What are Cost-Sharing Reductions?

Cost-Sharing Reductions (CSRs) describe a mechanism in the ACA that decreases out of pocket expenses. Individuals and families are eligible for CSRs if they purchase a silver plan through a state or federal exchange and earn between 138% and 250% of the federal poverty level. CSRs dramatically lower co-pays and co-insurance. It’s estimated that 12 million individuals are covered by such plans with CSRs.

To get a sense of the impact of CSRs, an individual who qualifies for mid-level CSRs (by earning 150-200% of the federal poverty level) will pay, for example, only $10 instead of $20 for a doctor visit. That same individual’s out of pocket maximum, which, for example, would normally be $7,150, is reduced to $2,250. When combined with the ACA’s advanced premium tax credits (typically referred to as “subsidies”), which lower the individual’s premiums, one can see how CSRs are a key mechanism in making healthcare coverage affordable for those at the lowest end of the income scale, but who don’t qualify for Medicaid.

So who pays the difference between the plan’s stated co-pays and co-insurance amounts, and the reduced amounts that are the subscriber’s responsibility? The federal government makes up that difference by sending the balance, in the form of CSR payments, directly to insurance carriers. Such payments are expected to reach $7 billion in 2017.

Resources 

The Kaiser Family Foundation’s article “Impact of Cost Sharing Reductions on Deductibles and Out-of-Pocket Limits” describes CSRs in more detail and provides helpful examples of how CSRs impact an individual’s out-of-pocket expenses. CSRs have become a political hot potato that may impact the path of healthcare reform. For more on that perspective we encourage you to read Claremont’s article “A Little-Known Provision in The ACA Could Accelerate Healthcare Reform.”