What Is Cost sharing reduction?
A cost sharing reduction (CSR) is a type of financial assistance available to eligible individuals and families who purchase health insurance plans through the Affordable Care Act (ACA) Marketplace. These reductions decrease the amount individuals must pay out of pocket for healthcare services, falling under the broader category of Healthcare Finance and Public Policy. Cost sharing reductions specifically lower costs like deductible, copayment, and coinsurance for those who qualify11. This mechanism aims to make healthcare more accessible by reducing the financial burden at the point of care.
History and Origin
Cost sharing reductions were established as part of the Affordable Care Act (ACA), enacted in 2010. The ACA aimed to expand health insurance coverage and make it more affordable. To address the issue of high out-of-pocket costs, which can deter individuals from seeking necessary medical care, the law mandated that insurers offer plans with reduced patient cost-sharing for marketplace enrollees within certain income thresholds10. The federal government was intended to reimburse insurers for these reductions. However, a legal dispute arose regarding the appropriations for these payments, leading to a significant period of uncertainty and litigation. In October 2017, the Trump administration ceased making direct payments to insurers for CSRs, citing a lack of a specific congressional appropriation9. This decision had a ripple effect, prompting many insurers to adjust premiums, particularly for "silver" level plans, to offset the loss of these payments. Despite the cessation of direct federal payments, insurers are still legally required to provide cost sharing reductions to eligible enrollees, and several court rulings have since affirmed that the federal government owes insurers for these unpaid reductions8.
Key Takeaways
- Cost sharing reductions are a form of federal subsidies designed to lower out-of-pocket healthcare costs for eligible individuals and families.
- They reduce amounts for deductibles, copayments, coinsurance, and annual out-of-pocket maximum limits.
- Eligibility for cost sharing reductions is based on household income relative to the federal poverty line.
- To receive cost sharing reductions, individuals must enroll in a silver-level plan through a health insurance Marketplace.
- While insurers are required to provide CSRs, direct federal payments to insurers for these reductions were halted in 2017, leading to premium adjustments.
Interpreting the Cost sharing reduction
Cost sharing reductions are not a fixed discount; rather, they adjust the actuarial value of a health plan, meaning the plan covers a higher percentage of average healthcare expenditure for the enrollee. For example, a standard silver plan typically has an actuarial value of 70%, meaning it covers, on average, 70% of medical costs. With a CSR, this can increase to 73%, 87%, or even 94%, depending on the enrollee's income7.
The effect of a cost sharing reduction is seen directly in the reduction of an enrollee's deductible, copayment amounts, coinsurance rates, and significantly, their annual out-of-pocket maximum. This means that for individuals qualifying for CSRs, the financial barrier to accessing medical care is considerably lowered. The lower an individual's income is relative to the poverty line, the greater the level of cost sharing reduction they receive6.
Hypothetical Example
Consider Maria, a single individual with an annual income of $20,000, which is approximately 130% of the federal poverty line. She enrolls in a silver-level plan through her state's health insurance Marketplace.
A standard silver plan in her area might have:
- An annual deductible of $5,000
- A 20% coinsurance for most services
- A $40 copayment for primary care visits
- An out-of-pocket maximum of $9,100
Because Maria qualifies for cost sharing reductions due to her income, her silver plan automatically provides enhanced benefits. With the CSR, her plan might instead have:
- An annual deductible reduced to $100
- A 10% coinsurance for most services
- A $15 copayment for primary care visits
- An out-of-pocket maximum reduced to $3,0505
This significant reduction in costs means Maria can access necessary care, such as doctor visits or prescription medications, without facing substantial immediate expenses. Should she face a serious medical event, her total financial exposure for the year is capped at a much lower amount, dramatically improving her affordability of healthcare.
