these additional benefits.

Although plans must cover essential health benefits, they are allowed to apply cost sharing (deductibles, copayments, and coinsurance). This means enrollees may still face some out-of-pocket costs when receiving these services. However, preventive health services are required to be covered without cost sharing. Examples of preventive health services include vaccinations, cancer screenings, and birth control.

There are two types of financial assistance available to Marketplace enrollees. The first type, called the premium tax credit (or premium subsidy), reduces enrollees’ monthly payments for insurance coverage. The second type of financial assistance, the cost-sharing reduction (CSR), reduces enrollees’ deductibles and other out-of-pocket costs when they go to the doctor or have a hospital stay. To receive either type of financial assistance, qualifying individuals and families must enroll in a plan offered through a health insurance Marketplace. In addition to the federal subsidies discussed here, some states that operate their own exchange markets offer additional state-funded subsidies that further lower premium payments and/or deductibles or other forms of cost sharing.

Premium Subsidies

Premium tax credits can be applied to Marketplace plans in any of four “metal” levels of coverage: bronze, silver, gold, and platinum. Bronze plans tend to have the lowest premiums but have the highest deductibles and other cost sharing, leaving the enrollee to pay more out-of-pocket when they receive covered health care services, while platinum plans have the highest premiums but very low out-of-pocket costs. There are also catastrophic plans, usually only available to younger enrollees, but the subsidy cannot be used to purchase one of these plans.

The premium tax credit works by limiting the amount an individual must contribute toward the premium for the “benchmark” plan – or the second-lowest cost silver plan available to the individual in their Marketplace. This “required individual contribution” is set on a sliding income scale. In 2025, for individuals with income up to 150 percent FPL, the required contribution is zero, while at an income of 400 percent FPL or above, the required contribution is 8.5 percent of household income. 

These contribution amounts were set by the American Rescue Plan Act (ARPA) in 2021 and temporarily extended by the Inflation Reduction Act (IRA) through the end of 2025. Prior to the ARPA, the required contribution percentages ranged from about two percent of household income for people with income at the FPL to nearly 10 percent for people with income from 300 to 400 percent of FPL. Before the ARPA was passed, people with incomes above 400 percent of FPL were not eligible for premium tax credits. If Congress does not act to extend the IRA enhanced premium tax credits before the end of 2025, they will expire, and the original ACA premium caps will return.

The amount of tax credit is calculated by subtracting the individual’s required contribution from the actual cost of the “benchmark” plan. So, for example, if the benchmark plan costs $6,000 annually, the required contribution for someone with an income of 150 percent FPL is zero, resulting in a premium tax credit of $6,000. If that same person’s income equals 250 percent FPL (or $37,650 in 2025), the individual contribution is four percent of $37,650, or $1,506, resulting in a premium tax credit of $4,494.

The premium tax credit can then be applied toward any other plan sold through the Marketplace (except catastrophic coverage). The amount of the tax credit remains the same, so a person who chooses to purchase a plan that is more expensive than the benchmark plan will have to pay the difference in cost. If a person chooses a less expensive plan, such as the lowest-cost silver plan or a bronze plan, the tax credit will cover a greater share of that plan’s premium and possibly even the entire cost of the premium. When the tax credit exceeds the cost of a plan, it lowers the premium to zero and any remaining tax credit amount is unused.

As mentioned above, the premium tax credit will not apply for certain components of a Marketplace plan premium. First, the tax credit cannot be applied to the portion of a person’s premium attributable to covered benefits that are not essential health benefits (EHB). For example, a plan may offer adult dental benefits, which are currently not included in the definition of EHB. In that case, the person would have to pay the portion of the premium attributable to adult dental benefits without financial assistance. In addition, the ACA requires that premium tax credits may not be applied to the portion of premium attributable to “non-Hyde” abortion benefits. Marketplace plans that cover abortion are required to charge a separate minimum $1 monthly premium to cover the cost of this benefit; this means a consumer who is otherwise eligible for a fully subsidized, zero-premium policy would still need to pay $1 per month for a policy that covers abortion benefits. Finally, if the person smokes cigarettes and is charged a higher premium for smoking, the premium tax credit is not applied to the portion of the premium that is the tobacco surcharge.

Cost-Sharing Reductions

The second form of financial assistance available to Marketplace enrollees is a cost-sharing reduction. Cost-sharing reductions lower enrollees’ out-of-pocket cost due to deductibles, copayments, and coinsurance when they use covered health care services. People who are eligible to receive a premium tax credit and have household incomes from 100 to 250 percent of FPL are eligible for cost-sharing reductions.

