- CSR: The other ACA subsidy
- What does cost-sharing mean?
- CSR in a nutshell…
- Who’s eligible for cost-sharing subsidies?
- Lower out-of-pocket maximums
- Increased actuarial value = better benefits
- Cutting through the confusion
- What’s happening now that the Trump Administration has eliminated CSR funding?
- How states have addressed the lack of federal funding for CSR
The ACA’s premium tax credits have been discussed at length in the media. Of the more than 10.6 million people who had effectuated coverage through the exchanges as of February 2018, 87 percent qualified for premium subsidies.
But there’s another ACA-created health insurance subsidy that 53 percent of exchange enrollees are receiving in 2018. While premium subsidies help pay the cost of the health insurance itself, cost-sharing reductions (CSR, also known as cost-sharing subsidies) are available to reduce the out-of-pocket exposure for eligible enrollees. As of 2018, there are more than 5.6 million exchange enrollees receiving cost-sharing reductions.
Ever since the exchanges went live in the fall of 2013, cost-sharing subsidies have been much less well-understood than premium subsidies. Many people don’t know they exist, despite the fact that the federal government spent $7 billion on them in 2017. This is partly because they don’t show up among the available plans for people who aren’t eligible for them, and also because people who enroll in cost-sharing reduction plans don’t always realize that the plan they’re getting is in fact heavily subsidized in order to make it better coverage. [Until late 2017, this subsidization was directly provided by the federal government; since then, the cost of CSR has been added to premiums in most states, driving up the cost of coverage and thus resulting in larger premium subsidies, which continue to be directly provided by the federal government. So in a round-about way, the federal government is still subsidizing the cost of CSR].
Unlike prior years, CSRs were in the media non-stop in 2017, due to President Trump’s ongoing threats to cut off funding, which he ultimately did in October 2017. But confusion about how CSR benefits work — and how they’re still available without federal funding — has remained. So let’s take a look at what these subsidies are, and how they work.
What does cost-sharing mean?
Cost-sharing refers to the portion of a medical claim that the insured must pay, usually in the form of a deductible, coinsurance or copay (it does not include premiums, balance billing or expenses that are not covered by the insured’s policy). Plans in the exchanges are designated as Platinum, Gold, Silver, Bronze or catastrophic, depending on their actuarial value, or AV (a measure of the percentage of costs that the plan covers). And there are caps on the maximum out-of-pocket costs that any of the plans can impose.
In a nutshell…
The cost-sharing subsidies are designed to reduce the portion of a claim that an insured will have to pay, and like the premium subsidies, eligibility is based on income. Although premium subsidies can be applied to any of the “metal” plans within the exchange, cost-sharing subsidies are only available on Silver plans.
Although I go into detail in this article in terms of how the cost-sharing subsidies work, all you really need to know is that if your income is under 250 percent of the federal poverty level, or FPL (for enrollments with 2019 effective dates, this is $30,350 for a single person and $62,750 for a family of four), you need to pay particular attention to the silver plans in the exchange — any cost-sharing subsidies for which you’re eligible will be automatically built into the silver plans.
Although CSR benefits extend to people with income up to 250 percent of the poverty level, they’re strongest for people with income that doesn’t exceed 200 percent of the poverty level (for 2019 coverage, that amounts to $24,280 for a single individual in 2018, and $50,200 for a family of four). People with income between 200 and 250 percent of the poverty level are eligible for CSR benefits on silver plans, but they may find that the relatively modest benefits aren’t worth the added cost of purchasing a silver plan instead of a lower-cost bronze plan. Or they may find that a gold plan is available for roughly the same price as a silver plan, with better benefits, due to the way the cost of CSR is being added to silver plan premiums in most areas.
The Affordable Care Act introduced cost-sharing reductions (CSR) as a means of keeping health care costs (as opposed to just insurance premiums) affordable for people with modest incomes. CSR benefits are available to enrollees with incomes between 100 percent and 250 percent of the federal poverty level (in states that have expanded Medicaid, enrollees are eligible for Medicaid with incomes up to 138 percent of the poverty level; cost-sharing subsidy eligibility starts above that point).
For coverage effective in 2019, 250 percent of the poverty level is equal to $30,350 for a single person, and $62,750 for a family of four. This chart shows the income amounts that apply for other household sizes.
