If you’ve read our article on the premium tax credit subsidy, you already know that there is a way to possibly save some money on your health insurance premiums every month when you purchase a health plan through the Health Insurance Marketplace. But what about those high prices you have to pay if you get sick and actually want to use that health insurance plan you pay for? Well if your income falls within a certain range, you could save even more money when the time comes to actually use your health insurance. So if you like saving money, you are encouraged to read on.
What is this money-saving option you’re wondering? Just like the premium tax credit, it is a subsidy, or a government-offered benefit, and is available as a cost-sharing reduction (CSR).1 While the tax credit subsidy provides assistance with your monthly health insurance premium, a cost-sharing subsidy helps reduce your out-of-pocket expenses for your health care. However, similar to the premium tax credit, the cost-sharing subsidy is also based on your annual income. You can find this subsidy available with Silver plans only through the Health Insurance Marketplace.2
Two Ways the Cost-Sharing Subsidy Saves You Money
The cost-sharing subsidy takes your income into consideration when determining two different ways that you can save money with your health insurance plan.4
The Actuarial Value of a Plan
The cost-sharing reduction subsidy uses your income, location, and household size to determine a new actuarial value for your plan. The actuarial value refers to the percentage of the price of covered services that a plan is expected to pay for an average individual, and this is one way that this subsidy saves you money. On average, a Silver plan holds a 70% actuarial value, but that percentage may increase depending on your income. This means if the percentage that your plan will pay increases, you will be responsible for paying less out-of-pocket for copayments, deductibles, and/or coinsurance when you actually use your insurance.4
Lower Out-of-Pocket Maximums
The cost-sharing subsidy also lowers your out-of-pocket maximum for the year. Of course you will end up paying less each time you utilize a covered service as a result of lower copays, deductibles, or coinsurance, as mentioned above. However, your total out-of-pocket maximum for the entire year will be limited once you’ve spent a certain amount on those expenses.1 Again, your out-of-pocket maximum is income-based:
Keep in mind that these numbers can fluctuate and be lower than the numbers listed above for the respective categories. However they cannot exceed the specified amounts. Remember that without a cost-sharing subsidy, the maximum out-of-pocket on any plan is $6,600 for an individual and $13,200 for a family.
Silver Cost-sharing Reduction Plans vs. Bronze Plans
If you’ve read up on the metal tiered health plans, you might be compelled to opt for a Bronze level plan because they generally have a low premium. However, with the cost-sharing reduction subsidy, you might be better off to enroll in a Silver plan. You’ll pay a little more for your premium, or even less in some cases, for a Silver plan, and certainly save money on your deductible and out-of-pocket maximum.
The image below shows data compiled from HealthCare.gov to show how much of a drastic difference can exist between a Silver cost-sharing reduction plan and a Bronze plan. You’ll see varying premium amounts for each plan, and on average lower deductibles and out-of-pocket maximums with Silver plans applying the cost-sharing subsidy.
Frequently Asked Questions
Many people are not aware of this subsidy, and even if they are, they are missing the necessary details to actually comprehend it. It’s great if you qualify and take advantage of the subsidy, but it’s even better if you understand how it works. Below you’ll find some common questions and answers that might make this subsidy a bit more clear…
Can I get both the cost-sharing AND premium tax credit subsidy?
Absolutely. If you recall, to qualify for a premium tax credit, your income must fall between 100-400% of the federal poverty level. The income requirement of 100-250% of the poverty level falls right in there, so if your income qualifies for the tax credit, it may also qualify for the cost-sharing subsidy.2
If I make more money than I estimated, does the cost-sharing subsidy have to be paid back like the premium tax credit?
No. The premium tax credit subsidy will check your estimated yearly income against your actual income at the end of the year on your taxes and require you to pay back the difference if you make more. However, the cost-sharing subsidy will not require you to pay anything back.3
IMPORTANT: If you deliberately enter a lower income to qualify for the subsidy, the government will likely find out! Lying to the government never has a good outcome- so always, always, always be honest. It is also a good (and highly recommended) rule of thumb to report any income or household changes to the Marketplace to keep everything up-to-date.
Can I apply the cost-sharing subsidy to any of the metal tier plans?
No. The only plans that qualify for the cost-sharing subsidy are Silver plans.2
How is the subsidy applied to the plan I choose?
When you go to the Health Insurance Marketplace, you will enter your income and some other information regarding your situation, and the plan options for your area will come up. When you see the Silver plans, the premium and lower costs are already built into the plan.
- Claxton, G., & Panchal, N. (2015, February 11). Cost-sharing subsidies in federal Marketplace plans. Retrieved from https://kff.org/health-costs/issue-brief/cost-sharing-subsidies-in-federal-marketplace-plans/
- Getting lower costs- How to save on out-of-pocket health care costs. (n.d.). Retrieved September 22, 2015, from HealthCare.gov website: https://www.healthcare.gov/lower-costs/save-on-out-of-pocket-costs/
- Health reform FAQs. (n.d.). Retrieved September 22, 2015, from https://kff.org/health-reform/faq/health-reform-frequently-asked-questions/#question-if-i-mis-estimate-my-income-and-end-up-earning-more-than-250-of-the-federal-poverty-level
- Norris, L. (2013, September 20). The ACA’s cost-sharing subsidies- Lesser-known pair of income-basedcost-sharing subsidies will lower out-of-pocket exposure for eligible Silver plan enrollees. Retrieved from https://www.healthinsurance.org/obamacare/the-acas-cost-sharing-subsidies/