Health Care Independence Program: Premium and Cost-Sharing Reduction Breakdown

June 1, 2015


Anthony (Tony) Goudie, PhD
Director, Research and Evaluation


Qualified health plans must be certified with a standard benefit to be offered through the health insurance marketplace. Plan certification requires an assessment of a plan’s actuarial value for the various levels of marketplace coverage represented by metal tiers—bronze, silver, gold, and platinum. “Actuarial value” means the share of healthcare expenses covered for a typical group of enrollees. For example, a silver marketplace plan has an actuarial value of 70 percent, which means that the plan covers 70 percent of healthcare expenses. The remaining 30 percent is covered by the enrollee through cost sharing, which is inclusive of deductibles, copays, and coinsurance. Federal law limits the amount of cost-sharing exposure for low-income individuals. Individuals with incomes at or below 250 percent of the federal poverty level (FPL) may receive financial assistance with cost sharing in addition to premium subsidies. The limit on an individual’s cost-sharing exposure has the effect of increasing the actuarial value of the plan. Federal law similarly limits cost-sharing exposure for Medicaid beneficiaries. This is reflected in the state’s enabling law for the Health Care Independence Program (HCIP) authorizing the purchase of “high-value silver plans” for program enrollees. Figure 1 depicts the actuarial value of plans purchased by the state for HCIP enrollees at various income levels; the relationship of plan actuarial value—inclusive of premium and cost-sharing assistance—to HCIP budget neutrality; and the audit processes required to ensure that a sufficient portion of premium dollars went to medical costs and that there are no discrepancies between cost-sharing reduction payments paid in advance and actual plan costs experienced.