Cost-sharing reductions is a form of financial assistance available to Marketplace enrollees.
Can save a lot of money
It is a kind of subsidy to help reduce an individual or family’s out-of-pocket cost by requiring insurance companies to provide plans with lower costs such as lower deductibles, copayments, and coinsurance.
This assistance is available to individual and families with income between 100 – 250% of the federal poverty level (FPL). If you are eligible to receive cost-sharing reductions you can also expect to have a lower out-of-pocket maximum (OOP).
October 2017 — The Trump administration abruptly decided to stop making CSR payments to insurers.
The intent of the Trump administration was to undermine the ACA. But the end result was actually a boom for Marketplace consumers.
Insurers were then given the green light to raise premiums, called "silver loading." This also resulted in higher premium tax credits to offset premiums.
Numerous lawsuits were filed by insurers to try to recoup payments. The Federal Appeals court ruled insurers were entitled to recover unpaid cost-sharing reduction payments that the Trump administration withheld, but only to the extend insurers had not recouped their loses through higher premiums, which most already had done.
The story ended on June 21, 2021 when the Supreme Court denied requests from multiple insurers to review lower court rulings.
It looks like "silver loading" is here to stay since it actually helps boost enrollment in Marketplace plans. The Biden administration has not taken any firm steps to change this.
Cost-sharing reductions are not the same as a premium subsidy. Cost sharing reductions are not a tax credit and they do not have to be reconciled when you file your taxes.
Cost-Sharing Reductions (CSR) is the program name but it is being used interchangeably with the phrase Out-of-Pocket Savings.
♦ You have to be eligible for Cost-Share Reductions and then you get Out-of-Pocket Savings.
Yes, that sounds a bit confusing. But then many parts of the Affordable Care Act are confusing.
This is a very good thing for the people that qualify. So please do not skip this subject.
It has to be broken into parts to best explain it.
Who is eligible for cost-sharing reductions?
Who pays cost-sharing reductions?
How do insurance companies decide cost-sharing reduction plans?
How cost-sharing reductions affects benefits?
Out-of-pocket savings and how it works?
What happens if my income changes?
Who is eligible for cost-sharing reductions?
Individuals and families that are eligible for a premium tax credit will also be eligible for cost-sharing reductions if their income does not exceed 250 percent of the Federal Poverty Level.
In Vermont, cost-sharing reductions are handled a bit differently. Here the state has decided to provide some assistance also.
Vermont’s program is the same as other states for people with incomes up to 200 percent of the poverty level. But for people between 200 and 250 percent of the poverty level, the state provides additional cost-sharing reductions over what’s covered by federal funds.
Vermont also provides some cost-sharing reductions for people with incomes between 250 and 300 percent of the poverty level (this group normally doesn’t get federal cost-sharing reductions at all).
Under the Affordable Care Act (ACA) insurance companies have to provide assistance to consumers who pick a SILVER plan and who earn up to 250 percent of the Federal Poverty Level (FPL).
What this means is insurance companies were supposed to receive from the federal government a subsidy to help cover the cost for providing plans with lower cost-sharing expenses — lower deductibles, coinsurance, copay or lower out-of-pocket maximum. Now insurance companies raise the premium to cover the added cost and the federal government raises the premium tax credit to offset the increased premium.
The subsidy will vary according to the consumer’s percent of FPL. People with lower incomes receive the most assistance.
♦ Tax credits for 2023 coverage will be based on FPL for 2022.
Federal Poverty Levels for 2022
• $13,590 for individuals
• $18,310 for a family of 2
• $23,030 for a family of 3
• $27,750 for a family of 4
A family of 4 with an annual income of $27,750 would be at 100% of FPL for their family size.
Federal poverty levels are higher in Alaska and Hawaii.
Cost-sharing reduction would come in to play for a family of four if their 2023 Modified Adjusted Gross Income (MAGI) is expected to be less than $69,375. That is $27,750 x 2.5 = $69,375.
With an MAGI less than 2.5 times the FPL for your family size you have a good chance of qualifying for a cost-sharing reduction plan.
♦ If you qualify you must be sure to purchase a Silver plan through the Health Insurance Marketplace also known as the Exchange.
Keep in mind that even if you do not qualify for a cost-sharing reduction plan you may be eligible for a premium tax credit.
♦ The premium tax credit is calculated up to 400% of the FPL. So while your income may be too high for cost-sharing reduction you may still qualify for a premium tax credit.
