Q: Can you explain the ACA cost-sharing subsidy that increases a policy’s actuarial value?
A. There are two different cost-sharing subsidies, one of which is designed to increase the actuarial value (AV) of a policy (AV is used to measure the percentage of total medical costs that a plan will cover for an average population; the percentage that it covers for a specific individual will vary tremendously depending on how much health care the person needs during the year).
For people who are eligible, both types of cost-sharing subsidy are combined and automatically added to all of the available silver plans in the exchange. Cost-sharing subsidies are ONLY available on silver plans purchased in the exchange, and they are only available to enrollees with household incomes of up to 250 percent of the Federal Poverty Level (FPL). This is in contrast to premium subsidies, which can be used to purchase any bronze, silver, gold, or platinum plan in the exchange.
The unsubsidized AV of a Silver plan is 70 percent. This means that the average insured pays roughly 30 percent of medical bills, and the insurance company pays roughly 70 percent. The cost-sharing subsidy increases the AV of a Silver plan to the following levels, depending on household income:
- Household income from 100 – 150% FPL = AV increased to 94%
- Household income from 151 – 200% FPL = AV increased to 87%
- Household income from 201 – 250% FPL = AV increased to 73%
This means that an eligible insured with a household income of 140 percent of FPL (about $16,630 for a single individual purchasing coverage for 2017) would only be responsible for an average of six percent of medical bills.
But again, this will vary significantly for each individual policy-holder, since a person with substantial medical bills will end up having the vast majority of her bills covered by the insurance plan (it will pay 100 percent of covered costs once she reaches her out-of-pocket maximum), whereas a person who needs very little care during the year would end up paying a larger percentage of her own costs, since she wouldn’t have met her out-of-pocket maximum.
The other cost-sharing subsidy limits the total out-of-pocket exposure on Silver plans, and it’s also available to people with household income up to 250 percent of the federal poverty level. As long as you’re eligible based on income and you purchase a silver plan, the cost-sharing subsidies will be automatically incorporated into your plan.