Some people would argue about the value Obamacare brought to the healthcare sector. , A look at Obamacare, as people came to refer to the act, shows it has indeed been a success. A decade later, there is greater health coverage. There are more than 20 million people benefiting.
The Affordable Care Act came into effect on the 23rd of 2010. What it did was establish health insurance plans based on actuarial values. In 2014, the ACA put requirements on small-group markets and individuals to meet specific coverage levels. Out of this arose four tiers, namely bronze, silver, gold, and platinum.
The tier you fell under would determine how much the Health Insurance plan would cover. At bronze, you would get 60% coverage. There was a 10% increment as you went farther up the tier. That means the Health Insurance will take care of 90% of the bill at platinum.
So what do you need to understand about the actuarial value of health insurance?
Understanding the actuarial value of your plan can help you make smarter decisions about your healthcare coverage, so let’s take a closer look at what it is exactly. Actuarial value tells us the average percentage of medical costs that are covered by an insurance plan.
It’s calculated to provide an easy comparison tool between different plans and gives us a better idea of the protection each offers.
Understanding Actuarial Value In Health Insurance
The actuarial value measures the percentage of healthcare costs that the Health Insurance plan will cover. Groups or individuals with health plans must fall within specific actual values. As we stated in the introduction, there are four tiers.
So, if you are in bronze, the health insurance will pay 60%. And you will have to take on the 40% as a deductible, coinsurance, or copayment. Please note that the insurance premiums do not factor in the calculation.
So who calculates the actuarial value of health insurance plans? The job falls on the shoulders of the insurance actuary. The actuary jobs entail using mathematics, probability, and statistics for data analysis. The actuaries can determine risk through modeling, testing, validation, and other methods. Further, they use the insights from the analysis to forecast.
The actuary job entails:-
- The use of data on healthcare use and demographics for standardized populations. All with an aim of getting clarity on cost expectations
- Taking into consideration the cost of other benefits like copays, deductibles, and coinsurance to determine the expected costs
- Recommend the best pricing for health insurance plans using investment and financial practices.
- Keep up with reviewing and updating the Health Insurance actuarial value. This is a critical role because conditions are always changing. Thus, it is important to always stay up-to-date with relevant information.
Please note that actuarial value does not apply to individuals. Rather, the insurance actuary calculates it across a standard population.
Calculating Actuarial Value
Actuarial value in health insurance calculates the average percentage of benefits that an insurance company expects to pay out for covered illnesses or injuries. This percentage can range from as low as 50% to as high as 100%, so it’s important to keep an eye on when selecting your policy.
Understanding how the insurance actuary arrives at the actuarial value is important. The first thing they look at is which plan the standardized population has. An example would be one with a maximum of $5000 out-of-pocket expenses and a $3500 deductible. The amounts go into preventive services before the calculation of the deductible.
Now, within the year the individual may only visit the hospital once. He incurs a bill of, let’s say, $2500. The insurance actuary applies the negotiated discount on the insurance health plan network. The amount will be less than the deductible. The individual will have to incur the entire cost of the $2500 treatment.
Now, another individual, under the same cover, incurs a $5000 out-of-pocket maximum within the same month. If the insurance actuary calculates the total cost annually, the Health Insurance plan will cover 98% of the cost. The individual will only be liable for 2% or the $5,000 out-of-pocket maximum.
It becomes pretty clear that despite being in the same plan, there are variations in the coverage. It all comes down to how much health care each individual receives within the year. Yet from a standardized population viewpoint, both individuals will have the same coverage.
So what happens if you only use your insurance coverage for small expenses? Well, the tier you fall under will pay for much less than what it should. The money will come from copays and deductibles. But the benefits become clear if you have major expenses like the second individual in the example above. Your tier will pay for much more than the allocated percentage.
Please note the actuarial value does not represent the quality of care you will receive. Neither does it impact the networks the providers cover under the plans. That is why selecting a health insurance plan that works for you is important.
Actuarial Value As It Applies To the Affordable Care Act
As of 2014, small group plans and individuals fit into one of the four tiers. All individual markets had the option of including catastrophic plans. This applies to insurance coverage for those who may incur higher medical costs within the year. Such include preventive care benefits and a maximum of three non-preventive office visits. Typically you would pay for such expenses with copays even without meeting the deductibles.
The pricing on catastrophic health plans is usually lower. The aim is to protect recipients from high medical costs resulting from serious injuries.