Until October 2017, HHS reimbursed insurance carriers directly to cover the cost of cost-sharing subsidies, and unlike the premium subsidies, cost-sharing subsidies do not have to be reconciled when insureds file their taxes. Cost-sharing subsidies are automatically incorporated into Silver plans when eligible enrollees shop for plans through the exchanges. Although the federal government is no longer reimbursing insurers for the cost of providing cost-sharing reductions (including the special cost-sharing reductions that are available for Native Americans), the availability of the benefits themselves has not changed. Anyone who is eligible for cost-sharing subsidies can still get them in 2018.
Lower out-of-pocket maximums
The first aspect of CSR reduces the maximum out-of-pocket exposure on a silver plan for households with incomes between 100 and 250 percent of federal poverty level. This subsidy was originally intended for enrollees with incomes up to 400 percent of poverty level, but HHS later ruled that the subsidy would end at 250 percent of poverty level.
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 of the 2018 Benefit and Payment Parameters). 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). These plans only appear on the exchange websites for applicants who qualify for them.
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 2018, across all income levels.
For 2019 coverage, the maximum out-of-pocket for a CSR Silver plan will again increase, for all enrollees: For applicants with income between 100 and 200 percent of the poverty level, it will be $2,600 for a single individual and $5,200 for a family. For applicants with income between 200 and 250 percent of the poverty level, it will be $6,300 for a single individual and $12,600 for a family (see Table 10 in the 2019 Benefit and Payment Parameters). The unsubsidized maximum out-of-pocket limits that apply to all plans will also increase in 2019, as they have every year; they will be $7,900 for an individual and $15,800 for a family.
Increased Actuarial value – aka, better benefits
The second aspect of cost-sharing subsidies works by increasing the actuarial value (AV) of the plan. Under the ACA, all 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 for the average enrollee. This includes enrollees with very high claims, since it’s averaged across the entire pool of insureds (ie, for insureds with low claims, the carrier will end up paying less than 70 percent of their costs, but for enrollees with very high claims, the insurer will end up paying much more than 70 percent of their total costs).
For eligible enrollees, this aspect of cost-sharing subsidies increases the AV of a Silver plan to between 73 percent and 94 percent. AV is increased based on income. For enrollees with household income between:
- 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.
Cutting through the confusion
There’s plenty of confusion around the cost-sharing subsidies, a lot of which stems from misconceptions about how out-of-pocket maximums and actuarial value differ. To understand the cost-sharing subsidies, it helps to think of the reduction in 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, the cost-sharing subsidies will make the burden easier to bear by reducing the maximum amount that you would have to pay.
A lot of 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 the AV-increasing aspect of cost-sharing subsidies comes in. It reduces the insured’s portion of expenses right from the start, even if the out-of-pocket maximum is not reached.
So an insured with an income of 140 percent of FPL would end up with a 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, the out-of-pocket maximum in 2018 is also reduced by 67 percent (from the regular 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). That aspect of the cost-sharing subsidies would be beneficial if and when the claims exceeded $2,450. But the increased AV is beneficial even in the case of less expensive claims.
Although eligibility for subsidies is based on other factors in addition to income, households with incomes up to 250 percent of FPL are virtually always eligible for premium subsidies as well as both cost-sharing subsidies. This goes a long way towards making health insurance and health care more affordable and accessible.
What’s happening now that the Trump Administration has cut off funding for CSR benefits?
There was legal uncertainty surrounding cost-sharing subsidies for the last few years, but it took on a new importance under the Trump Administration. In 2014, House Republicans (including Tom Price, who was then a U.S. Representative from Georgia, but left his seat to briefly lead HHS under the Trump Administration, before resigning in September 2017) brought a lawsuit against the Obama Administration, alleging that billions of dollars in funding for the cost-sharing subsidies had never been allocated by Congress, and was thus being distributed illegally by HHS (Nicholas Bagley, University of Michigan Law School professor, explains that the lawsuit was not without merit).
The lawsuit was originally called House v. Burwell (Sylvia Matthews Burwell was the Secretary of HHS at the time) but ironically, it became House v. Price once Tom Price took over as HHS Secretary.
