Cost-sharing reductions (CSRs), sometimes known as cost-sharing subsidies, are ACA subsidies (applicable only to Silver plans) that reduce enrollees’ cost-sharing in two ways: They lower the plan’s out-of-pocket maximum, and they also increase the actuarial value (AV) of the plan, which is a measure of the percentage of average costs that the plan covers.
Silver plans with built-in CSR that reduces the out-of-pocket maximum will only appear on the exchange websites for applicants who qualify for them. And despite the fact that the Trump Administration has eliminated CSR funding, the CSRs themselves will continue to be available to eligible enrollees.
CSRs are available to people with household income up to 250 percent of the poverty level, and those enrollees are also eligible for premium subsidies, which extend up to 400 percent of the poverty level. (Premium subsidies can be applied to any metal level plan, but to get CSR, you have to pick a Silver plan). The lower income threshold for CSR (and premium subsidies) is 100 percent of the poverty level in states that have not expanded Medicaid, and 139 percent of the poverty level in states that have expanded Medicaid — if you’re eligible for Medicaid, you’re not eligible for any sort of subsidies in the exchange
To understand the cost-sharing subsidies, it helps to think of the reduced out-of-pocket maximum as a safety net that’s there to catch you in a worst-case scenario. If you have a claim that’s large enough to cause you to reach your out-of-pocket maximum, CSR will make the burden easier to bear by reducing the maximum amount that you would have to pay.
Many people don’t meet their out-of-pocket maximum most years. But they may have several smaller expenses throughout the year, and the costs can still be difficult to manage. That’s where CSR’s increased AV comes in. Higher AV means the insured is responsible for a smaller portion of expenses right from the start, even if the out-of-pocket maximum is not reached.
The lower out-of-pocket maximum provided by the cost-sharing subsidies would be beneficial if and when the claims exceeded $2,450. But the higher AV is beneficial even in the case of less expensive claims.
CSRs lower out-of-pocket maximums …
CSR reduces the maximum out-of-pocket exposure on a Silver plan for households with eligible incomes.
For 2018 coverage, the unsubsidized out-of-pocket maximum for an individual is $7,350 ($14,700 for a family). Enrollees who are eligible for cost-sharing subsidies can select Silver plans with lower out-of-pocket limits. (See Table 13 on page 300.):
- For applicants with income between 100 and 200 percent of poverty level, the subsidized Silver plans have a maximum out-of-pocket of $2,450 ($4,900 for a family).
- Those with income between 200 and 250 percent of the poverty level can select a Silver plan with a maximum out-of-pocket of $5,850 ($11,700 for a family).
- In both cases, plans can be offered with even lower out-of-pocket limits, but cannot exceed those limits.
Although the regular maximum out-of-pocket under the ACA increased for 2015 and again for 2016, the Silver plan maximum out-of-pocket for enrollees who qualify for cost-sharing subsidies remained the same as 2014 levels for enrollees with incomes between 100 and 200 percent of the poverty level. But it was a little higher in 2016 for cost-sharing subsidy-eligible enrollees with incomes between 200 and 250 percent of the poverty level. And it increased slightly for 2017, and again for 2018, across all income levels.
… and increase actuarial value – aka, better benefits
CSR also increases the actuarial value (AV) of the plan. Regular Silver plans have an actuarial value of roughly 70 percent. The plan designs vary and there are different ways that the AV can be calculated. But the basic idea is that a Silver plan will cover roughly 70 percent of medical bills across a standard population of enrollees.
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, Native Americans with income under 300 percent of the poverty level are eligible for plans with zero cost-sharing.
An example of how it works
Thanks to CSR, an enrollee with an income of 140 percent of FPL (a little under $17,000 for a single person in 2018) would end up with a Silver plan that covers an average of 94 percent of costs (across all enrollees), instead of a plan that covers 70 percent of costs.
For this person, CSRs would reduce the out-of-pocket maximum in 2018 by nearly 67 percent (from the regular 2018 maximum out-of-pocket of $7,350 to the adjusted maximum out-of-pocket of $2,450 – keeping in mind that plans can offer out-of-pocket limits that are lower than those amounts).