Two ways are there using which the Affordable Care Act has made health insurance affordable. One is through advanced tax credits subsidies, which reduces the premium amount of a particular plan based on the insured income level. Another is cost-sharing reduction subsidies. The Cost-sharing reduction is a subsidy provision made in the Affordable Care Act and Patient-Protection Act that was signed into law by President Barack Obama on March 23, 2010. It is a type of federal subsidy offered as discounts to help reduce out-of-pocket costs like copayments, coinsurance, and deductibles for health care expenses. The cost-sharing reductions are available to low-income individuals and families through marketplace plans, so they can afford out-of-pocket costs when they get health care. CSR reduces the coinsurance, deductibles, copayments, along with other out-of-pocket costs of eligible people, and help them pay when they avail benefits covered under their health plan. Cost-sharing subsidies are only available on Silver plans, unlike the premium subsidies that are available with any of the metal plans within the exchange.
Who all are eligible for cost-sharing reductions?
Low-income individuals and families to qualify for cost-sharing reductions under the Patient
Protection and Affordable Care Act must meet the following criteria:
- Individuals and families are eligible for cost-sharing reductions if they purchase a silver plan in their state through the Health Insurance Marketplace.
- Applicants should not be eligible for the government-funded program like Medicaid and Children’s Health Insurance Plan.
- Individuals were unable to get qualified health insurance plan through their employers
- The applicants have a modified adjusted gross income that falls between 100 percent and 250 percent of the federal poverty level. Individuals with lower incomes receive the most assistance.
How are the cost-sharing reductions provided?
Individuals enrolled in a silver plan, and eligible for cost-sharing reductions receive a version of the plan having reduced cost-sharing charges like lower deductibles, out-of-pocket maximums, and copayments. Cost-sharing reductions are not provided as a tax credit, and people do not need to reconcile it while filing their taxes for the year in which they received the cost-sharing reductions.
How Cost-Sharing Reductions Make Plans More Affordable
Cost Sharing Reductions make health insurance plans more affordable by reducing the out-of-pocket costs of the lower-income people. People qualifying for the CSR under the Affordable Care Act have to pay lower out-of-pocket costs associated with their silver plans for which they are eligible on the marketplace. The out-of-pocket expenses like copays, coinsurance, and deductibles associated with silver plans are reduced. This further makes insurance carriers share higher financial responsibility than they would have shared otherwise.
How Cost-Sharing Reductions Work
People eligible for premium tax credits based upon their income may also be eligible for cost-sharing reductions if they enroll in a silver plan. Insurance companies reduce the cost-sharing of the eligible applicants by increasing the actuarial value of the plan chosen by them. The actuarial value represents how much a health insurance plan would cover the medical expenses of the CSR eligible applicants. A silver plan usually has an actuarial value of 70%, which means insurance carrier on average is expected to pay 70% of the covered healthcare cost of the CSR eligible enrollees.
For enrollees with incomes below 150% of the poverty level, their insurers increase the actuarial value to 94%. For enrollees having income between 150% and 200% their actuarial value is increased to 87% and enrollees with income between 200% and 250% of poverty level their actuarial value is increased to 73%. The insurance companies do this by creating variants of each silver plan offered by them. Each variant of the silver plan lowers the cost-sharing to cater to the required higher actuarial value. The additional claims expenses incurred by the insurance carriers due to the lowering of the cost-sharing of the plans are periodically reimbursed.
According to the law, insurance companies have flexibilities to arrange cost-sharing so that they meet the actuarial value levels. However, they need to keep in mind that the out-of-pocket limits on cost-sharing should not exceed prescribed amounts. An out-of-pocket limit is a maximum amount that an enrollee needs to pay towards cost-sharing for in-network healthcare services, and once the limit is reached the insurance company pays 100% of the cost for all the covered healthcare services.