Cost-Sharing Reductions in Obamacare

Cost-Sharing Reductions is one of two affordable health insurance options provided by the federal government (the other is Premium-Tax Credit). This option will help low and moderate income families who are not eligible for other programs to limit out-of-pocket costs, such as deductibles or coinsurance under their Qualified Health Plan (QHP) coverage.

Cost-Sharing Reductions Eligibility

The following eligibility criteria must be met in order to be eligible for cost-sharing reductions:

Calculating the Cost-Sharing Reductions

Cost-Sharing reductions are based on annual household income and family size.

For individuals and families with income below 250% of the FPL, their out-of-pocket maximum for a Silver plan (not including the premium) will be below the standard out-of-pocket maximum ($6,600 for individual and $13,200 for family in 2015). In particular:

  • for people with income from 100% to 200% FPL, the annual out-of-pocket maximum is $2,250 per individual and $4,500 per family
  • for people with income from 200% to 250% FPL, the annual out-of-pocket maximum is $5,200 per individual and $10,400 per family
  • for people with income above 250% FPL, the annual out-of-pocket maximum is the standard maximum, i.e. $6,600 per individual and $13,200 per family

Table 1 shows the out-of-pocket maximum for the Silver plan for a family of four depending on the percentage of the FPL. FPL equal to $23,850 is assumed (2014). The table is for states that approved Medicaid expansion.

Table 1 also displays the increased Actuarial Value.  Actuarial value is the percentage of medical costs the plan covers. Lower out-of-pocket maximum result in increased actuarial value. The actuarial value of the Silver plan (70%) is increased as follows:

  • At 400% of FPL, the Silver plan covers 70% of medical costs
  • At 250% of FPL, the Silver plan covers 73% of medical costs
  • At 200% of FPL, the Silver plan covers 87% of medical costs
  • At 150% of FPL, the Silver plan covers 94% of medical costs
  • At 138% of FPL, the Silver plan covers 94% of medical costs

For any household income equal or above 250%  FPL, the Out-of-Pocket Maximum is the same as Standard Out-of-Pocket Maximum, and Actuarial Value is 70% – the Standard Silver plan AV.

Table 1. Out-of-pocket Maximum and “Increased” Actuarial Value (2015)

Percent of Federal Poverty Level (FPL) Household Income Out-of-Pocket Maximum Standard Out-of-Pocket Maximum Actuarial Value (AV) for Silver Plan
400% $95,400 $13,200 $13,200 70%
250% $59,625 $10,400 $13,200 73%
200% $47,700 $4,500 $13,200 87%
150% $35,775 $4,500 $13,200 94%
138% $32,913 $4,500 $13,200 94%

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