Please note that only those under the age of 30 or have hardship exemption have access to this benefit. A hardship exemption applies to individuals under 30 who are applying for catastrophic coverage. But, they may have faced a specific hardship that resulted in their inability to get insurance.
Examples of hardship include homelessness, foreclosure, and or death of a family member. Others are bankruptcy, substantial debt, or increasing expenses due to caring for aging or disabled family members.
So how does actuarial value come into play?
The first point to note is that whatever the actual value of the health insurance plan, there are:
- Monthly premium payments
So even at the same actuarial level, health insurance plans tend to vary. Within the tiers are other tiers.
So Bronze Plan A will be different from Bronze plan B. Plan A may have a higher deductible of, say, 5,000, 0% coinsurance, and a monthly premium rate of $300. Bronze Plan B could have a lower deductible of $3000, 60% insurance, and monthly premiums of $350.
Please note these figures are not reflective of reality. It is the actuary’s job to determine the amounts you will pay under each plan. So when shopping for a health plan, it helps to know what to expect.
Considerations to Have In Mind When Picking a Health Plan
The health plan you opt for will impact the actuarial value. When deciding on the best one, it helps to forecast your medical expenses within the year. Some simple questions you need to answer include:
- Do you plan to make many doctor visits within the year?
- Are you on prescription medicine that will require constant refills?
- Are you suffering from a chronic illness that requires significant care?
- What kind of work do you do, and will it expose you to high-risk levels?
If the answer to most questions is no, you do not need a high actuarial value. That means a tier like bronze will work perfectly for you.
Remember, the insurance actuary will also ask the same questions. As we stated, one of the actuary jobs entails forecasting using statistics and mathematical models.
The insurance actuary will analyze your past medical reports. It will help them determine the actuarial value to apply to you.
Knowing your actuarial value is the first step in selecting the right health plan. But you also need to have clarity on the following.
- Cost-sharing does not reflect in the actuarial value. There are differences in deductibles, copayments, and coinsurance within the same tiers. Have clarity on what kind of medical care you need to help you make a better decision.
- The actuarial value only takes into consideration essential health benefits. There are ten such benefits under the Affordable Care Act. They include Ambulatory service, emergency, hospitalization, newborn and maternity care, and prescription plans. Others are mental health, laboratory services, pediatric services, and preventive and wellness.
As per the ACA , there is no limit on essential health services. But you may still cost share from your copays, deductibles, or coinsurance. So what does it mean for the actuarial value calculation? Well, some of the services under the plan will not factor into the calculation. Insurers have leeway to cover the additional services. But it will not impact the actuarial value calculation.
- The insurance plans network does not factor in the calculation of the actuarial value. It only takes into consideration network coverage. That leaves out any benefits that come from out-of-network providers.
- Premiums for the cost of insurance policies do not reflect in the actuarial value. Yet, the more the actuarial value, the more premiums you pay.
Please note that the insurance actually may not be able to give a precise actuarial value. But there is a provision under the Affordable care act that allows for an error margin. As of 2016, for example, the bronze actuarial value ranged from 58% to 65%. That translates to a -2/+5 de minimis range.
But please note that since then, the margin has kept changing. In 2017, for example, it was -4/+2 for all the tiers except for bronze.
As of 2023, under the expanded bronze plans, the range is 58% to 65%. Regular bronze still has a cut-off at 62%. Silver ranges from 68% to 72% for the group market. Under individuals, it is 70% to 72%. Gold ranges anywhere from 78% to 82%, while platinum goes as high as 92%.
Actuarial Value for Self-Insured and Large Groups
So far, we have only talked about small-group markets and individuals. But what about self-insured and larger groups? Well, such still qualify for actuarial value benefits. But they can only get minimum value. So, by default, these groups fall under bronze.
The Affordable Care Act also made it mandatory for employers to provide minimum actuarial value. This applies to those with 50+ employees.
The actuarial value of health insurance is a powerful indicator of the level of financial protection it provides. It paints a clear picture of the extent to which an insurance plan will cover medical costs, allowing individuals and families to make informed choice when selecting a health plan. By fully understanding the affordability and cost-sharing implications of your policy, you can rest assured that you have made the right decision for your long-term health and wellness.
Understanding the benefits of health care insurance as it applies to you is critical. Indeed, it is a determining factor when shopping for a health insurance plan. Speak to an insurance actuary to help you calculate the best option.