What are Cost Sharing Reductions?

A lot of talk has been floating around lately about the concept of cost sharing reductions (CSRs). You may have a vague idea of what this term means and that it has something to do with the Affordable Care Act. There have been a number of attempts to oust this healthcare program. You may be concerned about just how the idea of a cost sharing reduction relates to you and whether it may affect your current health insurance. Let’s take a look at just what this concept means, how it works and potential ramifications related to any potential loss of funding for the subsidy.

About CSRs

CSRs are subsidies provided by health insurance companies that are meant to reduce the costs of insurance for those whose income levels allow them to qualify. Out-of-pocket costs such as co-pays and deductibles are included in the types of monetary expenses that are subsidized. Large deductibles that must be paid before insurance begins covering costs of medical care can be prohibitive for lower-income folks to manage. Even smaller-cost co-payments required at doctor’s visits can add up and affect people’s likelihood of seeking treatment. A cost sharing reduction makes these costs far more manageable. It does this by covering some of the expense on behalf of those with insurance through the Affordable Care Act who are eligible.

How CSRs Work

CSRs lower the out-of-pocket costs, along with increasing coverage levels for those whose income is between 100 and 250 percent of the federal poverty level. These subsidies are only available to those with silver level plans under the Affordable Care Act. This differs from assistance types such as premium tax credits. Through cost sharing methods, the government is supposed to pay the health insurance company upfront as costs are incurred. There are three different levels of reductions. Each is based on the income level of individuals or families. You don’t have to pay back money received through CSRs should your income increase.

What Would Happen Without CSRs

Under the Affordable Care Act, insurance companies are required to provide cost sharing reductions to their silver level plan customers. Therefore, even if the government doesn’t pay for the subsidies, you won’t lose them. However, there are still numerous ramifications that can occur if government subsidization ends. Insurers would need to make up for that lost revenue somehow, and the first thing that makes sense would be to raise premiums.

Those who don’t qualify for a cost sharing reduction would actually feel the sting as their current unsubsidized premium costs would increase even more. Low-income participants may find that these increases are simply unaffordable and may have to forego their insurance altogether. There are even ramifications that can affect insurance markets as a system:

  • making them unstable
  • contributing to soaring costs
  • encouraging some companies to drop out of the marketplace entirely

A bi-partisan group of 40 House representatives known as the “Problem Solvers Caucus” is currently working to propose solutions beyond ending government funding for CSRs.

Hopefully, this summary helps you to understand just what CSRs are, how they work and what losing them means for you as an individual, for others and for the health insurance industry. Cost sharing reductions are subsidies that allow millions of people to afford medical insurance and help keep premiums lower for everyone.