What Is Preferred Cost Sharing in Health Insurance?
Unpack preferred cost sharing in health insurance. Learn how this aid lessens your out-of-pocket costs, making care more accessible.
Preferred cost sharing in health insurance is a financial assistance program designed to make healthcare more affordable for eligible individuals and families. It helps reduce the amount people pay out-of-pocket for medical services, easing the financial burden of healthcare costs. This type of cost sharing is distinct from premium subsidies, which focus on lowering monthly insurance payments.
Understanding Preferred Cost Sharing
Preferred cost sharing, often referred to as “extra savings” or “cost-sharing reductions” (CSRs), is a discount that directly lowers the amount individuals pay for deductibles, copayments, and coinsurance. It also reduces the annual out-of-pocket maximum, which is the cap on the total amount a person has to pay for covered services in a year. This financial aid is tied to health insurance plans purchased through the Affordable Care Act (ACA) marketplace. These reductions are not a tax credit and do not need to be reconciled when filing taxes.
While premium tax credits help reduce the monthly premium for health insurance plans, cost-sharing reductions address the expenses incurred when healthcare services are actually used. For example, if a standard health plan has a $750 deductible, preferred cost sharing could reduce it to $300 or $500, depending on income. Similarly, a $30 doctor visit copayment might be lowered to $15 or $20.
Eligibility for Preferred Cost Sharing
To qualify for preferred cost sharing, individuals and families must meet specific criteria related to their income and chosen health plan. Eligibility generally applies to those with household incomes between 100% and 250% of the Federal Poverty Level (FPL). The precise level of reduction depends on income; lower incomes typically receive more substantial assistance. For instance, the 2025 FPL for a single person is used to determine subsidy eligibility for 2026 coverage.
A fundamental requirement for receiving these reductions is enrollment in a “Silver” level health insurance plan through the ACA marketplace. Individuals who choose Bronze, Gold, or Platinum plans will not receive cost-sharing reductions, even if income-eligible. Other general eligibility requirements for marketplace subsidies also apply, such as not being eligible for Medicare or Medicaid, and not having access to affordable, employer-sponsored health coverage that meets minimum value standards.
The Impact of Preferred Cost Sharing
Preferred cost sharing directly reduces the amount individuals pay for medical care beyond the monthly premium. These reductions significantly lower the financial burden for eligible enrollees by decreasing their deductibles, copayments, and the overall out-of-pocket maximum. For instance, the average deductible for those with incomes below 150% of FPL can be reduced from over $3,600 to around $255. This means the health insurance plan begins to cover costs sooner, and the individual pays less each time they access care.
The different levels of cost-sharing reductions are structured in tiers, corresponding to specific income brackets. For example, Silver plans for those with incomes up to 150% of FPL have an actuarial value of 94%, meaning the plan covers 94% of medical spending on average. For incomes between 151% and 200% FPL, the actuarial value is 87%, and for 201% to 250% FPL, it is 73%. These enhanced actuarial values signify that the insurer, not the individual, absorbs a larger portion of the healthcare costs.