Cost-Sharing Reduction (CSR)

What is Cost-Sharing Reduction?

Cost-sharing reduction (CSR), sometimes called "extra savings," refers to the discount that is applied towards out-of-pocket costs under the Affordable Care Act. Cost-sharing reductions are the result of an adjustment to the actuarial value in a Silver Plan. With a cost-sharing reduction, your out-of-pocket maximum, the total amount needed to pay for rendered medical services before the insurance plan covers all expenses, is also decreased. Cost-sharing reductions are given to lower income individuals and families.

How Does it Work?

The cost-sharing reduction was created under the Patient Protection and Affordable Care Act, a health care reform law enacted in March 2010. This subsidy is not actually paid to ACA enrollees, instead, it is paid to the insurance companies to reduce the cost of copayments and deductibles. Insurers are provided funding through the process of cost-sharing reduction reconciliation.

Health insurance companies that offer insurance through the marketplace must provide variations of every Silver Plan since an individual's cost-sharing reduction eligibility is dependent on enrollment in a Silver Plan. A Standard Silver Plan, with no cost-sharing reduction eligibility, would have an actuarial value of 70%. Once adjusted, a Silver Plan designed for those incomes falling between 200%-250% of the federal poverty line would have an actuarial value of 73%. A Silver Plan designed for those incomes falling between 151%-200% of the federal poverty line would have an actuarial value of 87%. A Silver Plan designed for those incomes falling below 150% of the federal poverty line would have an actuarial value of 94%.

As the actuarial value increases, the deductible, maximum out-of-pocket limit, inpatient hospital admission cost, and physician visit cost decreases. The variations created by the insurance companies must cover the same benefits and maintain the same health care providers in its network as the standard Silver Plan it was adjusted from.

Who is Eligible for CSR?

Approximately 7 million ACA enrollees in 2017 receive CSR discounts. In order to be eligible to receive CSR, earnings must fall between 100%-250% of the federal poverty line. That means that for an individual, he/she must earn between $12,000 to $30,000 and for a family of four, their income must fall between $24,000 to $60,750. Additionally, an individual can qualify for more cost-sharing reductions if they are a member of a federally recognized tribe or an Alaska Native Claims Settlement Act Corporation shareholder. In addition, cost-sharing reduction discounts are only given to those enrolled in a Silver Plan.

Income Limits

For an individual seeking to receive cost-sharing reduction discounts, he/she must earn at least $12,000 or at most $30,000. For a family of four seeking to receive cost-sharing reduction discounts, their income must be at least $24,000 and no more than $60,750. For an individual or family whose income falls beneath 150% of the federal poverty line, their maximum annual out of pocket limit would be $2,450 and $4,900 respectively. For an individual or family whose income falls between 151%-200% of the federal poverty line, their maximum annual out of pocket limit would be $2,450 and $4,900 respectively. For an individual or family whose income falls between 201%-250% of the federal poverty line, their maximum annual out-of-pocket limit would be $5,850 and $11,700 respectively.

Cost-Sharing Reduction vs Tax Credit

Cost-sharing reductions and Premium Tax Credits both have the same goal: to create more affordable insurance plans for low-income individuals and families. A premium tax credit, however, is not a subsidy paid to insurers, instead, it is paid to enrollees either through a refund when filing taxes or as a direct application towards premiums when enrolling. To be eligible for a premium tax credit, your income must fall between 250%-400% of the federal poverty line. In addition, you must not be claimed as a dependent on someone else’s tax return, must not be enrolled in an employer-sponsored plan, and must not be eligible for Medicaid, CHIP, or TRICARE.

How to Apply for CSR?

There is no application or form to fill out to receive CSR. Your cost-sharing reduction eligibility is simply dependent on your income and your enrollment in a Silver Plan. When enrolling in a Silver Plan variation in the Health Insurance Marketplace, your cost-sharing reduction eligibility will be determined.

Cost-Sharing Reduction Reconciliation

Cost-sharing reduction reconciliation refers to the process in which CSR funding is provided. At the beginning of the plan year, insurers seeking cost-sharing reduction eligibility, are paid a Per Member Per Month amount in advance. The funding is provided by the Centers for Medicare and Medicaid Services (CMS). At the end of the plan year, insurers seeking cost-sharing reduction reconciliation must compare the actual cost-sharing reduction costs to the amount given in advance. If there is a difference between the two, there is a cost-sharing reduction reconciliation, when the difference is either paid to the CMS by the insurance company or reimbursed from the CMS to the insurance company.