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What are Cost-Sharing Reductions? Meet Obamacare’s Other Subsidy

What are Cost-Sharing Reductions? Meet Obamacare’s Other Subsidy

Posted Dec 16, 2015 by Jenifer Dorsey

Did you know that there are two types of health insurance subsidies available under the Affordable Care Act? Many people are familiar with premium tax credits, the subsidy that helps reduce monthly premium payments when taken in advance or reduces premiums annually when deducted at tax time. But what about cost-sharing reductions?

Cost-sharing reductions are another type of Obamacare subsidy that helps lower an insured person’s share of healthcare costs beyond their plan premium, including:

  • Deductible
  • Coinsurance
  • Copayments
  • Out-of-pocket limit

Cost-sharing reductions apply only to silver plans and impact a plan’s actuarial value. At each metal level, health insurance plans are assigned an actuarial value that reflects cost sharing between the plan and the enrollee. For example, a silver plan has an actuarial value of 70 percent, which means the plan is generally responsible for 70 percent of covered services and the enrollee is generally responsible for 30 percent of covered expenses.

The Henry J. Kaiser Family Foundation explains that there are variants in cost-sharing reduction plans based on enrollee income; those with incomes[1]:

  • Less than or equal to 150 percent of the federal poverty level can enroll in a silver plan with an actuarial value increased to 94 percent, which means the health plan will pay for 94 percent of covered expenses and the enrollee can expect to pay for the other 6 percent of covered expenses.
  • Between 150 and 200 percent FPL can enroll in a silver plan where the actuarial value is increased to 87 percent,  which means the enrollee can expect to pay for 13 percent of covered expenses.
  • Between 200 and 250 percent FPL can enroll in a silver plan where the actuarial value is increased to 73 percent, which means the enrollee can expect to pay for 27 percent of covered expenses.

Kaiser points out that insurers have discretion in how they reduce cost sharing to meet the higher actuarial value but are subject to certain constraints. For example, an insurance company cannot make cost-sharing reductions for an essential health benefit in one plan variant higher than cost sharing for the same service in the standard silver plan or another plan variant with a lower actuarial value. You can read more at kff.org.

Am I eligible for a cost-sharing subsidy?

Cost-sharing reductions are much like premium tax credits in that you must:

  • Meet financial eligibility criteria
  • Buy your health insurance through a state-based exchange or the federal Health Insurance Marketplace

However, unlike premium tax credits, cost-sharing reductions are only available to those:

Cost-sharing reductions can significantly reduce out-of-pocket healthcare spending for eligible individuals and families. To take advantage of this subsidy, however, you must apply for it and enroll in a silver plan. A silver plan may sound more expensive, but don’t rule it out. Once you compare several plan options and calculate your estimated premium tax credit, you may find you could spend less on healthcare with a silver plan and cost-sharing reductions.

If you need assistance selecting an ACA-compliant plan, you can speak with an IHC representative who is also an Obamacare certified adviser by calling 888-839-7679.

Reminder: Update your subsidy

If your family size or income changes throughout the year, you must report these changes to the health insurance exchange through which you enrolled in coverage and applied for a subsidy. Failure to do so could mean repayment of excess subsidy received—it could also mean missing out on additional subsidy amounts for which you could be eligible.

Not eligible for an Obamacare subsidy?

If you find you are not eligible for any Obamacare subsidies, neither premium tax credits nor cost-sharing reductions, you may want to explore on- and off-exchange coverage options to stretch your healthcare dollars.


Legal Disclaimers

[1] Claxton, Gary and Nirmita Panchal. “Cost-Sharing Subsidies in Federal Marketplace Plans.” The Henry J. Kaiser Family Foundation. Feb. 11, 2015. http://kff.org/health-costs/issue-brief/cost-sharing-subsidies-in-federal-marketplace-plans/