What Are Cost Sharing Reductions And Why Do They Matter?

Under the Affordable Care Act, there are subsidies for insurance. Both parts of the subsidies--the Advance Premium Tax Credits (APTCs) and the Cost Sharing Reductions (CSRs)--are part of the law. To cover those costs, the government pays the insurance companies that participate in the Marketplace for these subsidies. President Trump has proposed just not paying the CSRs, BUT--as Vox explains--

If CSR payments were not paid, insurers would still be required to reduce cost sharing, but they would now have to do it without the government’s help. They would have to raise premiums dramatically to make up the lost revenue. The irony is that if plans do raise premiums, the federal government would be on the hook for much of those costs. The government absorbs premium increases through the tax credits that help people afford coverage. The law is designed to keep premiums manageable for people, so it falls on the government to cover any excess increases.

Some Background: Two Parts Make The Subsidies Work

There are two parts to the subsidies that people who get health insurance through the exchanges may receive.

Part 1--which most people are familiar with--is called the Advance Premium Tax Credits (APTCs). They assist people who are up to 400% of the poverty level ($98,400 for a family of 4), to help afford monthly premiums.

Part 2--which most people are not familiar with--are Cost-Sharing Reductions (CSRs). These support families whose income is between 138% of the poverty level (Medicaid cut-off) and 250% of the poverty level ($61,500 for a family of 4), by reducing what they would pay for co-pays, co-insurance, and deductibles.

 

For Consumers, Cost-Sharing Seems Like Magic

For households that qualify, cost-sharing applies to silver plans (only), and transforms them into something better--often much, much better. 

The truth is, if not for the CSRs, low-income families might be able to afford the premiums, but visits to the doctor could be cost-prohibitive, and high deductibles and maximum out-of-pocket costs would mean that getting sick could still turn a family's life upside down.

More than half of the people in the U.S. who got health care on an exchange got cost-sharing reductions (7 million out of 12 million)! 

Actuarial Value

Actuarial value is an estimate of the percentage of costs that--on average--a plan will cover. (For any one family, this might be a bit higher or lower.) Under the ACA, a household with income below 150% of the poverty level can get a silver plan that covers 94% of their costs; a household with income between 151%-200% of the poverty level can get a silver plan that covers 87% of their costs; and a household with income  between 201%-250% can get a silver plan that covers 73% of their costs.

Summary

Basically, taking away Cost Sharing does not save the government any money and will contribute to Marketplace insurers opting out of the Marketplace.  The only people who will be hurt are people who are low income but not low enough for Medicaid. Republicans were eager to eliminate cost-sharing when the repercussions would be seen as Democrat's fault but now that the the White House and Congress are Republican, we hope they do not want this cut to be seen as their responsibility. The ACA's solvency relies on Cost Sharing Reductions and Advanced Premium Tax Credits. #savetheACA

-Ruth Kraut 

Have a question?  Type it in the comments section and we will get back to you.

More Information:

Republicans are begging Trump not to sabotage Obamacare - Vox

What are cost-sharing reductions, and what happens if Trump ends them? - Michigan Radio

ACA Cost-Sharing Subsidies: How One Decision Could Disrupt Obamacare Marketplaces - Kaiser Family Foundation

Larry Levitt Tweets 

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