What is a cost-sharing reduction?
A cost-sharing reduction (CSR) is a provision of the Affordable Care Act that reduces out-of-pocket costs for eligible enrollees who select Silver health insurance plans in the marketplace. CSRs – often referred to as cost-sharing subsidies – reduce enrollees’ cost-sharing by lowering a health plan’s out-of-pocket maximum, and increasing the actuarial value (AV) of the plan.
Who's eligible for cost-sharing reductions?
Cost-sharing reductions are available to eligible enrollees who select Silver plans in the marketplace. Eligible enrollees have household incomes up to 250 percent of the federal poverty level (FPL). The lower income threshold for CSR is 100 percent of the poverty level in states that have not expanded Medicaid, and 139 percent of FPL in states that have expanded Medicaid. (If you’re eligible for Medicaid, you’re not eligible for any sort of subsidies in the exchange.)
For reference, here’s what those thresholds translate to in terms of dollar amounts for 2021 coverage, which is based on the 2020 poverty level numbers.
How do applicants receive cost-sharing reductions?
When an enrollee who is eligible for CSR applies for a Silver plan, they are enrolled into a Silver plan that has cost-sharing reductions automatically built into the plan design. So the lower out-of-pocket cap and higher AV will be automatic, as long as the person picks a Silver plan.
Silver plans with built-in CSR will only appear on marketplace sites for applicants whose income makes them eligible for CSR benefits. People who enter a higher income will only see regular Silver plans, without CSR benefits included.
Note that CSRs work somewhat differently for American Indians and Alaskan Natives, who can receive CSRs with Bronze, Silver, Gold or Platinum plans. For Native Americans, these CSR benefits extend to households earning up to 300 percent of the poverty level, and they eliminate cost-sharing completely, as opposed to just reducing it.
How much do cost-sharing reductions reduce out-of-pocket maximums in Silver plans?
CSR reduces the maximum out-of-pocket exposure on a Silver plan for households with eligible incomes.
For 2021 coverage, the unsubsidized maximum allowable out-of-pocket limit for an individual is $8,550 ($17,100 for a family). But enrollees who are eligible for cost-sharing subsidies are automatically given lower out-of-pocket limits (see Table 4 in the 2021 Benefit and Payment Parameters) as long as they select a Silver plan in the exchange (for people who aren’t eligible for CSR, the silver plans displayed on the exchange website will have their regular out-of-pocket maximums, which can be up to $8,550 for an individual in 2021):
- For applicants with MAGI between 100 and 200 percent of FPL, the maximum out-of-pocket on a Silver plan in 2021 is $2,850 for a single individual and $5,700 for a family. (This amounts to a two-thirds reduction from the regular out-of-pocket maximum.)
- For applicants with MAGI between 200 and 250 percent of the poverty level, the maximum out-of-pocket for Silver plans in 2021 is $6,800 for a single individual and $13,600 for a family. (This amounts to a 20 percent reduction from the regular out-of-pocket cap.)
- In both cases, plans can be offered with even lower out-of-pocket limits, but cannot exceed those limits.
How much do CSRs increase the other benefits offered by a Silver plan?
CSR also increases the actuarial value (AV) of the plan. Actuarial value 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.
The unsubsidized AV of a Silver plan is roughly 70 percent (there’s a de minimus range that allows actual AV to vary a bit above or below that level, with a range of 66 to 72 percent). This means that across a standard population, the insureds pay roughly 30 percent of total medical bills, and the insurance company pays roughly 70 percent (again, this will vary significantly from one person to another, depending on the person’s specific claims during the year).
For eligible enrollees, cost-sharing subsidies increase the AV of a Silver plan to between 73 percent and 94 percent, depending on the enrollee’s income. For enrollees with household income from:
- 100% to 150% of FPL, AV is increased to 94% (better than a Platinum plan)
- 150% to 200% of FPL, AV is increased to 87% (nearly as good as a Platinum plan)
- 200% to 250% of FPL, AV is increased to 73% (better than the normal 70% for a regular Silver plan)
In addition, as noted above, Native Americans with income under 300 percent of FPL are eligible for plans with zero cost-sharing.
How do cost-sharing reductions work?
Thanks to CSR, an enrollee with an income of 140 percent of FPL (a little under $18,000 for a single person in 2021) would be eligible to enroll in a Silver plan that’s more robust than a Platinum plan.
For this person, CSR benefits would reduce the maximum allowable out-of-pocket exposure in 2021 by about 67 percent (from the regular 2021 maximum out-of-pocket of $8,550 to the adjusted maximum out-of-pocket of $2,850 – keeping in mind that plans can offer out-of-pocket limits that are lower than those amounts).
The increase in AV – from about 70 percent to 94 percent – is achieved by reducing the copays, deductible, and coinsurance that the enrollee has to pay, so that the insurance company covers more of the claims.
But again, this does not mean that the insurance company will cover 94 percent of a specific enrollee’s medical costs. The actual percentage they cover 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.
What is 'Silver loading?'
The federal government used to directly reimburse health insurance companies for the cost of cost-sharing reductions. That ended in the fall of 2017, but cost-sharing subsidies have continued to be available to eligible enrollees.
To cover the cost, most insurers simply add the cost of CSR to Silver plan premiums. This approach, known as “Silver loading,” results in larger premium subsidies for everyone in the area, as premium subsidy amounts are based on the cost of the second-lowest-priced Silver plan in each area.
Here’s more information about everything that happened with cost-sharing subsidies in late 2017 and since then.
If I'm eligible for CSR, is a Silver plan always the best choice?
There’s no right or wrong answer here. CSR benefits vary depending on income — a person earning 240 percent of the poverty level and a person earning 140 percent of the poverty level are both CSR-eligible, but they’ll receive very different benefits. If your income is in the range where the plan’s AV will only be increased to 73 percent, it might end up being prudent to enroll in a lower-cost Bronze plan, saving money on premiums (possibly getting a plan for free) in trade for somewhat higher out-of-pocket costs.
Depending on income and location, it’s also possible that you might be eligible for a Gold plan that has no premium at all. That’s something you’d have to closely compare with the available Silver plans and their built-in CSR benefits, making sure to account for the difference in premiums when you do your comparison.
But if your income is on the lower end and you’re eligible for strong CSR benefits (ie, an AV of 94 percent), you’ll want to strongly consider the Silver plans that are available to you, even if there are free Bronze plans available too. Pay attention to the amount you’ll have to pay in out-of-pocket costs if you end up needing medical care during the year: It’s going to be a lot higher on the Bronze plan, which could quickly obliterate any savings you had from the lower monthly premiums.