Unlike the premium tax credit (which can be applied toward any metal level of coverage), cost-sharing reductions (CSR) are only offered through silver plans. For eligible individuals, cost-sharing reductions are applied to a silver plan, essentially making deductibles and other cost sharing under that plan more similar to that under a gold or platinum plan. Individuals with income between 100 and 250 percent FPL can continue to apply their premium tax credit to any metal level plan, but they can only receive the cost-sharing subsidies if they pick a silver-level plan.

Cost-sharing reductions are determined on a sliding scale based on income. The most generous cost-sharing reductions are available for people with income between 100 and 150 percent FPL. For these enrollees, silver plans that otherwise typically have higher cost sharing are modified to be more similar to a platinum plan by substantially reducing the silver plan deductibles, copays, and other cost sharing. For example, in 2025, the average annual deductible under a silver plan with no cost-sharing reduction is nearly $5,000, while the average annual deductible under a platinum plan is $0. Silver plans with the most generous level of cost-sharing reductions are sometimes called CSR 94 silver plans; these plans have 94 percent actuarial value (which represents the average share of health spending paid by the health plan) compared to 70 percent actuarial value for a silver plan with no cost-sharing reductions.

Somewhat less generous cost-sharing reductions are available for people with income greater than 150 and up to 200 percent FPL. These reduce cost sharing under silver plans to 87 percent actuarial value (CSR 87 plans). In 2025, the average annual deductible under a CSR 87 silver plan was about $700.

For people with income greater than 200 and up to 250 percent FPL, cost-sharing reductions are available to modestly reduce deductibles and copays to 73 percent actuarial value (sometimes called CSR 73 plans). In 2025, the average annual deductible under a CSR 73 silver plan was about $3,600.

Insurers have flexibility in how they set deductibles and copays to achieve the actuarial value under Marketplace plans, including CSR plans, so actual deductibles may vary from these averages. The ACA also requires maximum annual out-of-pocket spending limits on cost sharing under Marketplace plans, with reduced limits for CSR plans. In 2025, the maximum OOP limit is $9,200 for an individual and $18,400 for a family for all QHPs. Lower maximum OOP limits are permitted under cost-sharing reduction plans.

Cost-sharing reductions work differently for Native American and Alaska Native members of federally recognized tribes. For these individuals, cost-sharing reductions are available at higher incomes and can be applied to metal levels other than silver plans.

Since it was first signed into law, the ACA has undergone many changes through regulation, legislation, and legal challenges. Some provisions never got off the ground, and others were repealed, while more recent changes have expanded and enhanced other provisions. This section summarizes some of the most significant changes to the law.

Medicaid Expansion: The ACA originally expanded Medicaid to all non-Medicare eligible individuals under age 65 with incomes up to 138% of the FPL. A Supreme Court ruling on the constitutionality of the ACA upheld the Medicaid expansion, but limited the ability of HHS to enforce it, thereby making the decision to expand Medicaid effectively optional for states. As of the beginning of 2025, 40 states and the District of Columbia had expanded Medicaid. Additionally, while not taking up Medicaid expansion under the ACA, Wisconsin did increase Medicaid eligibility to 100% of the FPL, which is where ACA Marketplace subsidy eligibility begins. In the remaining states that have not expanded Medicaid, an estimated 1.4 million people fall into the so-called Medicaid coverage gap, meaning their incomes are too high to qualify for Medicaid but too low to qualify for ACA Marketplace subsidies. The federal government covers 90% of the cost of Medicaid expansion.

Individual Mandate: The ACA also originally included an “individual mandate” or requirement for most people to maintain health insurance. In health insurance systems designed to protect people with pre-existing conditions and guarantee availability of coverage regardless of health status, countervailing measures are also needed to ensure people do not wait until they are sick to sign up for coverage, as doing so would drive up premiums. The ACA included a variety of these countervailing measures, with both “carrots” (e.g., premium tax credits and cost-sharing reductions) and “sticks” (e.g., the individual mandate penalty and limited enrollment opportunities) to encourage healthy as well as sick people to enroll in health insurance coverage.

American citizens and U.S. residents without qualifying health coverage had to pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085) per family or 2.5% of household income. The penalty was set to increase annually by the cost-of-living adjustment. Exemptions were granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, undocumented immigrants, incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of an individual’s income, and those with incomes below the tax filing threshold.

