Updated August 16, 2015.

What’s the point of having health insurance if you can’t afford to use it because you can’t afford the deductible, copays or coinsurance? If you have a low income, having to pay a $2,000 or $3,000 deductible out of your own pocket may seem impossible. If this sounds like your situation, then perhaps the cost-sharing health insurance subsidy can help.

The cost-sharing health insurance subsidy was created by the Affordable Care Act to make using your health insurance more affordable.

It lowers the costs associated with using your health insurance such as deductibles, copays, and coinsurance.

How the Cost-Sharing Subsidy Differs From the Other Health Insurance Subsidy

The more commonly-known health insurance subsidy is the premium tax credit health insurance subsidy. That’s the subsidy that decreases the cost of buying health insurance. In other words, it lowers your monthly health insurance premium payments. It’s like getting a discount on health insurance.

In contrast, the cost-sharing subsidy lowers the cost of using your health insurance, but doesn’t affect the price of the health insurance itself. Getting the cost-sharing subsidy is like getting a free upgrade on health insurance.

Here’s how it works. Some health insurance policies don’t pay very much toward the cost of your medical care. Instead, they require you to shoulder much of the burden of your own health care costs by paying high deductibles, copayments, and coinsurance.

As an example, let’s say your current health plan is a bronze plan.

It pays about 60% of your health care costs and you end up paying the other 40% out of your own pocket in the form of deductibles, copays, and coinsurance.

Other health insurance policies pay significantly more of your health care costs. For example, a silver plan will pay about 70% of your health care costs, a gold plan pays about 80%, and a platinum plan pays about 90%. Of course, the more your health plan is expected to pay, the more you can expect to pay for it in monthly premiums.

Bronze, Silver, Gold & Platinum—Understanding Health Plan Values

Because the cost-sharing subsidy lowers your deductibles, copayments, and coinsurance, you end up paying less of your own health care costs. For example, by decreasing your deductible and copays, the cost-sharing subsidy might transform the silver health plan that usually requires you to pay about 30% of the cost of your own health care into a plan that only requires you to pay about 20% of the cost of your health care. In effect, it upgraded you: you’re receiving the coverage of a gold plan even though you’re only paying for a silver plan.

2 Parts to the Cost-Sharing Health Insurance Subsidy

The cost-sharing subsidy comes in two parts. One part lowers your health plan’s out-of-pocket maximum. The other part lowers your cost-sharing expenses like your deductible, copays, and coinsurance.

The out-of-pocket maximum is the most you’ll have to pay in the form of deductibles, copays, and coinsurance each year before your health plan begins to pay 100% of your covered health care costs. Learn more about how the cost-sharing subsidy lowers your out-of-pocket maximum in “How the Subsidy to Reduce Your Out-Of-Pocket Maximum Works.”

Learn more about the part that lowers your deductible, copays and coinsurance in “How the Cost-Sharing Health Insurance Subsidy Works.”

Who’s Eligible for the Cost-Sharing Health Insurance Subsidy?

Since it’s designed to help low-income folks use their health insurance without going broke, eligibility for the cost-sharing subsidy depends on your income. You must make less than 250% of federal poverty level to receive this subsidy. Learn more about federal poverty level and see the actual figures for your family size and geographic area in “Federal Poverty Level & Health Insurance.”

In addition to meeting income requirements, you need to be a legal resident of the United States to receive the cost-sharing subsidy. If you’re married, you must file your federal income taxes with a status of “married filing jointly.”

Lastly, the subsidy is only available to people who get their health insurance from their state’s Affordable Care Act health insurance exchange, and then only to those who purchase a silver health plan. If you buy a bronze, gold, or platinum health plan, you won’t get the cost-sharing subsidy even if you meet all of the other eligibility criteria.

If you’re eligible for the cost-sharing subsidy, you’re probably also eligible for the premium health insurance subsidy to lower the monthly cost of your health insurance. You can get both health insurance subsidies at once. Apply for them at the same time on your state’s health insurance exchange.