A cost-sharing reduction is a discount that reduces your deductibles, copayments, and coinsurance. They help reduce your out-of-pocket health care costs. Individuals qualify for health insurance coverage through the ACA Health Insurance Marketplace. Approved individuals receive discounts to assist with their deductibles, copayments (copays), and coinsurance, and to reduce their maximum out-of-pocket expenses for covered medical expenses.
Whether you qualify for these discounts depends on the size of your household and your income. As well as the plan you choose, since the only plans that have cost-sharing reductions are Silver plans. Your eligibility is determined when you enroll in your health plan.
How Cost-Sharing Reductions Work
Cost-sharing reductions reduce the amount of out-of-pocket expenses that you’re responsible for, thus making your insurance more affordable. Under Obamacare, anyone who qualifies for these discounts will have altogether lower out-of-pocket expenses when they apply for a Silver plan on the Marketplace. Any copayments, coinsurance, or deductibles associated with the plan you choose will decrease. They also increase the actuarial value of the plan.
We’ve given examples of these discounts below. However, it is important to note that the amounts below are just to show you how they work. The actual costs and discount will vary depending on the plan you choose and your income. Keep in mind that there is a large variety of deductibles, copay, coinsurance, and out-of-pocket maximums across all plan categories.
Lower Deductible
A lower deductible means that your insurance company will begin to pay its portion of your medical expenses much sooner. For instance, if you choose a Silver plan with a $750 deductible. You are responsible for the first $750 of medical expenses. Once you’ve met the deductible your plan begins paying its portion. However, if you qualify for a cost-sharing reduction, that $750 deductible could turn into a $300-$500 deductible.
Lower Copays or Coinsurance
Copayments are the payments you make each time you receive care. Such as $30 for a doctor’s appointment. If your copay under your Silver plan is $30 and you qualify for the discount then you may end up only having to pay $15 instead.
Lower Out-Of-Pocket Maximum
An Out-of-pocket maximum is the total amount you would have to pay in a year for healthcare. With a cost-sharing reduction your plan’s out-of-pocket maximum could go from $5,000 to $3,000. Meaning you’ll effectively have much less to pay per year.
Silver Loading
Historically, the federal government reimbursed health insurance companies directly for cost-sharing reductions. This ended in the fall of 2017, but eligible enrollees have continued to receive cost-sharing subsidies.
Most insurers simply add the cost of cost-sharing reductions to Silver plan premiums to cover the expense. This strategy, known as “Silver loading,” results in larger premium subsidies for everyone in the area, as premium subsidies are based on the cost of the second-least expensive Silver plan in each area.
Cost-Sharing Tiers
The Silver Plan standard covers 70% of your out-of-pocket expenses. If you are eligible for cost-sharing reduction, you may be eligible for the Silver 73, Silver 87, or Silver 94 plan. The Silver 73 plan covers 73% of your out-of-pocket expenses, 3 percent more than the standard Silver plan. However, if you qualify for a Silver 87 or Silver 94, you will receive coverage for 87% or 94% of your out-of-pocket expenses, which is 17% or 24% more than the standard Silver Plan. Rarely would it make sense for cost-sharing reduction-eligible individuals to purchase the Gold Plan. If you are eligible for the Silver 87 or 94 plan but choose the Gold plan, you will pay higher premiums for fewer benefits. The Silver 94 plan is superior to the Platinum plan, which covers 90% of out-of-pocket expenses.
Who Qualifies For Cost-Sharing Reductions?
Cost-sharing reductions are available to eligible Marketplace enrollees who select Silver plans. Your household income needs to be below 250% of the federal poverty level (FPL). In states that did not expand their Medicaid, the lower income threshold is 100% of the poverty level, while in states with expanded Medicaid the lower income threshold is at 138% of the FPL. If your income is low enough to qualify for Medicaid you will not be eligible for a cost-sharing reduction. Additionally you must be a citizen or an immigrant who has lived here legally for at least 5 years.
