Creating A Usable Measure of
Actuarial Value
Gary Claxton
Vice President
Kaiser Family Foundation
10/17/2011
Roles for Actuarial Value in the ACA
• Tiers of coverage for individuals and small businesses (and some others)
•
•
•
•
60% AV = Bronze
70% AV = Silver
80% AV = Gold
90% AV = Platinum
– Concept: Different levels of cost sharing applied to defined benefit package (EHB)
– But: Benefit package may not be well defined, so other elements, like benefit limits,
could affect AV
• Premium tax credits tied to silver tier
• Reductions in cost sharing for lower-income individuals
– Reduced deductibles and other cost sharing raise AV of silver plans to different levels for
people at different incomes
• Minimum value for ESI: Plan’s share of the total allowed costs of benefits
provided under the plan must be at least 60% of such costs
Estimating Cost Sharing Under the ACA
• Study asked three different consulting firms to estimate cost sharing for
nongroup coverage
• Common Assumptions
– Assumed typical employer plan as PPO covering broad range of services, with 82%
actuarial value
– Benchmarked to same average premium; assumed 10% for administration
– Prevention covered without cost sharing
• Simplifying assumptions included deductibles and coinsurance that
applied to all services (other than prevention)
• Firms estimated cost sharing combinations for some of the AVs relevant to
the ACA
– Focus on bronze and silver level plans, with upward adjustment for cost-sharing
subsidies
Estimates of Plan Designs Meeting Selected
ACA Actuarial Value Thresholds, 2014
Actuarial Research
Corporation
Aon Hewitt
Towers Watson
Actuarial
Value
Out-OfPocket
Maximum
Deductible
Coinsurance
Deductible
Coinsurance
Deductible
Coinsurance
60%
$6,350
$6,350*
0%
$4,350
20%
$2,750
30%
70%
$6,350
$4,200
20%
$2,050
20%
$1,850
20%
70%
$4,200
$4,200*
0%
$2,650
20%
$1,550
30%
70%
$3,200
$3,200*
0%
$3,200*
0%
$2,050
30%
73%
$3,200
$3,200*
0%
$3,200
0%
$1,750
25%
87%
$2,100
$1,050
20%
$250
20%
$150
20%
94%
$2,100
$60
10%
$200
5%
$0
8%
Note: Amounts shown for the out-of-pocket maximum and deductibles are per person; figures for families would
be double these amounts. Where an asterisk appears, the firm was unable to construct a plan design within the
constraints of the actuarial value and out-of-pocket maximum. The deductible shown in these cases is equal to
the out-of-pocket maximum, which is the highest it can be. The out-of-pocket maximum amounts are based on
those for high-deductible plans that qualify to be paired with a Health Savings Account, inflated forward to 2014.
Why the Differences?
• There are pretty big differences in the estimates
• Firms assumed same average premium/cost, but
– Different data with different distributions of spending
– Different estimates of the impact of cost-sharing provisions on service use
– Different estimates of the impact of first-dollar coverage for prevention
• Using common data/service risk distribution would reduce differences
• Over time, differences would shrink as vendors become familiar with new
market structure and covered population
Minimum Value for ESI Offers
• Generally people offered coverage through a job cannot claim a tax credit
for choosing coverage in an exchange unless the coverage offered
– Is not affordable
– Does not have a minimum value
• Minimum value is an actuarial value test
– Plan’s share of the total allowed costs of benefits provided under the plan must be at
least 60% of such costs
• Unlike exchange coverage, plans offered by large employers and selffunded plans are not required to offer essential health benefits
– So 60% of what (how limited can the package be and still be health coverage)?
– Potential for an objective benchmark (a benchmark package or a dollar amount) that
could be used in determining whether 60% is met
Much More to Come
• We are awaiting regulations to describe how actuarial value will be
determined for the different purposes of the ACA
• An important open issue is how actuarial value will be determined if there
is flexibility in definition of essential health benefits
• There are a number of other important issues, for example
– What is the standard population for each of the benefit tiers (risk adjustment probably
cannot fully offset selection against lower cost-sharing tiers)?
– Will actuarial value calculations be audited or mostly rely on certifications from plan
actuaries?
– How will higher use from subsidized cost sharing be incorporated in the actuarial value
calculations for plans?