Ending Cost-Sharing Reduction Payments Will Hurt Older Adults

Federal subsidies, known as cost-sharing reductions (CSRs), have been critical to ensuring that over 2 million lower-income adults ages 50 to 64 who purchase coverage through health insurance Marketplaces can afford health care. [1] Despite the subsidies’ crucial role, the Administration announced yesterday that it will terminate payments for CSRs. The announcement—which comes less than 3 weeks before millions of Americans who buy insurance on the individual market start shopping for 2018 health coverage— is bad news for older adults and people of all ages.

That’s because the move could leave people facing significantly higher premiums and fewer plan choices—regardless of their income or whether they get CSRs.

What are cost-sharing reductions?

The Affordable Care Act’s (ACA) better known premium tax credits help reduce the cost of monthly health insurance premiums for lower- and moderate-income individuals. CSRs address the other major expenses that can prevent people from being able to afford health care: out-of-pocket costs for health care services, such as deductibles, coinsurances and copayments. CSRs are available to lower-income people, with individuals of more modest incomes receiving greater subsidies.[ 2]

CSRs are critical to making individual health insurance affordable for people with lower incomes. This is especially true for lower-income older adults because over a third of the people enrolled in CSR plans are ages 50 to 64. [3] What’s more, older adults typically face higher out-of-pocket medical expenses and cost-sharing because they are more likely to have chronic conditions and health care needs. You can learn more about CSRs here.

Eliminating CSR payments will lead to significant increases in premiums.

Without the federal CSR payments, insurers will have to absorb an estimated $10 billion in costs. [4] A recent analysis by the Congressional Budget Office (CBO) estimates that silver plan premiums would jump 20% next year and 25% by 2020 without the federal CSR subsidies.

Due to uncertainty in recent months over the continuation of CSR payments, insurers in some states have already factored premiums increases into their 2018 rates. Other insurers will likely increase premiums in order to account for this loss in federal payments.

Premium increase will hit middle-income people the most – especially those who do not receive premium tax credit subsidies, or who are only eligible for limited tax credits.

The CBO also expects that controversy around CSR payments will encourage some insurance companies to stop offering coverage altogether or deter them from entering the Marketplaces—leaving consumers with fewer, or potentially, no plan choices.

Terminating CSR payments would increase the federal deficit.

If you think stopping CSR payments would save federal dollars, think again. Doing so would actually increase the federal deficit by $200 billion, CBO estimates. This is because the government is required to fund premium tax credits for lower-income enrollees, and the premium increases resulting from ending CSR payments would mean the government must spend billions of dollars more in premium tax credits to lower those premium costs for lower-income enrollees.

Eliminating CSRs altogether would make health care unaffordable for lower-income older adults.

Recent proposals to replace the ACA would have eliminated cost-sharing reductions altogether. Without CSRs, lower-income older adults would face steep increases in their medical bills—putting needed health care services out of reach for millions. We estimate that eliminating CSRs would mean lower-income persons could face as much as $5,600 more in out-of-pocket costs for copays, co-insurances and deductibles . [5] For someone earning $18,000 annually (about 150% of FPL), that’s nearly one-third of their income!

Here’s the bottom-line: Cost-sharing reductions are a critical financial protection for lower-income Americans, including many older adults. Terminating CSR payments will disrupt efforts to ensure a stable individual health insurance market and actually end up costing the government more.

 

 

Jane Sung is a senior strategic policy adviser with AARP’s Public Policy Institute, where she focuses on health insurance coverage among adults age 50 and older, private health insurance market reforms, retiree coverage, Medicare supplemental insurance and Medicare Advantage.

 

 

Dean, Olivia

 

Olivia Dean is a policy analyst with the AARP Public Policy Institute. Her work focuses on a wide variety of health-related issues, with an emphasis on public health, health disparities, and healthy behavior.

 

 

 

 

Claire Noel-Miller is a senior strategic policy adviser for the AARP Public Policy Institute, where she provides expertise in quantitative research methods applied to a variety of health policy issues related to older adults.

 

 

 

 

 

 

[1] Urban Institute, 2017 Health Insurance Policy Simulation Model, data for 2016 enrollment.

[2] Cost-sharing reductions are available for people who earn between 100% and 250% of the federal poverty level (FPL). In 2017, this corresponds to incomes between $12,060 and $30,150 for an individual and to incomes between $24,600 and $61,500 for a family of four. Only people enrolled in Silver plans (which pay for 70% of total health care costs on average) are eligible for cost-sharing reductions.

[3] Urban Institute, 2017 Health Insurance Policy Simulation Model, data for 2016 enrollment.

[4] Total CSR payments in 2017 are estimated at $7 billion.

[5] For people with incomes between 100-150% of the federal poverty level, or between $12,060 and $18,090 for an individual. Estimates are based on 2017 federal poverty levels and out-of-pocket limits.