What is 'Cost-Sharing Reductions'

Cost sharing reductions are a type of federal subsidy distributed as discounts that help reduce out-of-pocket costs for health-care expenses, including:

  • Deductibles – the amount you owe for covered services before insurance kicks in;
  • Copayments – a fixed amount you pay for covered health-care services; and
  • Coinsurance – your share of the costs of covered health-care services.

The cost-sharing reduction subsidy was a provision in the Patient Protection and Affordable Care Act, signed into law on March 23, 2010 by President Barack Obama.

BREAKING DOWN 'Cost-Sharing Reductions'

To qualify for cost-sharing reductions under Obama's Patient Protection and Affordable Care Act, applicants must have been ineligible for public coverage (Medicaid and Children’s Health Insurance Plan, or CHIP), unable to get qualified health insurance through an employer and have a modified adjusted gross income that falls between 100 percent and 250 percent of the federal poverty level (FPL), as shown in the following table (as of 2014):

 

Family Size

100% FPL

250% FPL

1

$11,490

$28,725

2

$15,510

$38,775

3

$19,530

$48,825

4

$23,550

$58,875

5

$27,570

$68,925

6

$31,590

$78,975

7

$35,610

$89,025

8

$39,630

$99,075

 
As an example, assume someone visited the doctor and were charged $100 for the visit. With your particular Silver plan, you have a $25 copayment. Because of the cost-sharing reduction that you qualify for, you might only have to pay a $5 copayment. Likewise, if your plan normally has a $3,500 deductible, it may be reduced to only $500 because of cost sharing reductions.
 
To qualify for cost-sharing reductions (and/or the Advanced Premium Tax Credit, the second federal subsidy designed to help lower costs for health insurance coverage), you must purchase a Silver level plan through the Health Insurance Marketplace.

Legal Challenges to ACA Cost-Sharing Reductions

Republicans in the U.S. House of Representatives sued the Obama administration in 2014, alleging that the cost-saving reduction subsidy payments to insurers were unlawful because Congress had not appropriated funds to pay for them. The crux of the argument regarded the nature of the CSR subsidy as discretionary spending (i.e., subject to annual appropriation by Congress, like defense and other Cabinet department spending) versus mandatory (i.e., paid automatically to eligible parties, like Social Security, Medicare and the ACA premium tax credits). A May 2016 ruling by a federal judge in favor of the GOP would have stopped payment of the CSR subsidies, but the Obama administration appealed. The case, known as House v. Price, was pending at the time of President Donald Trump's decision to end the payments.
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