What Are Cost-Sharing Reductions?

Cost-Sharing Reductions Make Health Care More Affordable

Doctor reviewing medical chart with a patient

Getty Images/SDI Productions 

Cost-sharing reductions, often referred to as CSR or cost-sharing subsidies, are a provision in the Affordable Care Act (ACA) designed to make health care more affordable. Cost-sharing reductions improve the health plans that are available to eligible enrollees, making the coverage more robust and keeping out-of-pocket costs lower than they would otherwise be. The idea is to prevent people from being underinsured, which is what happens when a person's out-of-pocket exposure is unrealistically high relative to their income.

Who Is Eligible for Cost Sharing Reductions?

Cost-sharing reductions are available to people who buy their own health insurance through the exchange, choose a silver plan, and have an income between 100% and 250% of the federal poverty level (the lower limit is 139% in states that have expanded Medicaid, since Medicaid is available to people with income below that level).

The federal poverty level changes each year, so the income limits for cost-sharing reductions also change from one year to the next. And just like premium subsidies, the numbers are based on the prior year's poverty level (this is because open enrollment happens in the fall, before the poverty level numbers for the coming year are published; those numbers are published in January, but the exchange continues to use the prior year's poverty level numbers until the next open enrollment period). For people enrolling in 2020 health coverage and living in the 48 contiguous states, 250% of the poverty level amounts to $31,225 for a single individual and $64,375 for a family of four (poverty levels are higher in Alaska and Hawaii, so people can earn more in those areas and still qualify for cost-sharing reductions).

In almost all states, children are eligible for Medicaid or the Children's Health Insurance Program (CHIP) with household income up to 200% of the poverty level, and eligibility extends well above that level in some states. So it's fairly uncommon for children to be covered on CSR plans, because CSR benefits (and premium subsidies) are not available to a person who is eligible for Medicaid or CHIP. Instead, it's more common for the adults in a household to qualify for CSR benefits while the children are eligible for Medicaid or CHIP instead.

Native Americans are eligible for additional cost-sharing reductions that eliminate their out-of-pocket costs altogether, as long as their household income doesn't exceed 300% of the poverty level.

How Many People Get Cost-Sharing Reductions?

As of 2019, there were more than 5.2 million people receiving cost-sharing reductions, which amounted to 52% of all the people enrolled in health plans through the exchanges nationwide.

How Do Cost-Sharing Reductions Work?

Cost-sharing reductions essentially amount to a free upgrade on your health insurance. If you're eligible for cost-sharing reductions, the silver plan options available to you through the exchange will have built-in CSR benefits (if you're not CSR-eligible, you'll just see regular silver plans instead).

Health insurance plans sold in the exchanges are categorized by metal levels, with bronze, silver, and gold plans available (and in some areas, platinum plans). A plan's metal level is determined by the actuarial value (AV) it provides, which means the percentage of overall average costs that the plan will cover. Regular silver plans have an actuarial value of about 70%, which means that they'll cover an average of 70% of overall health care costs for a standard population.

But if you're eligible for CSR, the silver plans available to you will have actuarial values of 73%, 87%, or 94%, depending on how your household income compares with the federal poverty level (FPL):

  • Income between 100% and 150% of FPL: Silver plan AV equals 94%
  • Income between 150% and 200% of FPL: Silver plan AV equals 87%
  • Income between 200% and 250% of FPL: Silver plan AV equals 73%

As is the case for premium subsidy eligibility, CSR eligibility is based on an ACA-specific calculation of modified adjusted gross income (i.e., it's not the same as the regular modified adjusted gross income calculations you might be used to for other tax purposes).

For perspective, a gold plan has AV equal to roughly 80%, and a platinum plan has an AV equal to roughly 90%, although platinum plans aren't available in many areas. So applicants with household income up to 200% of the poverty level are able to enroll in silver plans that have built-in upgrades making them nearly as good as, or better than, a platinum plan.

Within the framework of the actuarial value requirements (which are determined via a detailed calculator established by the federal government) insurers have quite a bit of leeway in terms of how the plans are designed. So there will be considerable variation in plan specifics, even for plans at the same CSR level. It's common to see deductibles that range from $0 to $500 for the 94% AV level, although plans can certainly have deductibles above that level, depending on how the rest of the plan is designed in terms of copays and coinsurance. For the 73% AV level, plan designs aren't drastically different from regular silver plans, so it's common to see deductibles of $5,000 or more.

