Explaining Health Care Reform: Questions About Health Insurance Subsidies
Key Facts: Cost-Sharing Reductions
Key Facts: Cost-Sharing Reductions
Updated September 2017
Health Insurance Marketplaces (also called exchanges) provide a way for people to buy affordable health coverage on their own. The following questions and answers explains the cost-sharing reductions that are available to low income individuals and families, to help them afford health care under their marketplace plans.
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What are cost-sharing reductions?
Some people receiving premium tax credits to help pay their premiums for marketplace plans also are eligible to receive cost-sharing reductions to help them pay their cost-sharing charges. (For more information about the premium tax credit, see
Key Facts You Need to Know About: Premium Tax Credits.) These subsidies reduce the deductibles, copayments, and other out-of-pocket charges that people eligible for them pay when they use benefits covered by their health plan.
Who is eligible for cost-sharing reductions?
Individuals and families with incomes up to 250 percent of the poverty line ($61,500 for a family of four in 2017) are eligible for cost-sharing reductions (or CSRs) if they are eligible for a premium tax credit and purchase a silver plan through the Health Insurance Marketplace in their state. People with lower incomes receive the most assistance.
How are the cost-sharing reductions provided?
People eligible for cost-sharing reductions who enroll in a silver plan will automatically receive a version of the plan with reduced cost-sharing charges, such as lower deductibles, out-of-pocket maximums or copayments. Unlike the premium subsidies, cost-sharing reductions are not provided as a tax credit and they do not have to be “reconciled” when people file their taxes for the year they received cost-sharing reductions.
What is a silver plan?
A silver plan is one type of plan available through both the state’s marketplace and individual market outside the marketplace. Plans offered in the individual market inside and outside the marketplace generally must fit within one of four metal tiers: bronze, silver, gold, and platinum. These tiers are defined by what’s known as actuarial value.
What is actuarial value?
In general, actuarial value percentages represent how much of a typical population’s medical spending a health insurance plan would cover. The actuarial value is 60 percent for bronze plans, 70 percent for silver plans, 80 percent for gold plans, and 90 percent for platinum plans. The higher the actuarial value, the more the plan covers of a typical population’s costs (and thus the typical population would pay less out-of-pocket). A lower actuarial value means the plan covers less of the costs (and the population pays more). The actuarial value calculation focuses mainly on cost-sharing charges. This means that a bronze plan generally would have higher overall enrollee cost sharing than a gold plan would. (For more information about actuarial value and the metal tiers, see
Key Facts You Need to Know About: Cost-Sharing Charges.)
Will the cost-sharing reductions lower the out-of-pocket charges under a plan by a specific amount?
No, the cost-sharing reductions increase the actuarial value of a standard silver plan, which results in lower out-of-pocket charges. Specific cost-sharing charges will vary from silver plan to silver plan with the same actuarial value; in most states, insurers have significant flexibility to set these charges.
Table 1 shows an example of how various cost-sharing charges in a sample silver plan could be reduced to meet each of the cost-sharing reduction levels. For example, a person with annual income of $22,000 (182 percent of the federal poverty line in 2017) enrolled in a silver plan would be subject to a $250 deductible under the sample silver plan. (The deductible is the amount that the person must pay each year before the plan starts to pay for most covered services. (For more information on different types of cost-sharing charges, please see
Key Facts You Need to Know About: Cost-Sharing Charges.)
TABLE 1:
How Does the Cost-Sharing Reduction Level Affect Cost-Sharing Charges?
Standard Silver – No CSR CSR Plan for 201-250% FPL CSR Plan for 151-200% FPL CSR Plan for up to 150% FPL
Actuarial Value 70% AV 73% AV 87% AV 94% AV
Deductible (Individual) $2,000 $1,750 $250 $0
Maximum OOP Limit (Individual) $5,500 $4,000 $2,000 $1,000
Inpatient hospital
(After deductible) $1,500/
admission $1,500/
admission $250/
admission $100/
admission
Physician visit
(After deductible) $30 $30 $15 $10
Does a person eligible for a cost-sharing reduction have to keep track of spending on health care services to get reimbursed by the health plan or the federal government?
No. The cost-sharing charges for the silver plan are automatically reduced for someone who is eligible for a cost-sharing reduction. For example, consider the situation of Jane, a single woman buying her own health insurance. If Jane is not eligible for CSRs and enrolls in the standard silver plan shown in Table 1, she would have a $2,000 annual deductible and a $30 copayment for each physician visit after that deductible. She could be charged no more than $5,500 in out-of-pocket charges (deductibles, copayments, and coinsurance) for in-network covered benefits for the year. However, if Jane has income equal to 200 percent of the federal poverty line, she would face lower cost-sharing charges, as shown in the column of Table 1 for the plan with an 87 percent actuarial value. For example, she would have a $250 deductible instead of the $2,000 deductible under the standard silver plan. She would pay $15 for each doctor visit (after meeting the deductible) instead of $30.
Will people who have the same income spend the same amount of money out-of-pocket if they qualify for a cost-sharing reduction?
No. How much anyone spends out-of-pocket depends on what health care they use and the details of the specific health insurance plan they select. As Figure 1 shows, two people in the same silver plan with the same cost-sharing reduction will pay different amounts because they use different medical services.
FIGURE 1:
Two People, One Silver Plan
Silver Plan: 87 percent AV, $250 deductible, $2,000 out-of-pocket maximum, $250 copayment for hospital admission, $15 copayment for physician office visit
Example: John
Health Care: 3 non-preventive physician visits
Total Cost: $300
John’s share of cost: = $265
($250 deductible + $15 copayment)
Example: Jane
Health Care: Hospitalized, 3 physician visits,
20 physical therapy visits
Total Cost: $7,300
Jane’s share of cost: = $845
($250 deductible + $250 hospital copayment + $15 for each of 23 office visits)
