Cost-Sharing Reduction (CSR) is a component of the Affordable Care Act (ACA). Essentially, CSR makes healthcare costs more affordable for people with low incomes. An individual or family that is eligible for CSR will have a lower deductible, out-of-pocket maximum, copays, and coinsurance. The eligibility requirements for CSR are as follows:
- Must buy a silver health insurance plan through a state-based exchange or federal health insurance marketplace (HealthCare.gov)
- Household income between 100% to 250% of the Federal Poverty Line
- No access to health insurance through an employer or other government plan, such as Medicare or Medicaid
- Married and file a joint tax return OR single and not claimed as a dependent by another person
Richer Benefits (Increased Actuarial Value)
Even though anyone with a household income of up to 250% of the Federal Poverty Line (FPL) is eligible for the CSR benefit, the benefit is actually much stronger for individuals with a household income of less than 200% of the FPL. This is because CSR works by increasing the Actuarial Value (AV) of a silver ACA health plan.
Simply put, the AV of a health plan is the percentage of healthcare costs that are covered by the insurance company across all of the members enrolled on the plan. A silver plan generally has an AV of 70%, meaning that the insurance company will cover about 70% of the total incurred healthcare costs, whereas the members will cover 30%. AV is also often referred to as the “benefit richness” of a health plan.
For people who are eligible for CSR, the AV increase of the silver plan is based on household income:
- For a household income between 100% and 150% of the FPL, the AV is increased to 94%
- For a household income between 150% and 200% of the FPL, the AV is increased to 87%
- For a household income between 200% and 250% of the FPL, the AV is increased to 73%
As stated previously, people with incomes below 200% of the FPL benefit much more from the AV increase.
So, how do insurance companies increase the AV of silver plans from 70% to the numbers stated above? Insurers have some flexibility in how they achieve the designated AVs. In general, they use a combination of reduced deductibles, out-of-pocket maximums, copays, and coinsurance to achieve the ratings. The only rule is that they have to ensure that the out-of-pocket maximum is equal to or below the designated amount. For example, in 2019, these are the designated out-of-pocket maximum values for the varying income ranges:
For a household income between 100% and 200% of the FPL:
- The out-of-pocket maximum for an individual is $2,600
- The out-of-pocket maximum for a family is $5,200
For a household income between 200% and 250% of the FPL:
- The out-of-pocket maximum for an individual is $6,300
- The out-of-pocket maximum for a family is $12,600
Trump Ended CSR Funding
So, if people who are eligible for CSR are paying less for healthcare costs, how are health insurance companies making up the difference? Up until October 2017, the federal government was reimbursing insurers through CSR subsidy payments. Trump put a stop to those reimbursements. Since then, insurers have been “silver-loading” to make up for the crucial reimbursements that they are no longer receiving.