But CSR plans do have to cap maximum out-of-pocket at levels that are lower than the caps that apply to other plans. The ACA imposes a maximum out-of-pocket cap (for in-network essential health benefits) on all non-grandfathered, non-grandmothered plans. The cap is adjusted for inflation each year; in 2020, it's $8,150 for a single individual, and $16,300 for a family. But CSR plans are required to have lower out-of-pocket caps. Specifically, the maximum allowable out-of-pocket is reduced by 67% for enrollees with household income between 100% and 200% of the poverty level, and by 20% for enrollees with household income between 200% and 250% of the poverty level. In 2020, that amounts to the following out-of-pocket caps for silver plans:

  • Income between 100% and 200% of FPL: Maximum out-of-pocket is $2,700 for a single individual, and $5,400 for a family.
  • Income between 200% and 250% of FPL: Maximum out-of-pocket is $6,500 for a single individual, and $13,000 for a family.

The benefits of CSR are obviously much more significant for people with income up to 200% of the poverty level. Above that point—as long as household income doesn't exceed 250% of the poverty level—there are still CSR benefits available, but they're much weaker.

How Are Cost-Sharing Reductions Funded?

Cost-sharing reductions used to be funded by the federal government, which would reimburse health insurers for the cost of providing CSR benefits to eligible enrollees. But that changed in the fall of 2017 when the Trump administration stopped reimbursing insurers for the cost of CSR. This stemmed from a long-running lawsuit, brought by House Republicans in 2014 over the fact that the ACA did not specifically allocate CSR funding. A judge had sided with House Republicans in 2016, but the ruling had been stayed while it was appealed by the Obama administration, and the federal government continued to reimburse insurers for the cost of CSR.

But once the Trump administration halted that in October 2017, insurers and state regulators had to scramble to figure out what to do. Insurers were—and still are—legally required to provide CSR plans to all eligible enrollees, but they were no longer being reimbursed by the federal government. That meant the cost of CSR had to be added to health insurance premiums, just like any other cost that insurers have.

Since CSR benefits are only available on silver plans, most states allowed or directed insurers to add the cost of CSR only to silver plan premiums. This actually ended up making health coverage more affordable for the majority of exchange enrollees, because it increased the premiums for silver plans. Premium subsidies are based on the cost of the benchmark silver plan in each area, so higher premiums for silver plans resulted in larger premium subsidies. And those subsidies can be applied to plans at any metal level (CSR benefits are only available if you pick a silver plan, but premium subsidies can be used with bronze, silver, gold, or platinum plans).

In most states, the cost of CSR is not added to bronze and gold plans (or platinum plans, in the areas where they're available). So the larger premium subsidies—which are based on the higher silver plan premiums necessary to cover the costs that insurers incur under the CSR program—cover a larger portion of the premiums for plans at other metal levels. This has resulted in many people with low to moderate income being able to get free or nearly free bronze plans in recent years (and in some areas, lower-income enrollees can qualify for free or nearly-free gold plans as well).

In late 2019, a Kaiser Family Foundation analysis found that 4.7 million uninsured Americans would be eligible for free bronze plans for 2020 if they applied for coverage in the exchange. Open enrollment for 2020 health plans has ended, but 11 states are allowing uninsured residents another chance to enroll as a result of the COVID-19 pandemic, and the District of Columbia is also giving uninsured residents an opportunity to enroll after they file their 2019 tax returns.

HealthCare.gov is the exchange that's used in 38 states, however, and there is not a COVID-19 special enrollment period through HealthCare.gov. But residents in any state who lose their health coverage are eligible for a special enrollment period during which they can sign up for health insurance. And in every state, people who are eligible to enroll in health insurance through the exchange can take advantage of the financial assistance that's available based on their income (Medicaid or CHIP, cost sharing reductions, and premium subsidies).

Do Cost-Sharing Reductions Get Reconciled on Tax Returns?

Unlike premium subsidies, cost-sharing reductions do not get reconciled on your tax return. Premium subsidies are a tax credit—albeit one that you can take in advance instead of having to wait to claim it on your tax return. That's why premium subsidies have to be reconciled when you file your taxes: If the premium subsidy that was sent to your insurance company on your behalf during the year was too big (based on your actual income for the year, as opposed to the projected income you estimated when you enrolled), you may have to pay back some or all of it to the IRS. And on the other hand, if the premium subsidy that was paid on your behalf was too small (because your income actually ended up being lower than you had projected), the IRS will give you the extra amount as a refund or subtract it from the amount of income tax you owe.

But cost-sharing reductions are different. They aren't a tax credit, and even when the federal government was reimbursing insurance companies directly to cover the cost of these benefits, there was no mechanism to have people pay back any of the cost if their actual income ended up being different from the income projection on which their CSR eligibility was based.

Should You Enroll in a Plan With Cost-Sharing Reductions?