In 2016, a district court judge sided with House Republicans, ruling that the cost-sharing subsidies were illegal and could not continue. The ruling was stayed, however, to allow the Obama Administration to appeal, which they did. Throughout that process, cost-sharing reduction money continued to flow from HHS to health insurers across the country.
Once Trump won the presidency, the issue took on a new urgency, given the GOP’s efforts to eliminate the ACA. For the first several months of the Trump Administration, the lawsuit over cost-sharing subsidies was pended. But in October 2017, the Trump Administration announced that CSR funding would end immediately. That meant that insurers would not receive reimbursement from the federal government for CSR benefits provided in the final quarter of 2017 and beyond.
Trump’s announcement came after insurers had finalized their rates for 2018. But most insurers had already anticipated the elimination of CSR funding, and had priced their plans for 2018 accordingly, adding the cost of CSR to premiums. In most states where the assumption had been that CSR funding would continue, insurers scrambled to revise their premiums in October, adding the cost of CSR to the rates. Insurers in most states ultimately ended up adding the cost of CSR to their silver plan premiums for 2018 (the Kaiser Family Foundation had previously estimated that without cost-sharing reduction funding, rates on silver plans would increase by an additional 19 percent in 2018, on top of the rate increases that would have applied if CSR funding had continued).
With few exceptions, insurers generally opted to remain in the exchanges, despite the elimination of CSR funding. Some insurers had opted earlier in 2017 to exit the exchanges for 2018, and the uncertainty over CSR funding was generally cited as a reason for the exits. But the official elimination of CSR funding did not result in an additional exodus of insurers from the exchanges.
Looking ahead to 2019: What’s going on with CSR funding?
The Trump Administration confirmed in June 2018 that insurers would continue to be allowed to add the cost of CSR to silver plan rates for 2019 coverage, although there hasn’t been confirmation of how the rules might work in future years. This came after some earlier speculation that perhaps the Trump Administration might ban silver loading (and instead require broad loading, with the cost of CSR added to premiums of all plans; the implications of mandating a broad load is discussed in more detail here), since silver loading results in more government spending on premium subsidies. But HHS Secretary Alex Azar noted during testimony at a House Committee hearing in June that there simply wouldn’t be time to go through the rule-making process to implement new regulations in time for the 2019 plan year. That left the door open for insurers to add the cost of CSR to silver plan rates for 2019.
And then in early August 2018, HHS issued guidance on the issue, actively encouraging states to promote on-exchange-only silver loading. Quite a few states took that approach for 2018, but even more will do so for 2019 (including some states, like Vermont and Colorado, that didn’t silver load at all for 2018). In most states, the cost of CSR will be added to on-exchange silver plans. Separate off-exchange-only silver plans will also be available, without the cost of CSR added to their premiums. This provides an alternative for people who want to buy a silver plan but who don’t qualify for premium subsidies, since they have to pay full-price for their plan and the option without the cost of CSR added to the premiums will be more affordable.
In addition, since the cost of CSR is added to a smaller total number of plans, the additional amount that’s added to each plan is larger, resulting in even bigger premium subsidies for everyone who qualifies for premium subsidies. The guidance that HHS issued regarding silver loading is for 2019 only, and it’s unclear whether that approach will continue to be recommended by the Trump Administration. But for the time being, it’s the approach that protects the greatest number of consumers, and — unlike in the leadup to 2018, when states were mostly flying blind on this issue — states have explicit permission from HHS to proceed with on-exchange-only silver loading for 2019.
Enrollees can still get CSR benefits, and premium subsidies are much larger than they would have been if CSR funding had continued
CSR benefits are still fully available to eligible enrollees for 2018 who picked silver plans, and Native American cost-sharing reduction benefits are available to Native American enrollees. This will continue to be the case in 2019. In short, nothing has changed about eligibility for cost-sharing subsidies. But rather than the federal government directly reimbursing insurers for the cost of CSR, the cost has almost universally been added to premiums for 2018. DC, North Dakota, and Vermont didn’t permit this for 2018, but they were the exception to the rule.
And in almost all cases, the cost of CSR was added only to silver plans — either all silver plans, or only to on-exchange silver plans. There are only a few states — Colorado, Delaware, Indiana, Mississippi, and West Virginia — where the cost of CSR was spread across plans at all metal levels for 2018, rather than being concentrated on silver plan premiums. Some of those states are taking a different approach for 2019, however, joining the rest of the country in adding the cost of CSR only to silver plan premiums — an approach known as “silver loading”.
