The ongoing discussions in Congress, particularly concerning budget reconciliation, have brought the topic of federal spending into sharp focus. As congressional Republicans and President Trump explore potential trillions in cuts to mandatory federal spending to offset the costs of extending expiring tax cuts, healthcare programs, a substantial portion of the federal budget, are inevitably under scrutiny. Understanding exactly how much does the U.S. spend on healthcare is critical to informed discussions about potential spending cuts and their consequences.
Currently, Medicaid has been a primary target for federal spending cuts. However, potential cuts to Medicare and the Affordable Care Act (ACA) have also been suggested. These cuts to federal spending on health programs and services come with trade-offs, potentially impacting health insurance coverage, access to care, healthcare costs for consumers, and payments to healthcare providers. These effects would disproportionately affect lower-income individuals.
This analysis will explore federal government support for health programs and services, including direct spending and tax subsidies (forgone tax revenues from provisions that reduce tax liability for health-related spending). The data is sourced from the Office of Management and Budget, U.S. Treasury Department, and the Congressional Budget Office.
Key Findings on U.S. Healthcare Spending
- In fiscal year (FY) 2024, the federal government spent $1.9 trillion on healthcare programs and services, accounting for 27% of all federal outlays. This makes healthcare the largest category of federal spending.
- Tax subsidies for employer-sponsored insurance coverage (ESI) and a portion of the Affordable Care Act (ACA) premium tax credits resulted in $398 billion in forgone tax revenues in FY 2024.
- Over 80% of all federal support for health programs and services, including both spending and tax subsidies, is allocated to programs that provide or subsidize health insurance coverage. This includes Medicare (36%), Medicaid and CHIP (25%), employment-based health coverage (17%), and subsidies for Affordable Care Act (ACA) coverage (5%).
- Discretionary spending represents a relatively small portion of overall federal support for health programs and services. A majority (52%, or $128 billion) of discretionary health spending is dedicated to hospital and medical care for veterans. Other areas of discretionary health spending include the National Institutes of Health (NIH) (19% of discretionary health spending), the Centers for Disease Control and Prevention (CDC) (4%), and global health initiatives (4%).
How the Federal Budget Supports Health Programs and Services
Over one in four federal spending dollars was allocated to health programs and services in FY 2024 (Figure 1). Other significant categories include Social Security (21%), national defense (13%), and interest payments on the federal debt (13%). These four categories make up nearly three-quarters of all federal spending.
Mandatory spending accounts for 70% of government support for health programs and services, while tax subsidies make up 19%, and discretionary spending represents 11% (Figure 2). The federal government supports health programs and services through three main avenues: mandatory spending (outlays), discretionary spending (outlays), and tax subsidies (forgone tax revenue, also known as tax expenditures or tax preferences).
Understanding the Budget Reconciliation Process
Congress is likely to use reconciliation to reduce mandatory spending in order to offset the cost of extending expiring tax cuts. Budget reconciliation is a specific legislative process used for changes to taxes and mandatory spending. In the Senate, this allows legislation to pass with only 50 votes instead of the standard 60. There are restrictions to the type of legislation that can pass through budget reconciliation, and it can only be used for policies making non-incidental changes to mandatory spending or revenues. The 2017 Tax Cuts and Jobs Act was initially enacted through reconciliation, and this process is expected to be used again for an extension. These broad but temporary tax cuts are set to expire at varying years starting in 2025, with an estimated extension cost of $4.0 trillion between FY 2025 and FY 2034.
Originally, reconciliation aimed to reduce budget deficits and has several unique rules. The process starts with the adoption of a budget resolution passed in both houses of Congress. This resolution provides each Congressional committee with the budgetary changes that must be achieved over a five-year or ten-year period. Committees must meet the dollar targets, but they have discretion over how to meet them.
To maintain privileged status in the Senate, a reconciliation bill cannot:
- Increase the deficit in years after the budget period.
- Change Social Security spending or revenues.
- Be “extraneous” to the budget, meaning policies with “merely incidental” fiscal impacts are prohibited.
- Make changes to discretionary spending.
Potential Impacts of Budget Reconciliation on Health Insurance Coverage
The U.S. health insurance system relies on four primary sources: Medicare, Medicaid, ACA Marketplaces, and employer-sponsored coverage. A reconciliation bill could impact each of these. Medicare represents the largest share (36%) of total federal support for health programs and services, followed by Medicaid and CHIP (25%), employer coverage (17%), and ACA Marketplaces (5%). Federal financial support could be reduced for any of these programs through reconciliation, as they are all funded through mandatory spending and/or tax subsidies.
Current discussions have focused on reductions in mandatory federal health spending, primarily Medicare (52% of mandatory health spending) and Medicaid (36%) (Figure 3, Appendix Table 1). A proposal outlining potential policies for a reconciliation package focuses largely on reducing federal spending to finance an extension of the 2017 tax cuts. While Medicaid faces the largest proposed cuts, options to reduce spending on Medicare and ACA subsidies are also being considered.
Medicaid: Medicaid provides coverage for 83 million low-income individuals, accounts for one-fifth of health care spending in the U.S., and covers 61% of long-term care costs. Despite favorable public views, federal Medicaid funding ($584 billion in 2024) is at risk under Republican proposals to reduce federal spending by nearly one-third over ten years. Proposed changes include imposing per capita caps on federal spending, reducing the federal government’s share of costs for the ACA expansion group, limiting provider taxes states use to help pay for their share of Medicaid costs, and imposing work requirements. These policy changes would fundamentally alter Medicaid financing, potentially forcing states to raise new revenue, restrict the number of people covered, cover fewer benefits, or cut payment rates for healthcare providers. Millions could lose Medicaid coverage, depending on the policy structure.