Despite the popularity of the ACA’s protections for people with pre-existing conditions, the individual mandate was politically controversial and consistently viewed negatively by a substantial share of the public. In early 2017, under President Trump, the Internal Revenue Service (IRS) stopped enforcing the individual mandate penalty. After several attempts to repeal and replace the ACA stalled out in the summer of 2017, Congress reduced the individual mandate penalty to $0, effective in 2019, as part of tax reform legislation passed in December 2017.

Cost-Sharing Reduction Payments: The ACA originally included two types of payments to insurers participating in the ACA Marketplace. First, insurers received advanced payments of the premium tax credit to subsidize monthly premiums for people buying their own coverage on the Marketplace. Second, insurers were required to reduce cost sharing (i.e., deductibles, copayments, and/or coinsurance) for low-income enrollees and the federal government was required to reimburse insurers for these cost-sharing reductions (CSRs). However, the funds for the payment of cost-sharing reductions were never appropriated. The Trump administration ended federal CSR payments to insurers weeks before ACA Marketplace Open Enrollment for 2018 coverage began. In response to this, most states allowed insurers to compensate for the lack of government payments by raising premiums. At the time, the Congressional Budget Office (CBO) estimated termination of CSR payments to insurers would increase the federal deficit by $194 billion over 10 years, because of these higher premiums and corresponding increased premium tax credit subsidies. Although the CSR payments have ceased, cost-sharing reduction plans continue to be available to low-income Marketplace enrollees.

Enhanced and Expanded ACA Marketplace Premium Tax Credits: Another controversial aspect of the ACA was the so-called “subsidy cliff,” where people with incomes over 400% of the FPL were ineligible for financial assistance on the Marketplace and, therefore, would have to pay a large share of their household income for unsubsidized health coverage. As a result, many middle-income people were being priced out of ACA coverage. The March 2021 COVID-19 relief legislation, the American Rescue Plan Act (ARPA), extended eligibility for ACA health insurance subsidies to people with incomes over 400% of FPL buying their health coverage on the Marketplace. The ARPA also increased the amount of financial assistance for people with lower incomes who were already eligible under the ACA, making many low-income people newly eligible for free or nearly free coverage. Both provisions were temporary, lasting for two years, but the Inflation Reduction Act extends those subsidies through the end of 2025.

Family Glitch: Financial assistance to buy health insurance on the Affordable Care Act (ACA) Marketplaces is primarily available for people who cannot get coverage through a public program or their employer. Some exceptions are made, however, including for people whose employer coverage offer is deemed unaffordable or of insufficient value. For example, people can qualify for ACA Marketplace subsidies if their employer requires them to spend more than about 8-9% (indexed each year) of their household income on the company’s health plan premium. For many years, this affordability threshold was based on the cost of the employee’s self-only coverage, not the premium required to cover any dependents. In other words, an employee whose contribution for self-only coverage was less than the threshold was deemed to have an affordable offer, which means that the employee and their family members were ineligible for financial assistance on the Marketplace, even if the cost of adding dependents to the employer-sponsored plan would far exceed the approximately 8-9% of the family’s income. This definition of “affordable” employer coverage has come to be known as the “family glitch,” which affected an estimated 5.1 million people. Under a Biden administration federal regulation, the worker’s required premium contributions for self-only coverage and for family coverage will be compared to the affordability threshold of approximately 8-9% of household income. If the cost of self-only coverage is affordable, but the cost for family coverage is not, the worker will stay on employer coverage while their family members can apply for subsidized exchange coverage.

Public Opinion: Americans’ views of the Affordable Care Act have evolved over time. From the time the ACA passed, to when the Marketplaces first opened in 2014, and through the months leading up to President Trump’s election in 2016, public opinion of the ACA was strongly divided and often leaned more negative than positive. Many individual provisions of the ACA, such as protections for people with preexisting conditions, were popular, but the individual mandate was particularly unpopular.

News coverage during the ACA Marketplaces’ early years often centered on the rocky rollout, from the early Healthcare.gov website glitches to skyrocketing premiums in subsequent years. Coverage in later years focused on how unprofitable insurers exited the market, leaving people in some counties at risk of having no Marketplace insurer—and thus, no Marketplace through which to access health insurance subsidies.