For 2019, Vermont, North Dakota, Delaware, and Colorado have instructed insurers to add the cost of CSR to silver plans (as opposed to their 2018 approach of not adding it at all, or adding it to all plans). Mississippi and West Virginia expect to continue to use broad loading (ie, adding the cost of CSR to all plans, rather than silver loading). Indiana is leaving it up to the insurers to determine how to add the cost of CSR to premiums.
There are other states — Georgia and Texas are examples — where regulators left the decision up to insurers in 2018 and are continuing that same approach for 2019. But now that the benefit to consumers from silver loading are clear, it’s likely that insurers will tend to silver load for 2019 if regulators don’t provide guidance one way or the other.
The result of the spike in silver plan premiums is that premium subsidies are much larger for 2018 than they would otherwise have been, and that will continue to be the case in 2019. In many areas of the country, enrollees with modest incomes are eligible for free bronze plans (or even free gold plans, in some cases) after their premium subsidies are applied. People who don’t get premium subsidies (ie, a household of four with income above $100,400 in 2019, after subtracting any contributions to pre-tax retirement plans and/or an HSA) have to pay the higher premiums, but in most states, this only applies if they select a silver plan. And in states where the cost of CSR is added only to on-exchange plans, lower-cost off-exchange silver plans are available to people in this situation. California led the way on this approach, but numerous other states also adopted it, and more are switching to this approach for 2019.
It’s worth noting here that although adding the cost of CSR only to on-exchange silver plans does serve to protect consumers, it can also place some people with variable income in a tricky situation. Enrollees with income above 400 percent of the poverty level (ie, not eligible for subsidies) who want a silver plan will find that they’re cheaper off-exchange, due to the cost of CSR being added to the on-exchange silver plans. But if that person signs up for an off-exchange plan, they won’t be able to switch to an on-exchange plan if their income drops mid-year to a level that’s subsidy-eligible (a drop income is not a qualifying event if you’re not already enrolled in a plan through the exchange).
For people who are self-employed, who have variable income, or who might simply lose their job or have their hours reduced mid-year, this presents a potential conundrum: Should you enroll in the lower-price off-exchange silver plan, knowing that if your income drops mid-year, you won’t be able to get premium subsidies? Or should you enroll in the higher-price on-exchange plan, knowing that if your income were to drop during the year, you’d be able to start getting subsidies at that point (or claim them on your tax return)? There’s no easy answer to this, but it’s something to keep in mind if you’re in a state where the cost of CSR is being added to on-exchange silver plans and you’re not 100 percent certain what your annual income will be.
Despite CSR defunding, the federal government is still picking up most of the tab via larger premium subsidies
Enrollment in the exchanges for 2018 ended up being nearly as high as 2017’s enrollment, despite an open enrollment period that was half as long. Although there was considerable consternation in 2017 that the elimination of CSR funding could result in a mass exodus of insurers from the exchanges and a destabilized individual market, that did not come to pass.
Because insurers and state regulators were anticipating the loss of CSR funding (or reacted swiftly after October 12 to account for the eliminated funding), the cost of CSR was adequately incorporated into the premiums insurers are collecting in 2018. And because it was generally added to silver plan premiums, on which premium subsidies are based, premium subsidies for nearly everyone who is eligible for them (which is considerably larger than the number of people who get cost-sharing subsidies) are much larger in 2018 than they would have been if the federal government had continued to fund CSR directly.
The overall result is that the federal government is really still funding CSR, via larger premium subsidies rather than direct reimbursement. And more people end up benefiting, since premium subsidies extend to households earning up to 400 percent of the poverty level, whereas CSR benefits stop at 250 percent of the poverty level.
There was some talk towards the end of 2017 about reviving the Alexander-Murry bill that would allocate federal funding for CSR, but this would no longer be as helpful as it would have been in mid-2017, as the CSR funding situation has been resolved in a way that ends up being more beneficial for exchange enrollees. In other words, most enrollees are better off with the federal government NOT funding CSR. And in most states, people who aren’t eligible for premium subsidies can generally pick an off-exchange plan or a non-silver plan in order to avoid paying the added cost to cover CSR; they’re not better off, but they’re also not any worse off.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.