(Corrects to say projections data came from Assistant Secretary for Planning and Evaluation, not Assistant Secretary of Professional Estimators, in last paragraph.)

By Yasmeen Abutaleb

NEW YORK, March 23 (Reuters) - The costs of caring for the uninsured at U.S. hospitals fell by an estimated $7.4 billion in 2014 due to the expansion of healthcare to millions of people under Obamacare, according to a government report released on Monday.

In 2014, hospitals' uncompensated care costs were estimated at $27.3 billion. But that compared favorably to an estimated $34.7 billion if the uninsured rate had remained at its 2013 level, according to the report from a division of the U.S. Department of Health and Human Services.

Most of the reduction came from the 28 states and Washington, D.C., which expanded Medicaid health coverage for the poor, with a reduction in uncompensated care of $5 billion and bad debt of $1.1 billion, according to the report.

Even states that did not expand Medicaid, however, reduced these costs. They saw a $2.4 billion reduction in uncompensated care and an $800 million drop in bad debt.

The government has pointed to the expected decrease in costs for uncompensated care in 2014 as an indication that President Barack Obama's healthcare reform law, also known as Obamacare, is working.

Under the law, more than 16.4 million Americans have acquired health coverage, the agency said last week.

The U.S. Supreme Court is currently considering whether or not to let tax subsidies stand for individuals who have purchased health insurance on the federal exchange.

If it decides against the subsidies, consultancy Avalere Health has estimated that at least 7.5 million people could face premium increases they cannot afford, which could leave millions uninsured.

States across the country also reduced their charity care costs. Expansion states accounted for a $3.9 billion drop and states that did not expand Medicaid accounted for $1.6 billion in reduced costs.

The analysis compared 2014 uncompensated care costs to what they would have been if the uninsured rate had remained at 2013 levels.

Projections used in the report came from the Assistant Secretary for Planning and Evaluation; the Centers for Medicare and Medicaid Services Hospital Cost Report data; 2014 uninsured estimates from Gallup-Healthways, and CMS Medicaid enrollment numbers. It was prepared by ASPE, a division of HHS.

(Reporting by Yasmeen Abutaleb and Caroline Humer, editing by G Crosse)