Make Health Insurance Affordable through Cost-Sharing Reductions

Health Insurance affordable

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.
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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.

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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.

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