→ The American Rescue Plan Act of 2021 and the Inflation Reduction Act (IRA) of 2022 greatly changed the calculations - now incomes over 400% of the FPL are eligible for premium tax credits. This change is expected to stay in place through 2025.
Who pays for cost-sharing reductions?
The federal government was supposed to reimburses each health insurance company for the estimated costs of reducing the cost-sharing that would otherwise be charged to the consumer under their standard Silver plans. The Trump administration mucked this up.
♦ For 2023 coverage, in most states the cost of CSR will continue to be added to silver plan rates.
How are cost-sharing reduction plans decided?
It is complicated but insurance companies offering coverage at the Health Insurance Marketplace must offer variations of a standard Silver plan.
• The variations will be directed at the different levels of Cost-sharing Reduction (CSR) and those levels are determined by the applicant’s percent of the Federal Poverty Level (FPL).
The insurance company might provide a Silver plan for people with incomes between 201 - 250 % of the FPL, one for those with incomes between 151 – 200 % of the FPL, and one for those with incomes between 100 – 150 % of the FPL.
♦ If your household income exceeds 250% of FPL (see table below), you will not qualify for cost-sharing reductions. You may still qualify for premium tax credits. Through 2025, premium tax credits will be available for incomes greater than 400% of FPL.
|# in Household||100% FPL||150% FPL||200% FPL||250% FPL|
Each Silver plan variation will cover the same benefits and include the same health care providers in its network as the standard Silver plan on which it is based. But they will have different out of pocket expenses.
The standard Silver plan has an actuarial value of 70 percent.
♦ This means the percentage of total average costs for covered benefits that a plan will cover is 70%. And you would be responsible for the remaining 30% of the costs for covered medical benefits. There are some exceptions but overall this is the rough idea.
So when an insurance company creates a cost-sharing plan they will be thinking actuarial value. And how to reach that value. For example:
• 73% percent actuarial value for people with incomes between 201 - 250% of the FPL
• 87% actuarial value for 151 – 200% of the FPL,
• 94% actuarial value for 100 – 150% of the FPL.
As a comparison, the standard Gold plan has an actuarial value of 80%.
♦ The CSR plans will be Silver plans only.
The plan names will look very much the same with the exception the name will be followed by CSR73 or CSR87 or CSR94.
The number refers to the actuarial percent. 94 being 94% actuarial value. The plan expects to pay 94% of covered medical benefits.
There is a CSR100 but that is limited to some Native Americans.
♦ To reach these percentages the insurance companies will adjust things like maximum out-of-pocket, deductible, coinsurance, and copayments.
Federal rules come into play, especially considering the federal government is going to later give the insurance company money for doing this.
♦ Federal rules specify the insurance company to adjust the maximum amount that an applicant would pay out of pocket each year for in-network items and services covered by the plan.
Federal rules are what gets the insurance companies to reduce things like deductible amounts, coinsurance, copays and maximum out of pocket.
♦ For coverage year 2023, an individual with a MAGI up to 200% FPL would be able to expect to find a Silver plan with a maximum out-of-pocket limit of no greater than $3,000. See table below.
In order to meet other Federal rules and to reach the actuarial percent for the plan, the insurance company may need to further reduce cost-sharing amounts for things like deductible, coinsurance and copay.
♦ The maximum out-of-pocket limit for any individual Marketplace plan for 2023 without cost-sharing reductions is $9,100 for an individual and $18,200 for a family.
The tables below shows how cost-sharing reductions can greatly affect maximum out of pocket.
The insurer could reduce the maximum out-of-pocket limit for a plan to an amount no greater than the amount shown in the table.
Many insurers will offer plans with lower maximum out-of-pocket limits.
|% of FPL||Individual||Family||Actuarial %|
|201 – 250%||$7,250||$14,500||73%|
|151 - 200%||$3,000||$6,000||87%|
|100 - 150%||$3,000||$6,000||94%|
There is a twist thrown in though.
Some states have set their own rules for cost-sharing. And these can affect deductibles, coinsurance and copay.
How cost-sharing reduction affects benefits
The table below shows how cost-sharing reductions (CSR) could benefit an individual.
Actual values will vary depending upon the plan, the insurance company and state rules.
In this example, plan D would provide the lowest deductible of $0 and lowest out-of-pocket costs, while plan A would require the consumer to spend more money for health care.
|How Cost-Sharing Affects Benefits|
|Silver Plan (no CSR)||Silver Plan w/CSR (201-250% FPL)||Silver Plan w/CSR (151-200% FPL)||Silver Plan w/CSR (150% FPL)|
The table is a rough example of how this portion of the ACA helps lower income people.