Native American Cost-Sharing Reductions
Cost-sharing reductions work a little differently for Native Americans. Members of federally recognized Indian tribes receive an additional set of cost-sharing advantages. As long as their household income is less than 300 percent of the Federal Poverty Limit, these households qualify for zero cost-sharing plans. These plans have no copayments, deductibles, or coinsurance when receiving care from an Indian healthcare provider or any of the Marketplace’s essential health benefits.
What Is An Actuarial Value (AV)?
The AV of a plan is the average percentage of total healthcare costs that the plan will cover. A consumer enrolled in a Silver plan with a 70% AV would be responsible for paying an average of 30% of their actual healthcare costs, with the insurer covering the remaining 70%. Since these actuarial values are based on the average number of enrollees, the actual percentages for each household will vary considerably based on their total healthcare costs. In general, the lower your expected healthcare costs, the lower the AV value, as you are responsible for the deductibles prior to the insurer picking up the tab.
How To Apply For a Cost-Sharing Reduction
If you are eligible when you apply for a Silver plan you are automatically enrolled with the cost-sharing reductions built into your plan. Therefore, the lower out-of-pocket maximum and higher actuarial value are automatic as long as you choose a Silver plan. You will only see Silver plans with the cost-sharing reductions built in if you are eligible for them. If you have a higher income you will only be shown standard Silver plans.
If I’m Eligible for a Cost-Sharing Reduction, Is A Silver Plan Best For Me?
There is no correct or incorrect response. A person earning 240% of the poverty level and a person earning 140% of the poverty level are both eligible for cost-sharing reductions benefits, but they will receive vastly different benefits. If your income falls within the range where the plan’s AV will only be increased to 73%, it may be prudent to enroll in a less expensive Bronze plan, saving money on premiums (or even getting a plan for free) in exchange for slightly higher out-of-pocket costs.
Depending on your income and location, it is also possible for you to qualify for a Gold plan with no premium. You would need to compare this carefully with the available Silver plans and their built-in cost-sharing reductions benefits, taking premium differences into account.
But if your income is on the lower end and you’re eligible for strong cost-sharing reductions benefits (i.e., your income is under 200% of the poverty level), you should strongly consider the Silver plans that are available to you, even if there are free Bronze plans available as well (if your income is under 150% of the poverty level, you’ll also be eligible for premium-free Silver plans with built-in cost-sharing reductions benefits in most states). Consider the amount of out-of-pocket expenses you will incur if you require medical care during the year. It will be significantly higher on the Bronze plan, which could quickly wipe out any savings from the lower monthly premiums.
What If My Income Changes?
If your income changes after enrollment and makes you eligible or ineligible for cost-sharing reductions, you will be able to change your plan during a Special Enrollment Period (SEP). However, this option is only available if you were previously enrolled in a Marketplace plan or Medicaid. If you chose to enroll in a health insurance plan outside of the Marketplace, you will not be eligible for a SEP.
If I Don’t Qualify, Are There Other Assistance Options?
Even if you do not qualify for cost-sharing reductions, you may still be eligible for premium tax credits to assist with your health insurance costs. Premium tax credits are a type of subsidy that reduces your monthly premium payments and are available to those with incomes between 100 and 400 percent of the federal poverty level. This means that if you qualify for cost-sharing reductions, you will likely also be eligible for premium tax credits and be able to reduce your health insurance costs further.
Working With EZ
If you qualify for a cost-sharing reduction, the amount of money you will save is determined by your specific income estimate. The lower your income, the greater your savings. Once you speak with an EZ.Insure agent, they will determine if you qualify for additional discounts. As well as guide you in the right direction. Our highly trained and knowledgeable agents will assist you in shopping, comparing, and enrolling in the best plan for you or your family. We guarantee to help you save money without requiring you to deal with multiple agents and companies. We simplify the process for you. Enter your zip code below to receive free instant quotes, or call 877-670-3557.
