Copyright © 2010 by the American Academy of Actuaries What Is Actuarial Value? Cori E. Uccello, FSA, MAAA, MPP Senior Health Fellow American Academy of

Copyright © 2010 by the American Academy of Actuaries

What Is Actuarial Value?What Is Actuarial Value?

Cori E. Uccello, FSA, MAAA, MPPSenior Health Fellow

American Academy of Actuaries

From Vision to Reality: State Strategies for Health Reform ImplementationWashington, DC

November 12, 2010


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What Is Actuarial Value?What Is Actuarial Value?

• A health insurance plan’s actuarial value indicates the average share of medical spending that is paid for by the plan, as opposed to being paid out of pocket by the consumer.

• The calculation takes into account various plan features:– Cost-sharing elements such as deductibles, coinsurance,

copayments, and out-of-pocket limits, and– The range of services covered by the plan.

• For example, an actuarial value of 70% means that, on average, the plan pays for 70% of medical spending. Consumers pay the remaining 30% out of pocket.


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What Is Actuarial Equivalence?What Is Actuarial Equivalence?

• When two or more plans have the same actuarial value, they are said to be “actuarially equivalent.”

• Actuarial equivalence comparisons answer the question: “On average, does one plan cover at least as much as another?”


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The Affordable Care Act Specifies Four The Affordable Care Act Specifies Four Benefit TiersBenefit Tiers

Additional Catastrophic Plan available for individuals up to age 30 and to those exempt from mandate. (Coverage level set at current HSA level.)

Regardless of benefit tier, maximum out-of-pocket limits are based on those for HSA-qualified health plans ($5,950 for individual coverage and $11,900 for family coverage in 2010).

Benefit Tiers Actuarial Value

Platinum 90%

Gold 80%

Silver 70%

Bronze 60%


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Estimated Actuarial Values of Current Plan Estimated Actuarial Values of Current Plan DesignsDesigns

Prototypical Plan Design Select Plan Design Features Estimated Actuarial Value

HMO-Style Plan$15 office visit copay$250 inpatient hospital copayDeductible: N/A; OOP Max: N/A

91%

Most Popular FEHBP PlanDeductible: $300Coinsurance: 15%OOP Max: $5,000

83%

PPODeductible: $500Coinsurance: 15%OOP Max: $3,500

80%

Alternate PPODeductible: $1,500Coinsurance: 25%OOP Max: $7,500

65%

High Deductible Health Plan

Deductible: $5,000Coinsurance: 30%OOP Max: $10,000

48%

Source: Snook, Dobson, Harris, “Understanding Healthcare Plan Costs and Complexities,” Milliman Healthcare Reform Briefing Paper (June 2009).Note: Actuarial value estimates reflect the U.S. labor force population (and spouses/dependent children). Values for a standard U.S. population could differ.


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How Benefit Tiers Can Help Consumers How Benefit Tiers Can Help Consumers Choose Between PlansChoose Between Plans

• Plans within the same benefit tier are roughly actuarially equivalent.

• Benefit tiers provide a gauge of the relative generosity of different plans.

• For instance, platinum level plans provide more coverage, on average, than bronze level plans.


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Limitations of Using Actuarial Value When Limitations of Using Actuarial Value When Choosing a Health Insurance PlanChoosing a Health Insurance Plan

• Because actuarial value calculations are done on an average basis for a given population, different plans may be more or less valuable to any particular individual, even among plans in the same benefit tier.

• Plans within the same benefit tier will have different premiums.

• Actuarial values do not incorporate information about provider networks.


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Illustrative ExampleIllustrative Example

Total Spending

Plan 1Deductible: $500Coinsurance: 20%OOP Max: $2,000

Plan 2Deductible: $250Coinsurance: 30%OOP Max: $2,500

Person 1 $25,000 Plan Share: $23,000 (92%)Individual Share: $2,000 (8%)

Plan Share: $22,500 (90%)Individual Share: $2,500 (10%)

Person 2 $1,500 Plan Share: $800 (53%)Individual Share: $700 (47%)

Plan Share: $875 (58%)Individual Share: $625 (42%)

Person 3 $800 Plan Share: $240 (30%)Individual Share: $560 (70%)






Total $28,200 Plan Share: $24,040 (85%)Individual Share: $4,160 (15%)

Plan Share: $24,040 (85%)Individual Share: $4,160 (15%)

Source: American Academy of Actuaries, “Critical Issues in Health Reform: Actuarial Equivalence.”


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Issues to Consider When Choosing a Health Issues to Consider When Choosing a Health Insurance PlanInsurance Plan

• Benefit tier (actuarial value)

• Premium

• Cost-sharing features (e.g., deductibles, coinsurance, maximum out-of-pocket limits)

• Range of medical services covered

• Provider network and quality

• Customer service


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Cost-sharing Assistance for Low- and Cost-sharing Assistance for Low- and Moderate-Income FamiliesModerate-Income Families

• To be eligible, must enroll in a plan in the silver level of coverage.

• Cost sharing assistance includes:– Reductions in out-of-pocket limits, and – Increases in actuarial value.


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Reductions in Out-of-Pocket (OOP) LimitsReductions in Out-of-Pocket (OOP) Limits

• Standard OOP maximum limits ($5,950 for individuals; $11,900 for families) are reduced for people with incomes less than 400% FPL.

Income LevelReduction in OOP Max

Limit

100-200% FPL 2/3 reduction




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Increases in Actuarial ValueIncreases in Actuarial Value

• Cost-sharing subsidies are available to people with incomes less than 250% FPL.

• Aside from specified reductions in maximum out-of-pocket limits, plans have flexibility in how to achieve increased actuarial value through combination of deductibles, copayments, and coinsurance.

Income Level Actuarial Value

100-150% FPL 94%

150-200% FPL 87%

200-250% FPL 73%


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Interplay Between OOP Limit Reductions Interplay Between OOP Limit Reductions and Increases in Actuarial Valueand Increases in Actuarial Value

• People with incomes 250%-400% FPL have reduced OOP limits, but actuarial value for silver plan must not exceed 70%.

• Therefore, other cost-sharing provisions may need to be increased to offset decrease in OOP limits.– Secretary directed to adjust the OOP limits if necessary to

ensure they do not cause actuarial values to exceed specified levels.


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Silver Tier Plan Requirements, by IncomeSilver Tier Plan Requirements, by Income

Income Level Actuarial Value Maximum OOP Limit*

100-150% FPL 94% 2/3 reduction





400%+ FPL 70% standard limit

* Standard maximum out-of-pocket limits are based on those for HSA-qualified health plans ($5,950 for individual coverage and $11,900 for family coverage in 2010).


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Final ThoughtsFinal Thoughts

• Details of actuarial value calculation methods and assumptions are yet to be determined.

• Using actuarial values to categorize plans by benefit tiers can provide a gauge of the relative generosity of different plans.

• Because actuarial value calculations are done on an average basis for a given population, different plans may be more or less valuable to any particular individual, even among plans in the same benefit tier.

Documents

Copyright © 2010 by the American Academy of Actuaries What Is Actuarial Value? Cori E. Uccello, FSA, MAAA, MPP Senior Health Fellow American Academy of