What Are Cost-Sharing Reductions (CSRs)?
The term cost-sharing reductions (CSRs) refers to federal subsidies provided to individuals to help reduce their out-of-pocket costs for health care expenses. Individuals qualify when they apply for health insurance coverage through the ACA Health Insurance Marketplace. Approved individuals receive discounts to help them with their deductibles, copayments (copays), and coinsurance, and by reducing their out-of-pocket maximum for covered medical expenses.
The cost-sharing reduction subsidy was a provision in the Patient Protection and Affordable Care Act (ACA), which was signed into law on March 23, 2010, by President Barack Obama.
- Cost-sharing reductions are federal subsidies provided to individuals to help reduce their out-of-pocket costs for health care expenses.
- These discounts were part of a provision of the Affordable Care Act, which was signed into law in 2010.
- Individuals must go through the ACA Health Insurance Marketplace to qualify for cost-sharing reductions.
- CSRs reduce health care costs by lowering annual plan limits or by lowering direct costs, such as deductibles, copays, and coinsurance.
- Eligibility criteria include lack of workplace insurance options, household income limits, and enrollment in Silver plans.
How Cost-Sharing Reductions (CSRs) Work
Health care costs can be very devastating for individuals, regardless of whether they have health insurance. A routine trip to the doctor, lab work, or worse, emergency surgery, the costs can rise for those who are uninsured. This was among the reasons for the passing of the ACA, which is commonly referred to as Obamacare. The Act gives individuals the option to enroll for coverage on their own through the ACA Health Insurance Marketplace or health exchanges.
In order to mitigate the cost of coverage—which can also be very expensive—the law also introduced premium tax credits and cost-sharing reductions (or extra savings) designed to help individuals and families who fall below a certain income threshold. Some individuals who qualify for the premium tax credit are able to receive CSRs. In order to qualify for CSRs, individuals must:
- not be eligible for public coverage, such as Medicaid
- be ineligible for coverage through an employer
- apply for coverage through an exchange
- enroll in a Silver plan
- have a household income at or above 100% of the federal poverty line (FPL)
- file annual tax return
You can use the premium tax credit for coverage in any metal category but cost-sharing reductions only apply to Silver plans.
Those who qualify for CSRs are notified as soon as they apply for coverage on a health insurance exchange. Individuals must choose Silver plans, which means bronze and gold plans do not qualify for these discounts. An eligible enrollee is placed in a plan that comes with CSRs through lower annual limits, or lower deductibles, copays, and coinsurance. These plans are chosen based on the individual's annual income.
While cost-sharing reductions can lower the out-of-pocket expenses for insured individuals, they don't make health insurance free. This means individuals still have to bear some costs to cover health care. CSRs help individuals reduce their out-of-pocket maximums through the reduction of annual cost-sharing limits and by lowering out-of-pocket expenses directly through things like deductibles.
Types of Cost-Sharing Reductions
Lower Annual Limits
The first type of CSR reduces an insured person's annual limits. This figure represents the capped amount of health care costs under a plan or the total out-of-pocket costs an individual must pay in a plan year under their insurer. The limit for this type of subsidy changes every year.
For 2021, annual cost-sharing limits are capped at $8,550 for self-coverage and $17,100 for families. This type of cost-sharing reduction is best suited for those who spend a great deal of money on health care
This type of cost-sharing reduction effectively lowers any direct out-of-pocket expenses that come with a Silver plan, including deductibles, copays, and any coinsurance they may have to pay. Lowering deductibles (how much an insured party is required to pay before the plan kicks in) means covered services are paid for by the insurer more quickly. Reducing copays and coinsurance means that patients have to pay lower out-of-pocket expenses each time they visit a health care practitioner for service.
Silver plans generally have an actuarial value (the amount the plan pays) of about 70%. CSRs effectively increase this value, reducing the amount an insured party has to pay. This subsidy applies to anyone with a household income up to and including 250% FPL as follows:
|Direct Cost-Sharing Reductions|
|Household Income Level||Plan Pays||Insured Pays|
|100% to 150% FPL||94%||6%|
|151% to 200% FPL||87%||13%|
|201% to 250% FPL||73%||27%|
Direct cost-sharing reductions help those with both minimal health care needs and those who spend a big part of their income on medical care.
Criticism of Cost-Sharing Reductions
The Affordable Care Act is an extremely controversial piece of legislation that draws considerable criticism, especially from Republican politicians. Naysayers maintain the law increases the cost of insurance because companies are required to cover those with pre-existing conditions. And new taxes were implemented in order to pay for certain parts of the law, including the reimbursement of CSRs by the Department of Health and Human Services to insurers who provide them. These reimbursements ranged from $2.111 billion in 2014 to $7.317 billion in 2017.
In 2014, the U.S. House of Representatives sued the Obama Administration, saying reimbursing insurers for CSRs was unconstitutional, as the law did not directly outline how these payments would be financed. In October 2017, the Trump administration announced that it would cease all CSR payments to insurers. This led some insurers to take part in silver loading, which is a means of making up for the lack of reimbursements by raising premiums.
The Federal Court of Appeals struck down the Trump administration's decision, saying insurance companies have the right to be paid for cost-sharing reductions.