What are cost-sharing reductions and how do they work?

Healthcare costs in the United States can be extremely high, making it crucial to have health insurance. In order to make health care more affordable for Americans, the Affordable Care Act was crafted to include two subsidy programs. Thanks to these subsidies, a HealthSherpa study found that 18% of ACA enrollees are not paying anything for their health insurance premiums, and 26% have premiums that are less than $10 a month. One of these subsidies is the cost-sharing reductions program. Here’s how cost-sharing reductions work and how to find out whether you qualify for the subsidy.

What are cost-sharing reductions?

Cost-sharing reductions are discounts that reduce how much you pay for medical care. In the health insurance Marketplace, cost-sharing reductions are also referred to as “extra savings.”
These extra savings reduce how much you pay in deductibles, which means your chosen insurance plan will start to pay its share for your healthcare costs sooner. They will also lower your copayments and coinsurance so each visit is cheaper. Lastly, they lower your out-of-pocket maximum, thus helping reduce your financial burden in the case of a costly medical procedure or emergency.

How does cost-sharing work?

Cost-sharing in the U.S. healthcare system is set up to help low- and middle-income consumers have more affordable access to medical care. The idea was that insurers would subsidize consumers’ healthcare costs, and in turn, the federal government would reimburse insurance companies for the cost of these cost-sharing subsidies. However, in October 2017, the Trump administration cut off federal payments to insurers for these cost-sharing reductions.
Despite this, cost-sharing reductions are still offered to eligible consumers. Instead of being reimbursed for these costs by the government, insurers in most states have either added the cost of these subsidies to Silver-level insurance plans or spread the cost across plans of all levels. For consumers in higher income brackets, this sometimes resulted in higher premiums.

How do I qualify for cost-sharing reductions?

Cost-sharing reductions are available to those whose income falls between 100 percent and 250 percent of the Federal Poverty Level. In states with expanded Medicaid programs, this range is between 138 percent and 250 percent.

*For those living in Alaska and Hawaii, see your Federal Poverty Level numbers here.
The exact reduction in your costs will depend on your income, and you can confirm your eligibility when you fill out your application for your Marketplace plan. If you qualify, your Eligibility Determination Notice will say "Can choose a health plan with lower copayments, coinsurance, and deductibles," followed by (04), (05), or (06).

How do I apply my cost-sharing reductions?

Because cost-sharing reductions apply to your healthcare costs, you only truly use them when you get medical care. But in order to get these extra savings, you must first enroll in a Silver-level Marketplace plan.
Cost-sharing reductions are built into these Silver plans for those who are eligible. In some cases, subsidized Silver-level plans can end up being cheaper than lower-tiered plans while offering better coverage. They can also end up offering similar coverage to higher-tiered plans but at a lower premium.

What sort of assistance can I get if I don’t qualify for cost-sharing reductions?

Even if you don’t qualify for cost-sharing reductions, you may still be able to get financial assistance with your health insurance costs via premium tax credits. Premium tax credits are a type of subsidy that lowers your monthly premium payments, and they are available to those whose income falls between 100 percent and 400 percent of the FPL. (This means that if you qualify for cost-sharing reductions, you’ll likely also qualify for premium tax credits and be able to further reduce your health insurance costs.)
If you don’t qualify for cost-sharing reductions because your income is below the minimum income level, you should check your Medicaid or CHIP eligibility.

What if my income changes during the year?

If your income changes after enrollment and the change makes you either eligible or ineligible for cost-sharing reductions, you’ll have the opportunity to change your plan during a Special Enrollment Period (SEP). However, this is only a possibility if you were already enrolled in a Marketplace plan or in Medicaid. If you chose to enroll in a non-Marketplace health insurance plan, you will not be eligible for an SEP.
If you do qualify for an SEP, start here to compare your options versus your existing plan.