How Obamacare Cost-Sharing Reductions reduce out-of-pocket expenses?

Obamacare has two affordability programs for people with low and moderate incomes: Premium Tax Credit and Cost-Sharing Reductions (CSR). First of them is much better known. It provides tax credits that can reduce health insurance monthly premium for people with incomes up to 400 percent of the Federal Poverty Level (FPL). But for individuals and families whose income does not exceed 250% of the FPL, the special Obamacare Cost-Sharing Reductions are available that may dramatically reduce the out-of-pocket expenses (deductibles, payments and coinsurance) and limit the annual out-of-pocket costs. Read below.

Obamacare Cost-Sharing Reductions for Silver Health Plans

If you are enrolled in a Qualified Health Plan (QHP) on Heath Insurance Marketplace and have an annual household income at or below 250% of the FPL, you’ll be entitled to the Cost-Sharing Reductions as long as you are enrolled in Silver plan that generally pay 70% of covered medical expenses. No other plans (Bronze, Gold, Platinum, and Catastrophic) are qualified to Cost-Sharing Reductions.

The Standard Silver Plan (i.e., a plan without CSR) generally pays 70% of covered medical expenses, leaving 30% that should be paid by the enrollee.  It includes deductibles, copayments, and coinsurance. The limit on annual out-of-pocket costs is $6,350 for individual and $12,700 per family.

The Cost-Sharing Reductions for Silver plans depend on your household income:

  • For Individuals / Families with Incomes up to 150% FPL
    • A portion of medical expenses typically paid by the health plan: 94%
    • A portion of medical expenses paid by the enrollee: 6%
    • Limit on annual out-of-pocket costs: $2,250 individual / 4,500 family
  • For Individuals / Families with Incomes from 151% FPL to 200% FPL
    • A portion of medical expenses typically paid by the health plan: 87%
    • A portion of medical expenses paid by the enrollee: 13%
    • Limit on annual out-of-pocket costs: $2,250 individual / 4,500 family
  • For Individuals / Families with Incomes from 201% FPL to 250% FPL
    • A portion of medical expenses typically paid by the health plan: 73%
    • A portion of medical expenses paid by the enrollee: 27%
    • Limit on annual out-of-pocket costs: $5,200 individual / 10,400 family

Example of reducing out-of-pocket expenses

Insurance vendors have some flexibility in how they structure their health plans in order to meet cost-sharing reductions. Ultimately, cost-sharing reductions depends on your income, state you live in and insurance vendors. Under certain conditions, reduction in out-of-pocket expenses can be staggering.

Consider the following example. A family of two people, mother (53 years old)  and daughter (15 years old) apply for health insurance in New Jersey. Their income is $28,000. With this income daughter is entitled for Medicare/CHIP, and mother is entitled to the tax credit in the amount of $387/month. She has selected AmeriHealth New Jersey Select Local Value Silver HMO Plan. The standard plan (without CSR) has:

  • Medical deductible (per individual): $2,500
  • Out-of-pocket maximum (per individual): $6,350
  • Inpatient Facility: 50% after Deductible
  • Primary Doctor Copay: $50
  • Specialist Doctor Copay: $75

Compare it with her ACTUAL numbers that include Cost-Share Reductions:

  • Medical deductible (per individual): $400
  • Out-of-pocket maximum (per individual): $1,600
  • Inpatient Facility: 50% after Deductible
  • Primary Doctor Copay: $30
  • Specialist Doctor Copay: $60

As you may see the difference is dramatic, particularly in medical deductible and out-of-pocket maximum. As a matter of fact, silver plans, because of CSP, are much more cost-effective in this case than more expensive gold or platinum plans.

Cost-Sharing Reductions are very much dependent on family income. Suppose that family income is $35,000 (rather than $28,000), the tax credit is reduced to $303/month, and Cost-Share Reductions almost disappear – the numbers are almost the same as for the standard plan.

  • Medical deductible (per individual): $2,500
  • Out-of-pocket maximum (per individual): $5,200
  • Inpatient Facility: 50% after Deductible
  • Primary Doctor Copay: $50
  • Specialist Doctor Copay: $75

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