Practical Applications
Cost sharing reductions play a crucial role in enhancing affordability within the individual health insurance market, particularly for those with lower to moderate incomes. By reducing the direct costs associated with receiving medical care, CSRs mitigate the impact of high deductibles and other forms of cost sharing that can otherwise make healthcare prohibitively expensive. This makes health insurance more practical and useful for millions of Americans, allowing them to access preventive care and necessary treatments without fear of overwhelming medical debt.
For consumers, these reductions translate to lower financial barriers to care. For instance, a 2025 analysis by KFF details how CSRs can drastically cut typical silver plan deductibles: for those with incomes below 150% of poverty, the average deductible could be reduced from nearly $5,000 to under $1004. This direct impact on consumer costs highlights the tangible benefit of cost sharing reductions in promoting access to healthcare services and reducing the burden of healthcare expenditure for eligible enrollees.
Limitations and Criticisms
Despite their intended benefits, cost sharing reductions have faced limitations and criticisms, primarily concerning their funding and the stability they provide to the health insurance market. The ACA mandated that insurers provide CSRs to eligible enrollees but did not explicitly appropriate funds for the federal government to reimburse insurers for these costs. This led to a significant legal challenge, House v. Burwell (later House v. Price and House v. Azar), initiated by the House of Representatives, which argued that the payments were unlawful without a specific congressional appropriation3.
While lower courts initially ruled that the payments were due to insurers, the Trump administration eventually halted direct federal payments for CSRs in October 20172. This cessation of payments forced insurers to recoup the costs by increasing premiums, a practice often referred to as "silver loading," where the increases were concentrated on silver-level plans. This dynamic led to increased federal spending on premium tax credits, as these credits are tied to the cost of benchmark silver plans. The Congressional Budget Office (CBO) estimated that terminating CSR payments would increase the federal deficit by billions over a decade due to higher premium tax credit outlays1. This situation created market instability and uncertainty, with some insurers withdrawing from certain marketplaces. While court rulings have since affirmed that the federal government is obligated to pay insurers for the CSRs provided, the funding mechanism and political stability surrounding these reductions remain a point of discussion in healthcare policy.
Cost sharing reduction vs. Premium tax credit
Cost sharing reductions and premium tax credits are both forms of subsidies available through the Affordable Care Act (ACA) Marketplace, but they serve distinct purposes in making healthcare more affordable.
A cost sharing reduction directly lowers the amount an individual pays out of pocket when they receive medical care. This includes reducing deductibles, copayments, and coinsurance, and capping the annual out-of-pocket maximum. CSRs are only available if an eligible individual enrolls in a silver-level plan.
In contrast, a premium tax credit (PTC) reduces an individual's monthly premium payments for health insurance coverage. PTCs can be applied to plans at any "metal" level (Bronze, Silver, Gold, Platinum) and directly lower the cost of the insurance itself. While both are based on income and household size, the PTC helps individuals afford the monthly cost of having insurance, whereas the CSR helps them afford the cost of using that insurance once enrolled. Eligibility for the premium tax credit generally extends to a higher income threshold than for cost sharing reductions.
FAQs
Who is eligible for cost sharing reductions?
Eligibility for cost sharing reductions is primarily based on household income relative to the federal poverty line. Generally, individuals and families with incomes between 100% and 250% of the federal poverty level qualify. The specific amount of reduction depends on how far your income is below 250% of the poverty line, with lower incomes receiving more significant benefits.
What kind of health insurance plan do I need to get a cost sharing reduction?
To receive a cost sharing reduction, you must enroll in a silver-level health plan through your state's health insurance Marketplace. CSRs are not available with Bronze, Gold, or Platinum plans, even if you are otherwise eligible based on income.
How do cost sharing reductions save me money?
Cost sharing reductions save you money by lowering the amounts you are responsible for paying when you use your health insurance. This includes reducing your deductible (the amount you pay before your plan starts to pay), your copayment (a fixed amount you pay for a service), your coinsurance (a percentage of the cost you pay for a service), and your annual out-of-pocket maximum (the most you have to pay for covered services in a year).