Buying health insurance is expensive, but paying the monthly premium isn’t the only cost involved. You also have to pay deductibles, copayments, and coinsurance each time you use your health insurance.
These additional out-of-pocket amounts are known as cost-sharing expenses. They can add up to thousands of dollars yearly if you use your health insurance a lot or have a high deductible.
The Affordable Care Act created subsidies to make buying and using health insurance more affordable for people with modest incomes. There are two different types:
- Subsidies that pay monthly health insurance premiums so buying health insurance is more affordable. Learn more about this in, “How the Health Insurance Subsidy Works—Understanding the Premium Tax Credit.”
- Subsidies that help pay out-of-pocket costs like deductibles, copayments, and coinsurance. These are known as reduced cost-sharing subsidies and come in two distinct parts.
- The first reduces your out-of-pocket maximum. Learn more in, “How the Subsidy to Reduce Your Out-Of-Pocket Maximum Works.”
- The second, the one addressed here, reduces the amount you pay for deductible, copayments and coinsurance each time you use your health insurance.
How Does the Reduced Cost-Sharing Subsidy Work?
The reduced cost-sharing subsidy decreases your out-of-pocket expenses when you use your health insurance. For example, if your health plan requires a $50 copayment each time you visit the doctor, the cost-sharing subsidy might reduce that copayment so you only pay $20 when you see the doctor. If your health plan requires a $2,000 deductible, the cost-sharing subsidy could lower that deductible.
It’s like getting a free upgrade on health insurance. You pay the same monthly premium you would have paid for an average health insurance policy, but the health insurance you receive is better than average because it pays a larger portion of your health care expenses.
How Much Does the Subsidy Pay?
The reduced cost-sharing subsidy doesn’t actually pay you money. Instead, it saves you money by lowering your cost-sharing expenses. How much money it saves you depends on your income and on how much you use your health insurance.
The poorer you are, the more your cost-sharing is reduced. The amount of this reduction is based on comparing your income to federal poverty level. Federal poverty level changes every year, and is based on both your income and your family size. You can look up the current FPL for different family sizes here.
Without the cost-sharing subsidy, your health insurance company would pay roughly 70 percent of your total covered health care expenses. With the cost-sharing subsidy, your health insurance company will pay:
94 percent of your expenses if your income is 100-150 percent of FPL
- For individuals with a 2013 income from $11,490-$17,235.
- For couples with a 2013 income from $15,510-$23,265.
87 percent of your expenses if your income is 150-200 percent of FPL
- For individuals with a 2013 income from $17,235-$22,980.
- For couples with a 2013 income from$23,265-$31,020.
73 percent of your expenses if your income is 200-250 percent of FPL
- For individuals with a 2013 income from $22,980-$28,725.
- For couples with a 2013 income from $31,020-$38,775.
Your health insurance company can structure the cost-sharing reduction however it wants as long as the health plan pays the correct percentage of your health care expenses. For example, it could decide to lower your deductible by a lot, but leave your copayments unchanged. Or, it could barely reduce your deductible, but eliminate your copayments and lower your coinsurance.
Some health care expenses aren't included in your cost-sharing reduction. Your out-of-pocket expenses for things that aren't covered by your health insurance policy or aren't an essential health benefit won't be reduced. The balance-billed portion of care you get out-of-network won't be reduced, so stick with in-network providers to get the most from your subsidy.
Who’s Eligible for the Cost-Sharing Health Insurance Subsidy?
To be eligible for the reduced cost-sharing subsidy, you must:
- Buy your health insurance through your state’s health insurance exchange.
- Choose a silver-tier health plan.
- Have an income from 100-250 percent of FPL.
- Reside in the United States legally.
- Not be incarcerated.
- Have a tax filing status of married filing jointly if you’re married.
How to Apply for the Cost-Sharing Subsidy
Apply for the reduced cost-sharing subsidy through your state’s health insurance exchange while you’re shopping for health insurance. You can apply for the premium tax-credit subsidy and the reduced out-of-pocket-maximum subsidy at the same time. Be prepared to give the exchange information about your income, family size, and employer if you have a job.
Except for special circumstances, you can only enroll in health insurance through your state’s health insurance exchange during an open enrollment period. The first ever open enrollment period is October 1, 2013-March 31, 2014. Open enrollment will be every October 15-December 7 thereafter.
If you enroll in a silver-plan and receive the subsidy but your income changes during the year, let the health insurance exchange know. If your income went down, you may be eligible to have your cost sharing reduced even more.
Notice of Benefit and Payment Parameters for 2014, Department of Health and Human Services, http://www.gpo.gov/fdsys/pkg/FR-2013-03-11/html/2013-04902.htm. Accessed September 10, 2013.
Actuarial Value and Cost-Sharing Reductions Bulletin, Department of Health and Human Services, http://www.cms.gov/CCIIO/Resources/Files/Downloads/Av-csr-bulletin.pdf.Accessed September 10, 2013.
The Patient Protection & Affordable Care Act, section 1402 (c). Accessed September 9, 2013.
Jost, Timothy, “Implementing Health Reform: The Benefit and Payment Parameters Final Rule” accessed on HealthAffairs.org, September 9, 2013.