How the Cost-Sharing Health Insurance Subsidy Works

Understanding the Subsidy that Reduces Deductibles, Copays, and Coinsurance

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Buying health insurance is expensive, but paying the monthly premium isn’t the only cost involved. You also have to pay deductibles, copayments, and coinsurance each time you use your health insurance.

These additional out-of-pocket amounts are known as cost-sharing expenses. They can add up to thousands of dollars yearly.

The Affordable Care Act created subsidies to make buying and using health insurance more affordable for people with modest incomes. There are two different types of subsidies:

  1. A subsidy that pays monthly health insurance premiums so buying health insurance is more affordable. Learn more about this in, “How the Health Insurance Subsidy Works—Understanding the Premium Tax Credit.”
  2. Subsidies that help pay out-of-pocket costs like deductibles, copayments, and coinsurance. These are known as reduced cost-sharing subsidies and come in two distinct parts, both of which are combined on plans that qualify for cost-sharing subsidies.
    1. The first reduces your out-of-pocket maximum. Learn more in, “How the Subsidy to Reduce Your Out-Of-Pocket Maximum Works.”
    2. The second reduces the amount you pay for deductible, copayments and coinsurance each time you use your health insurance.
    3. Cost-sharing subsidies are ONLY available if you purchase a silver plan, and they're automatically included on all silver plans if your income doesn't exceed 250 percent of the poverty level. This is in contrast to the premium subsidies, which can be applied to bronze, silver, gold, or plantinum plans, and which can be accepted or rejected at the enrollee's discretion.

How Does the Reduced Cost-Sharing Subsidy Work?

The reduced cost-sharing subsidy decreases your out-of-pocket expenses when you use your health insurance. For example, if your health plan would otherwise require a $50 copayment each time you visit the doctor, the cost-sharing subsidy might reduce that copayment so you only pay $20 when you see the doctor. If your health plan would normally require a $2,000 deductible, the cost-sharing subsidy could lower that deductible.

It’s like getting a free upgrade on health insurance. You pay the same monthly premium you would have paid for an average health insurance policy, but the health insurance you receive is better than average because it pays a larger portion of your health care expenses.

And as noted above, people who are eligible for cost-sharing subsidies end up with maximum out-of-pocket amounts that are lower than they would have been if the person hadn't been eligible for a cost-sharing subsidy. So expenses are lower each time the coverage is used, and the health plan also starts to pay 100 percent of covered costs sooner than it would have without the subsidy.

Is the Cost-Sharing Subsidy Still Available?

Despite the fact that the Trump Administration stopped reimbursing health insurance companies for the cost of providing cost-sharing subsidies (also known as cost-sharing reductions, or CSR), the benefits themselves are unchanged. Here's more about how this works.

Essentially, insurers have added the cost of the cost-sharing subsidy to premiums. In most cases, the cost is only being added to silver plan premiums, which results in larger premium subsidies (the other kind of ACA subsidy) for millions of enrollees. But nothing has changed about access to, or eligibility for, cost-sharing subsidies.

How Much Does the Subsidy Pay?

The reduced cost-sharing subsidy doesn’t actually pay you money. Instead, it saves you money by lowering your cost-sharing expenses. How much money it saves you depends on your income and on how much you use your health insurance.

The poorer you are, the more your cost-sharing is reduced. The amount of this reduction is based on comparing your income to the federal poverty level. Federal poverty level changes every year, and is based on both your income and your family size.

Without the cost-sharing subsidy, your health insurance company would pay roughly 70 percent of the total covered health care expenses across all enrollees (remember, you have to pick a silver plan to get the cost-sharing subsidies, and normal silver plans pay roughly 70 percent of total costs for their entire pool of enrollees). With the cost-sharing subsidy, your health insurance company will pay:

  • 94 percent of average expenses (ie, better than a platinum plan) if your income is 100 percent to 150 percent of FPL .
    • For individuals with a 2018 income from $12,060 to $18,090.
    • For couples with a 2018 income from $16,240 to $24,360.

(note that the lower income threshold for plans that qualify for cost-sharing subsidies is 139 percent of FPL in states that have expanded Medicaid, since people in those states are eligible for Medicaid with income up to 138 percent of the poverty level).

  • 87 percent of average expenses (ie, better than a gold plan, almost as good as a platinum plan) if your income is 150 percent to 200 percent of FPL
    • For individuals with a 2018 income from $18,090 to $24,120.
    • For couples with a 2018 income from $24,360 to $32,480.
  • 73 percent of average expenses (ie, better than a normal silver plan) if your income is 200 percent to 250 percent of FPL
    • For individuals with a 2018 income from $24,120 to $30,150.
    • For couples with a 2018 income from $32,480 to $40,600.

[Note that the prior year's federal poverty level is used for these calculations; for coverage that's effective in 2018, they compare your 2018 income with the 2017 federal poverty level. This is because open enrollment for individual market health insurance happens in the fall (for coverage effective in January) but the new poverty level numbers aren't published until late January—well after open enrollment has closed.]

Your health insurance company can structure the cost-sharing reduction however it wants as long as the health plan pays the correct percentage of overall average health care expenses. For example, it could decide to lower your deductible by a lot, but leave your copayments unchanged. Or, it could barely reduce your deductible, but eliminate your copayments and lower your coinsurance.

It's also important to remember that the percentage of costs covered by a health insurance policy refers to the overall average across an entire population—not to the actual coverage for a specific individual. If you stay healthy throughout the year and incur very little in health care costs, you'll pay a larger portion of your total costs (possibly 100 percent, depending on what services you receive) than a person who is very ill and incurs costs well above the total out-of-pocket maximum for the plan.

Some health care expenses aren't included in your cost-sharing reduction. Your out-of-pocket expenses for things that aren't covered by your health insurance policy or aren't an essential health benefit won't be reduced. The balance-billed portion of care you get out-of-network won't be reduced, so stick with in-network providers to get the most from your subsidy.

Who’s Eligible for the Cost-Sharing Health Insurance Subsidy?

To be eligible for the reduced cost-sharing subsidy, you must:

  • Buy your health insurance through your state’s health insurance exchange (to do this, you must reside in the US legally and not be incarcerated).
  • Choose a silver-tier health plan.
  • Have an income from 100 percent to 250 percent of FPL (139 percent to 250 percent in states that have expanded Medicaid).
  • Not be eligible for affordable employer-sponsored health insurance that provides minimum value.

How to Apply for the Cost-Sharing Subsidy

Apply for the reduced cost-sharing subsidy through your state’s health insurance exchange while you’re shopping for health insurance. You can apply for the premium tax-credit subsidy and the reduced out-of-pocket-maximum subsidy at the same time. Be prepared to give the exchange information about your income, family size, and employer if you have a job. If you're eligible for cost-sharing subsidies, the improved coverage will be built into all of the silver plans that are available to you through the exchange.

Except for special circumstances, you can only enroll in health insurance through your state’s health insurance exchange during an open enrollment period. Open enrollment for 2019 runs from November 1, 2018 through December 15, 2018 in most states (some states have different schedules).

If you enroll in a silver-plan and receive the subsidy but your income changes during the year, let the health insurance exchange know. If your income went down, you may be eligible to have your cost sharing reduced even more.

Unlike premium subsidies, you do not reconcile cost-sharing subsidies on your tax return, since the subsidy is not a tax credit.

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