Cost Sharing Reduction
Many people with incomes below 200 percent of the poverty level are eligible for a version of a silver plan with lower cost-sharing. They're automatically shown these plans when they shop on the ACA marketplace. These plans have a higher actuarial value than standard silver plans. They also have lower deductibles, copayments, and coinsurance.
Cost-sharing reductions are available to people who buy their own health insurance on the marketplace (also known as an exchange). They help lower deductibles, copayments, and coinsurance for some of the covered benefits. In 2016, about 7 million people had access to cost-sharing reductions. CSR differs from the premium tax credit, which helps pay your health insurance premium. The two may work together, but you can only get both at one time. You can qualify for one or the other, or both, depending on your income. The ACA requires that most marketplace plans have certain annual maximum out-of-pocket limits and that the limits be lower for plan options, including cost-sharing reductions. These are called “CSR-eligible” marketplace plans. On the exchanges, you’ll see these plans listed first when you’re shopping for coverage. The ACA also requires silver-level plans with built-in CSR to have a higher actuarial value than traditional silver-level marketplace plans.
For example, Jack’s current income qualifies him for a CSR-eligible marketplace plan with an actuarial value of 94 percent. That means he’s eligible for a plan with lower deductibles and out-of-pocket limits than a standard silver-level marketplace plan. But, the plan he enrolls in might not be a CSR-eligible plan with a higher actuarial value.
What Does a 73% Cost-sharing Reduction Mean?
Unlike premium tax credits that people need to keep track of and reconcile at the end of the year, cost-sharing reductions are automatically applied to silver-level marketplace plans that a person is enrolled in. These reductions are designed to lower deductibles, copayments, and coinsurance amounts that apply once a plan reaches its maximum out-of-pocket limits, as shown below.
For example, John’s household income is below the 250 percent of poverty level, so he would qualify for a Marketplace plan with a $3,000 maximum out-of-pocket limit. Depending on his individual circumstances, this could be a Silver 73 plan, a Silver 87 plan, or a Silver 94 plan. Each offers a $3,000 maximum out-of-pocket, so John would not need to keep track of how much he spends to get this benefit.
Currently, these subsidies are not being directly paid by the federal government. Instead, insurers either add them to their silver-level insurance plans or spread them out across all of their marketplace plans in a given state, regardless of the plan level. Regardless of the method, these subsidies are one of the most important, and yet least understood, aspects of the Affordable Care Act that allow people to buy health insurance in the Marketplace and use it effectively.