In 2017, during his first term, President Trump and Republicans in Congress attempted to repeal or fundamentally alter the ACA. As proposals to replace the ACA became more concrete, though, public support for the ACA, particularly among Democrats and Independents, began to grow. Ultimately, the only key aspect of the law that was removed was the penalty for not purchasing health insurance—now lowered to $0 as part of the 2017 tax reform package. Following repeal efforts and the removal of the individual mandate penalty, as well as a stabilization of the ACA Marketplaces, public support for the law has continued to grow and is now solidly more positive than negative. Although this support remains divided by party lines, several Republican-led states have adopted the ACA’s Medicaid expansion through popular votes.

Following repeal efforts and the removal of the individual mandate penalty, as well as a stabilization of the ACA Marketplaces, public support for the law has continued to grow and is now solidly more positive than negative. Although this support remains divided by party lines, several Republican-led states have adopted the ACA’s Medicaid expansion through popular votes.

After volatile initial years, the ACA Marketplaces have become more stable—a pattern which can be seen across a variety of measures, including enrollment, premiums and insurer participation.  

Enrollment

ACA Marketplace enrollment has more than tripled since its launch in 2014. The number of people who enrolled and effectuated their Marketplace coverage in early 2024 reached 20.8 million, surpassing prior record-setting years in 2021, 2022, and 2023. The recent enrollment growth was likely primarily driven by the enhanced tax credits in the American Rescue Plan Act and the Inflation Reduction Act, as well as the Biden administration’s decision to direct more resources toward marketing, outreach, and enrollment assistance, reversing substantial reductions in funding by the Trump administration.

The ARPA’s subsidies didn’t simply bring people from off-Marketplace plans to the Marketplace; they also helped increase overall individual market enrollment. Enrollment grew to 25.2 million in early 2025, which is an increase of about 81% from early 2020.

With passage of enhanced tax credits in the American Rescue Plan Act (ARPA), combined with boosted outreach and an extended enrollment period, 2021 marked the first year since 2015 when individual market enrollment increased relative to the year prior. Individual market enrollment grew about 5% from 13.9 million in the first quarter of 2020 to 14.7 million in the first quarter of 2021.

In the early years of the rollout of the ACA Marketplaces, on-exchange enrollment was comparable to off-exchange enrollment, meaning that the Marketplaces represented about half of overall individual market enrollment. Some off-exchange enrollment was represented by people in ACA-compliant coverage (similar to that offered on-exchange, but without subsidies), while other individual market enrollees were signed up for non-compliant coverage, like “grandmothered” or short-term plans.

Non-compliant short-term plans often do not include certain benefits or coverage for pre-existing conditions and can impose a dollar limit on insurance coverage. For example, many short-term plans do not cover maternity care, prescription drugs, or mental health or substance use treatment, and most impose a dollar limit on covered services or drugs. In 2024, the Biden administration finalized a rule that reverses the Trump administration’s expansion of short-term plans. The share of individual market enrollment in ACA-compliant plans has increased to 93% in mid-2022 compared to 71% in mid-2015. 

Premiums

ACA Marketplace premiums have risen substantially over time. When insurers entered the ACA Marketplaces in 2014, most were operating with virtually no experience participating in an individual market like this (e.g., with subsidies, preexisting condition protections, and an individual mandate). Insurers also had to submit premiums almost a year in advance for review and approval by state regulators. Even 2015 premiums were submitted in early 2014, meaning insurers did not have much experience in the market on which to base their premium and claim projections. Eventually, though, it became clear that they were underpriced and unprofitable, so in 2016, many insurers began to raise premiums. By 2017, the temporary reinsurance and risk corridors programs had phased out, leading to another market correction. In 2018, with the discontinuation of cost-sharing reduction payments, insurers raised premiums yet again, though most insurers concentrated these premium increases on silver plans (a practice known as “silver loading”). More recently, though, as the markets have stabilized and as the pandemic led to a temporary reduction in health care utilization, premiums have at times fallen or at least grown at a slower pace. Heading into 2025, ACA Marketplace benchmark premiums rose by about 4% on average, driven primarily by inflation and increased utilization of specialty drugs.

Deductibles and other cost sharing

Generally, deductibles have also risen since the ACA Marketplaces were first launched in 2014. Bronze plans, which typically have the highest deductibles among ACA Marketplace plans, have an average deductible of $7,186 in 2025, compared to $5,113 in 2014. However, as discussed above, many ACA Marketplace enrollees are low income and therefore qualify for cost-sharing reductions if they purchase a silver plan. For the most generous cost-sharing reduction plans, which are available to people with incomes just above the FPL, the average deductible is $87 in 2025, compared to $183 in 2014.  

