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AgileHealthInsurance Report | 2018-03-08

Cost-Sharing Subsidies

Cost sharing subsidies: out-of-pocket cost reduction for low-income households

When shopping for health insurance, you may have noticed that Affordable Care Act (ACA) policies are designated by metallic tiers, Bronze Silver and Gold. In the simplest terms, the tiers indicate the cost share of that particular policy. For example, a Silver plan on average will pay 70% of total medical costs. Through the deductible, copays, and coinsurance, the policyholder would on average pay 30%. The larger cost share is one of the main reasons premiums for a Bronze plan will be less expensive than a silver plan, and a silver plan less expensive than a Gold plan.

However, within the ACA there is a program known as cost-sharing reduction (CSR) payment. This program allows consumers with a household income of between 100% and 250% of the federal poverty level to enroll in a Silver tier policy with a cost share of up to 94%, significantly lowering the out of pocket costs for consumers without greatly affecting the monthly premium rates.

Under the ACA, insurers are supposed to be reimbursed for these additional costs, which in the past years has added up to billions of dollars. These reimbursements were not funded in the ACA and Congress would not provide funds in the budget to cover CSR so President Obama used his executive authority to fund the CSR.

In May 2016, a federal judge ruled that President Obama did not have the authority to appropriate funding; funding can only be appropriated by Congress. While the Obama administration appealed the ruling, a hearing had not been scheduled during the remaining months of administration’s term. Once President Trump took office, his administration decided to not pursue the appeal.

The Trump administration continued to fund the CSR “illegally” until the fall of 2017. On October 12th 2017, the Trump administration decided to end all future CSR payments. Cost share plans are still available to consumers, but the insurance company is now responsible for making up the costs associated with lower member cost shares which was a main driver of ACA rate increases for 2018.

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