If you're buying your own health insurance and your household income (as calculated under the ACA's rules) doesn't exceed 250% of the poverty level, all of the silver plans that are available to you will have CSR benefits built into them. This is based on your projected income for the year, which will require documentation when you actually enroll. As described above, there are three different levels of CSR benefits, depending on income.

You're not required to enroll in a plan with CSR benefits though. If you're CSR-eligible and you pick a silver plan, you'll automatically get the CSR benefits. But you can pick a bronze or gold plan instead (or a platinum plan, if they're available in your area), and forego the CSR benefits.

There's no right answer here—it all depends on your specific situation. If you're eligible for CSR, you're almost certainly also eligible for premium subsidies. (Everyone with income up to 250% of the poverty level is eligible for CSR benefits. Eligibility for premium subsidies extends all the way to 400% of the poverty level, but also depends on how the unsubsidized cost of the plan compares with the person's income.) And in most states, those premium subsidies make bronze plans particularly inexpensive—or even free—depending on your income. But bronze plans don't include any CSR benefits, and will tend to have much higher deductibles and out-of-pocket costs than the available silver plans, especially if your income doesn't exceed 200% of the poverty level (as noted above, CSR benefits are much stronger below that level).

So you may have to make a tough choice: You might have an option to pick a bronze plan that has no monthly premium at all (because the premium subsidy covers the entire premium), or a silver plan with CSR benefits built into it. Particularly if your income doesn't exceed 200% of the poverty level, the benefits offered by the silver plan are going to be much more robust. The deductible might be just a few hundred dollars, or even zero dollars, as opposed to several thousand dollars under the bronze plan. And the maximum out-of-pocket will be much smaller. But you'll have to pay a monthly premium. Your premium subsidy will cover a large chunk of the premium, but the difference in price between the available bronze and silver plans could be substantial.

So the question at that point comes down to whether you'd prefer to pay more on a monthly basis in trade for having much more manageable out-of-pocket costs if and when you have a claim. As with most things related to insurance, there's not a one-size-fits-all answer here. It depends on your health status, how you feel about managing risk, and your options for covering potential out-of-pocket costs. If you have money stashed away in a health savings account or other accessible assets, you might feel comfortable with a free bronze plan (and keep in mind that your assets aren't counted at all when your eligibility for premium subsidies and cost sharing reductions is determined). But if you'd have a hard time coming up with the money to cover your out-of-pocket costs, it might make more sense to pay the monthly premiums for a CSR plan.

The best course of action is to actively compare all of the plans available to you. Consider what you'll pay each month (after your premium subsidy is applied) as well as how much you'll pay for various medical care—including office visits and other outpatient care, but also high-cost situations such as a hospital stay. Reach out for help from a navigator or exchange-certified broker if you're having trouble understanding the policies that are available to you. Once you have all of the information you need, make your decision based on what will work best for you. And know that if your income changes later in the year and makes you eligible for a different level of CSR benefits, you'll have an opportunity to switch plans at that point. So it's important to keep the exchange updated if your income changes during the year.

Was this page helpful?
Article Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. HealthCare.gov. Cost sharing reductions.

  2. Collins SR, Rasmussen PW, Beutel S, Doty MM. The Commonwealth Fund. The problem of underinsurance and how rising deductibles will make it worse. Findings from the Commonwealth Fund Biennial Health Insurance Survey, 2014. May 20, 2015.

  3. Department of Health and Human Services. US Office of the Assistant Secretary for Planning and Evaluation. 2019 Poverty Guidelines for the 48 Contiguous States and the District of Columbia. January 2019.

  4. Department of Health and Human Services. Centers for Medicare and Medicaid Services. First half of 2019 average effectuated enrollment data. December 11, 2019.

  5. Department of Health and Human Services. Patient Protection and Affordable Care Act; Actuarial value calculator methodology

  6. Federal Register. Department of Health and Human Services. Patient Protection and Affordable Care Act; HHS notice of benefit and payment parameters for 2020. April 25, 2019.

  7. Fehr, Rachel; Cox, Cynthia; Rae, Matthew. Kaiser Family Foundation. How many of the uninsured can purchase a marketplace plan for free in 2020? December 10, 2019.

  8. Norris, Louise. healthinsurance.org. State and federal efforts to improve access to COVID-19 testing, treatment. April 2, 2020.

  9. Norris, Louise. healthinsurance.org. I thought subsidies were available for anyone with incomes up to 400 percent of poverty level, but the calculators I’ve used say our family doesn’t qualify. Why? January 7, 2018.

  10. Norris L. healthinsurance.org. A change in subsidy eligibility changes your options. January 20, 2020.