Medicare: Medicare provides health insurance coverage to nearly 68 million older adults and younger people with long-term disabilities. It accounted for just over half (52%, or $839 billion) of mandatory spending on federal health programs and services in FY 2024. Despite campaign promises not to cut Medicare, Republican lawmakers have proposed several Medicare savings measures in budget reconciliation talks. These include implementing site-neutral payment policies, making changes to Medicare payments for uncompensated care, bad debt, and other hospital payments, and reforming Medicare payment for graduate medical education. These proposals could yield around $500 billion in 10-year savings, primarily impacting hospitals and, indirectly, patients.
ACA Marketplaces: Healthcare.gov and State-Based Marketplaces cover over 24 million people in 2025 (about 7% of the US population), most of whom are low-income. Federal support totaled $125 billion in FY 2024, including direct spending and tax subsidies, with about 19 million people receiving a subsidy.
ACA Marketplace subsidies are provided through the tax system, with most subsidized enrollees receiving an advanced payment of the premium tax credit. The ACA currently limits how much an enrollee must pay back in the tax credit if their income is below four times the poverty level. However, a Ways and Means Committee document proposes removing repayment limits for people who receive excess tax credits.
Since 2021, enhanced premium tax credits have lowered premium payments across all subsidized enrollees and made middle-income people (over four times poverty) newly eligible for subsidies. These enhanced tax credits are set to expire at the end of 2025. If not renewed, out-of-pocket premium payments for enrollees are expected to increase significantly. Renewing the subsidies would cost $335 billion over ten years, according to CBO projections.
Discretionary Health Programs and Services
Discretionary spending accounts for only 11% of federal support for health care programs and services, with over half (52%) allocated to veterans’ health care (Figure 4, Appendix Table 2). In FY 2024, $128 billion in federal funding supported care for more than 7 million veterans. The National Institutes of Health is the next largest source of discretionary spending, receiving $46 billion in 2024 (19% of discretionary spending). Other sources include public health and social services emergency funding ($11 billion; 4%), global health ($10 billion; 4%), and the Centers for Disease Control and Prevention ($9 billion; 4%).
Changes to discretionary health spending through the appropriations process require 60 votes in the Senate, necessitating Democratic support, unless President Trump takes unilateral actions to reduce federal spending. Congress is expected to pass appropriations bills by June 30 each year, providing funding for discretionary programs from October 1 through September 31 of the following year. However, these bills are often not passed on time, and continuing resolutions are used to prevent lapses in funding.
The Trump administration has previously taken unilateral action to reduce federal funding, such as freezing federal funding in various programs, characterizing these actions as “programmatic delays.” The extent to which President Trump will be able to significantly reduce federal spending through these actions remains unclear.
Understanding how much does the U.S. spend on healthcare is vital as debates surrounding healthcare spending continue. Proposed cuts will require careful consideration of the potential impacts on individuals, healthcare providers, and the overall healthcare system.
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| This analysis is based on data on federal outlays from the Office of Management and Budget (OMB) FY 2025 President’s Budget, tax expenditures from the U.S. Department of the Treasury, and the tax exclusion for employment-based coverage from the Congressional Budget Office (CBO). Specifically, we use FY 2024 data on federal outlays from Table 25-1. Budget Authority and Outlays by Budget Function, Category, and Program, FY 2024 data on tax expenditures from Table 1. Estimates of Total Income Tax Expenditures for Fiscal Years 2024-2034, and FY 2024 data on the tax exclusion for employment-based coverage from CBO, Health Insurance and Its Federal Subsidies: CBO and JCT’s June 2024 Baseline Projections. The federal budget groups spending into roughly 20 categories called ‘budget functions,’ which are groups of activities or programs that fulfill specific purposes, such as defense, transportation, and health. This analysis focuses on non-defense health spending, which is defined to include spending in the following categories within four budget functions: 150: International Affairs: 151: International development and humanitarian assistance: Global health 550: Health: 551: Health care services 552: Health research and training 554: Consumer and occupational health and safety 570: Medicare 700: Veterans Benefits and Services 703: Hospital and medical care for veterans Each category includes both mandatory and discretionary spending, where applicable. Spending totals in this analysis are outlays, which represent actual cash flows, rather than budget authority, which represents the amounts authorized by Congress for new obligations by federal agencies. Global health outlay totals presented here do not match those presented in other KFF resources, such as the U.S. Global Health Budget Tracker, which highlight the budget authority totals as provided by Congress in annual appropriations and include some other funding components that are counted elsewhere in this analysis. As noted above, in this analysis ‘global health’ is a category of spending within budget function 151: International development and assistance, which accounts for the majority of global health funding. Additional global health funding at NIH and CDC is included under budget function 550: Health. This analysis does not include spending by the Department of Health and Human Services that falls outside of the ‘Health’ or ‘Medicare’ budget functions, which consists mainly of spending on social services and income security for children and families through the Administration for Community Living (ACL) and Administration for Children and Families (ACF), which falls within budget functions 500 (Education, Training, Employment, and Social Services) and 600 (Income Security). A separate KFF brief, How Does the Department of Health and Human Services (HHS) Impact Health and Health Care?, has a more complete description of these operating divisions within HHS. |
