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What’s the latest on the Cost Sharing Subsidies?

With all of the news about the CSR (Cost Sharing Reduction) payments, which President Trump halted on October 12, your clients are probably asking you to explain what exactly happened and, more importantly, how it affects them. It’s easy to understand why they might be confused—this is a political issue, so many of the reports on the topic are one-sided arguments from people who may have their own agenda.

Here are a few talking points that will help you explain the issue to your clients:

  • The Cost-Sharing Reductions (CSRs) were created by the Affordable Care Act and first became available in 2014.
  • The purpose of the CSRs is to reduce the out-of-pocket exposure for low-income individuals with health insurance. They do this in two ways: 1) by reducing the plan’s out-of-pocket limit and 2) by increasing the plan’s actuarial value. People who qualify for the cost-sharing reduction subsidies usually have fixed copayments for doctor visits and prescriptions, lower deductibles, and reduced stop-loss limits on their plans.
  • To qualify, individuals and families must have incomes below 250% of the federal poverty level (FPL). The FPL varies by family size and is set every year by the Assistant Secretary for Planning and Evaluation (ASPE). They also must purchase silver-level coverage through the federal or state marketplace.
  • The amount of cost-sharing subsidies varies by income level:
    • 100-150% of the FPL: two-thirds reduction in OOP limit, 94% actuarial value
    • 150%-200% of the FPL: 20% reduction in OOP limit, 87% actuarial value
    • 200-250% of the FPL: 20% reduction in OOP limit, 73% actuarial value
  • Carriers charge the same premiums for these CSR plans as they do for regular silver-level plans. In other words, if the carrier would have charged $500 per month for a 45-year-old individual who purchases a silver level plan with a $7,350 out-of-pocket limit in 2018, the premium will be the same $500 for an individual who qualifies for a CSR and sees his out-of-pocket exposure decrease by hundreds or even thousands of dollars.
  • People who qualify for a cost-sharing subsidy will also qualify for a significant premium tax credit and will pay a much lower premium for these CSR plans. They don’t pay “retail.”
  • Instead of paying a higher premium to the carriers for these enhanced plans, the government is supposed to reimburse the carriers based on the additional claims they pay. Behind the scenes, the government fronts a portion of the money to the carriers based on expected claims, and the numbers are squared up at the end of the year. There’s even a calculation for the higher utilization that usually accompanies plans with lower cost sharing amounts.
  • Again, the CSR payments are actually reimbursements for claims paid by the insurance companies. Despite the rhetoric, they are not an insurance company bailout, kickback, bribe, windfall, or any other similar term you may have heard.
  • While the ACA creates the CSR program and associated payments, the CSR reimbursements have never been authorized by Congress. The Obama administration went ahead and paid carriers anyway, which resulted in a lawsuit that’s still making its way through the courts. Until recently, the Trump administration has done the same.
  • In mid-October, on the same day that President Trump signed his executive order and just two weeks before the start of the open enrollment period, the President announced that he would immediately put an end to the cost sharing reduction payments, saying that it’s illegal for his administration to make the payments to insurers without congressional approval.
  • A Senate committee has been working on a bipartisan bill that would, among other things, guarantee the CSR payments for two years, but it has yet to pass. It’s unclear whether President Trump would sign the bill if it includes the CSR reimbursements as he’s made conflicting statements about the proposed legislation.
  • The decision to halt the CSR payments to insurers does not eliminate the option for consumers. Those who qualify can still sign up for the enhanced level of coverage by purchasing a silver-level plan through the marketplace.
  • Even though they will no longer receive the claims reimbursement payments, carriers still are not permitted to charge higher premiums on CSR plans than they charge on other silver-level plans. What they can do is charge higher premiums for all silver-level plans, whether eligible for a cost-sharing reduction or not, and that’s exactly what many insurance carriers did, even before President Trump’s announcement, in anticipation of the decision. According to the Kaiser Family Foundation, insurers raised the prices of their silver-level plans by 7 to 38% as a result of the CSR payments being terminated.
  • Interestingly, the higher premiums for silver-level plans is actually increasing the premium tax credits for those who qualify (even for those individuals not eligible for cost sharing reductions) because the amount of the premium tax credit is based on the cost of the second-lowest-priced silver-level plan. This means that people who receive a premium tax credit but not a cost-sharing subsidy could end up paying lower premiums if they select less comprehensive bronze-level coverage.
  • The higher premiums also mean that the government will have to spend more for premium tax credits next year. In fact, the additional cost of the tax credits exceeds the savings from not paying the CSR payments. As the Kaiser Family Foundation reports, the net cost to the federal government of ending the CSR payments will be $2.3 billion in 2018 alone.

The Short Version

Even with the bullet points, there’s a lot of information, so here’s an even shorter version that you can share with your clients:

“President Trump’s decision primarily affects the way insurers are reimbursed for providing higher levels of coverage to individuals and families that qualify for assistance with their out-of-pocket expenses. He believes he cannot legally reimburse insurers without congressional approval, and a bipartisan committee is working on a bill that would provide that approval. The decision does not eliminate the cost-sharing reductions, so if you qualify you will be able to enjoy this benefit in 2018. It does have an impact on insurance premiums, which could possibly impact your premium tax credit amount, but that’s not necessarily a bad thing – after the tax credit, some people are seeing lower net premiums as a result.”

Long story short, this is a big deal but won’t have a huge impact on your clients in 2018. Our advice is that you address their concerns and then move on. There’s no reason to let the CSR confusion derail your sales presentation.

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