Insurer participation

Insurer participation in 2025 is more robust than in recent years, surpassing record high levels of participation set in 2023 and 2024.

Insurer participation on the ACA Marketplaces fell dramatically in 2017 with the exit of UnitedHealthcare from most states. In 2018, with President Trump’s announcement that cost-sharing reduction payments would cease and the corresponding attempts to repeal the ACA in Congress, many more insurers exited or scaled back their participation. Though all counties in the country continued to have at least one ACA Marketplace insurer, there had initially been concern that there could have been counties left without any insurer, thus leaving residents in those counties without access to ACA subsidies.

However, in subsequent years, with premium increases and changes in strategies, it became apparent that the ACA Marketplaces could be quite profitable and many insurers entered or expanded their footprints.

The ACA has faced both support and opposition over time, and its fate has been subject to numerous political and legal debates, including efforts to repeal and replace the law and to overturn it in whole or in part in several court cases. Future changes in presidential administrations and shifts in the composition of Congress will likely continue to impact the implementation and stability of the ACA.

Key issues to watch include:

Federal Policy Changes: Federal policy changes finalized and passed in the summer of 2025 will change how the ACA Marketplaces will operate in the coming years. Combined, the finalized Marketplace Integrity and Affordability final rule as well as the budget reconciliation legislation will make several changes to consumer protections, ACA Marketplace coverage and premium tax credit eligibility, as well as verification processes. Implementation dates of specific policies vary, but some are set to begin in August of 2025. Changes include effectively ending auto-renewals, removing repayment limits on the premium tax credit, and implementing new eligibility verification procedures.  The CBO estimates that an additional  10 million people would become uninsured due to the impact of the budget reconciliation legislation, with about 2 million becoming uninsured due to changes to the ACA Marketplaces.

Enhanced Premium Tax Credits: Currently, the enhanced premium tax credits in the ACA Marketplaces are set to expire at the end of 2025. If these tax credits are allowed to expire, people purchasing subsidized coverage will face significant increases in their monthly premium payments and some may become priced out of the market. Some action has been taken ahead of a potential expiration. In preparation for the possibility of enhanced tax credits expiring, some states are working on ways to fund state subsidies that keep the cost of ACA Marketplace coverage affordable. The CBO previously projected that an additional 4.2 million people would become uninsured by 2034 if the enhanced premium tax credits expire.

State Actions: In recent years, some states have moved off the federal platform (Healthcare.gov) to implement their own enrollment websites. Additionally, more states have expanded Medicaid. Some states have sought 1332 waivers under the ACA to implement reinsurance programs, expand coverage to undocumented residents (though federal policy changes discussed above will undo these efforts), and create public options.

Consumer Protections: The ACA includes various consumer protections that continue to evolve through the regulatory process. For example, proposed and finalized rulemaking has focused on improving network adequacy, simplifying the shopping process, and reexamining essential health benefits. Planned federal policy changes will undo some of the consumer protection processes currently in place. In response to claims of mass fraudulent enrollment, the finalized Marketplace Integrity and Affordability Rule was issued in June 2025. In it, CMS issued rules permitting coverage denials for outstanding premium payments from prior coverage and eliminated the automatic 60-day extension to resolve income discrepancies.

Funding Cuts: In February 2025, CMS announced that it would be reducing funding for its navigator program down from $100 million to $10 million starting next year. This is equal tothe amount awarded to navigators in 2018-2020 during President Trump’s first administration.

Health Costs and Affordability: Though the ACA has made insurance coverage more accessible and affordable for millions of people, health costs in the United States continue to be high and many people with insurance nonetheless face cost-related barriers to care.

• KFF Subsidy Calculator
• How Much More Would People Pay in Premiums if the ACA’s Enhanced Subsidies Expired?
• Explaining Health Care Reform: Questions About Health Insurance Subsidies
• Implementation Dates for 2025 Budget Reconciliation Law
• Health Provisions in the 2025 Federal Budget Reconciliation Law
• Health Reform FAQs
• Inflation Reduction Act Subsidies  
• Ten Things to Watch for 2025 ACA Open Enrollment
• State Health Facts – ACA state data
• Enrollment Growth in the ACA Marketplaces
• Deductibles in ACA Marketplaces

Ortaliza, J., McGough, M., & Cox, C., The Affordable Care Act 101. In Altman, Drew (Editor), Health Policy 101, (KFF, October 2025) https://www.kff.org/health-policy-101-the-affordable-care-act/ (date accessed).