♦ It is important to notice that a SILVER plan must be selected.
In most states, the insurance companies have quite a bit of leeway in how they setup these plans. It is important to read each plan carefully because the way that cost-sharing reductions are applied will vary from one Silver plan to another.
After you apply for coverage through the Health Insurance Marketplace, also known as an exchange you will get an Eligibility Determination Notice.
If it says “Can choose a health plan with lower copayments, coinsurance, and deductibles” and is followed by (04), (05), or (06), you qualify for income-based savings — but only if you pick a Silver plan.
• Unfortunately, the Health Insurance Marketplace doesn’t explain this very well and agents have been known to breeze over this important point as if we all understand.
Read your Eligibility Determination Notice carefully and then proceed to the next stage which is called selecting a plan. Think of the next stage more like a reviewing of plans.
Review several plans from as many insurance companies as you can. Enrollment for 2017 has made it easier to notice the plans with Cost-Sharing Reduction. These plans will be labeled with the word ‘Savings’ beside the name. These are the plans you should look at first.
Recently, HealthCare.gov flags these plans with the words Extra savings highlighted in yellow making them easier to see.
Take the time to review all the coverage side by side and to look for the plans with reduced deductibles and lower out of pocket maximums.
Many plans included the letters CSR in the plan name. Depending upon your eligibility your cost-sharing reduction plan’s name may have included CSR73 or CSR87 or CSR94.
In some markets, BlueCross BlueShield offered plans ending in S04, S05 or S06. The ‘S’ stands for ‘Savings.’
The numbers refer to the actuarial percent. An S06 or CSR-94 plan being 94% actuarial value. These plans expect to pay 94% of covered medical benefits and you will have roughly 6% to worry about. You could think of this plan as similar to a Platinum plan but at the cost of a Silver plan.
• Some plans drifted away from this naming scheme so be careful to read all the details. For example, Ambetter offered several 94% plans but labels them Ambetter Balanced Care 1, 2, 3 and 4.
♦ By all means make sure your family doctor and local hospital are in the plan.
How out-of-pocket savings works
If you qualify for savings on out-of-pocket costs and enroll in a Silver plan:
You’ll have a lower deductible. This means the insurance plan starts to pay its share of your medical costs sooner. If a particular Silver plan normally has a $750 deductible your deductible for this same Silver plan could be $300 or even less depending on your income.
You’ll have lower copayments or coinsurance. These are the payments you make each time you get care – like $30 for a doctor visit. Your office copay could be $15 or less.
You’ll have a lower out-of-pocket maximum. This means the total amount you’d have to pay in a year for health care will be reduced.
The above are just examples to illustrate how cost-sharing reductions work.
Insurance companies who participate in Cost-Sharing Reductions have a lot of leeway with structuring their plans.
Some may emphasize low deductibles while others may emphasize low out-of-pocket maximum.
You'll know exactly how much you save on out-of-pocket costs only when you shop for Silver plans at the Marketplace.
What happens if my income changes?
You need to inform the Marketplace right way of any changes in income.
If your income goes up you may no longer be eligible for the CSR plan you have or you may be shifted into another CSR plan with a lower actuarial percentage.
If your income goes way up you may be pushed into a standard Silver plan without any cost-sharing reductions. Out-of-pocket costs would potentially go up.
If your income goes down you may be able to move to a CSR plan with a higher actuarial percentage. Out-of-pocket costs would potentially go down.
Cost-sharing reduction amounts are not like premium credits. There is no reconciliation or repayment of cost-sharing reduction amounts come tax time.
If your move into a “better” CSR plan, one with a higher actuarial percentage, you generally cannot get a refund for any prior amounts you paid as cost-sharing. Things like copay and coinsurance.
You might be able to get a credit for some cost-sharing charges you already paid for the year, such as a portion toward the deductible. You need to ask for it.
Should you happen to move into a CSR plan with $0 deductible and you have already paid some portion of your old plan’s deductible you would not receive a refund of what you paid toward the deductible but may be able to have the amount credited toward the out-of-pocket maximum of the new plan.
Keep in mind — you would need to stay enrolled in the same Silver plan offered by the same insurance company in order to try to get any kind of credit. You might be able to enroll in different Silver plan, but if you do that you will lose any chance of receiving a credit.
Ask questions. If you believe you have a credit don’t be afraid to ask for it.
It never hurts to ask.