Beginning in 2014, health care reform requires health insurance plans in the individual and small group markets to meet certain actuarial value (or "metal") levels. These “Metal levels” are intended to allow consumers to compare plans with different levels of coverage for essential health benefits (EHB). The levels include:
- Bronze (60% actuarial value)
- Silver (70% actuarial value)
- Gold (80% actuarial value)
- Platinum (90% actuarial value)
So, what exactly does actuarial value mean?
What is Actuarial Value (AV)?
Actuarial value is a measure of the percentage of expected health care costs a specific health plan will cover for the "standard" population. Actuarial value is generally calculated using the ratio of:
the total expected payments by the plan for essential health benefits
the total expected costs of the "standard" population for essential health benefits
For example, a plan with a 70 percent actuarial value would be expected to pay, on average, 70 percent of a standard population’s expected medical expenses for essential health benefits. The individuals covered by the plan would be expected to pay, on average, the remaining 30 percent of the expected expenses in the form of deductibles, co-payments, and coinsurance.
The exact process for determining a "standard" actuarial value across multiple plans has yet to be finalized. However, HHS has proposed rules governing the calculation of actuarial value.
Proposed Rules for a Standardized Actuarial Value (AV)
The Department of Health and Human Services (HHS) has provided information on actuarial value standards in several phases:
On December 16, 2011, HHS released a bulletin that outlined an intended regulatory approach for defining essential health benefits, including a benchmark-based framework.
On January 25, 2012, HHS released a list of the largest three small group market products by state, which were updated on July 2, 2012.
On February 17, 2012, HHS further clarified the approach to essential health benefits through a series of Frequently Asked Questions (FAQs)
On February 24, 2012, HHS published a bulletin outlining an intended regulatory approach to calculations of actuarial value and implementation of cost-sharing reductions
On July 20, 2012, HHS published a final rule authorizing the collection of data to be used under the intended process for states to select from among several benchmark options to define essential health benefits.
On November 20, 2012, HHS published a proposed rule that outlines health insurance issuer standards related to the coverage of essential health benefits and the determination of actuarial value.
To standardize the calculation of actuarial value for health insurance issuers, HHS has proposed utilizing a publicly available "Actuarial Value Calculator". The idea is that health plans can use this calculator to determine actuarial values based on a national, standard population determined by HHS.
Overview of the Actuarial Value (AV) Calculator
The Actuarial Value Calculator (AVC) is designed to give an estimate of network liability for a given plan design. The AVC uses 2010 claims and enrollment data from a national commercial database to provide information on utilization and cost-sharing for a standard population of enrollees. The proposed AV calculator is posted on the CCIIO website.
To give health plans some help in meeting the metal levels, HHS has proposed that a plan can meet a particular metal level if its AV is within 2 percentage points of the standard. For example, a silver plan may have an AV between 68 percent and 72 percent. In addition, the proposed rule provides flexibility for issuers in the small group market by permitting issuers to exceed annual deductible limits to achieve a particular metal level.
Under the proposed rule, beginning in 2015, HHS will also accept state-specific data sets for the standard population if states choose to submit alternate data for the calculator.
How Actuarial Value (AV) Accounts for HRAs and HSAs
HHS has proposed that the annual employer contributions to HSAs and amounts newly made available under HRAs for the current year should count within the plan design. This treatment of HSA and HRA contributions is similar to how other employer contributions toward cost-sharing are treated within the plan design, such that a plan with a $0 deductible has the same AV as a plan with a $1,000 deductible plus a $1,000 HSA or HRA.
Why Actuarial Value Matters to You
The Affordable Care Act (ACA) establishes various tiers of health insurance coverage. These tiers are used for three primary purposes:
- To set the minimum amount of coverage you must have to satisfy the requirement that you be insured or pay a federal tax penalty beginning in 2014.
- To establish standardized levels of insurance you and your small employer (if applicable) can buy beginning in 2014.
- To provide benchmarks for premium tax subsidies (if applicable) when you buy your own insurance in the individual health insurance exchange beginning in 2014.
- You will be required to have insurance that is at least at the bronze level (a 60% actuarial value) or pay a federal tax penalty.
- If you buy your own insurance in the individual health insurance exchange, you may be eligible for premium tax subsidies. The premium tax subsidies are based on family income and the premium of the second lowest cost silver plan (a 70% actuarial value).