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What is “actuarial value” in health insurance?

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  • Actuarial value measures the percentage of insurance cost sharing in a typical year.\
  • Actuarial value is a percentage that estimates the insurer share of covered benefits in a health insurance plan
  • Minimum actuarial value is an element of qualified health insurance
  • Insurers must measure the actuarial value of proposed plans prior to acceptance for sale on Medicare, the Obamacare Marketplace and state exchanges

The Affordable Care Act reformed the insurance industry by requiring better policy coverage for consumers. The law sought to ban flimsy policies that provided far less protection than was needed for prices that far outweighed their value.

Congress weighed facts and evidence about cost sharing in major medical coverage among large groups and public employees. The ratios of insurance to consumer payment became part of the actuarial value.

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The Individual Mandate and Guarantee Issue


The heart of the Affordable Act is the legislative effort to include as many residents as possible among the insured. Congress required every resident to get and keep insurance, and it required insurers to accept every qualified applicant.

The Act penalizes persons that fail or refuse to get coverage. It also penalizes persons that get insufficient coverage. Coverage that does not have minimum actuarial value is not qualified coverage, and it does not satisfy the individual mandate.

Actuarial Value Is not Exact

The experience of a given consumer in a health plan may be higher or lower than the actuarial value percentage. The variables include the amount and number of copays, how quickly one passes the deductible threshold, and the types of medical care. Actuarial value is not a predictor; rather, it is a guideline that helps consumers select insurance likely to meet their needs.

The Origin of Actuarial Value in Health Insurance


The Affordable Care Act initiated the concept of actuarial value in health insurance plans.The research looked at broad populations of covered employees in group policies. The researchers determined the mathematical ratio of insurance payments to consumer payments.

The Purpose of Actuarial Value


Actuarial value helps the consumer make assessments of policies with various features. Actuarial value gives an approximation of the amount the insurer will pay in costs sharing.

The estimated relationship between insured and insurance payments is a measure of the value of the policy to the consumer.

By grouping policies by the actuarial value grouping, consumers can effectively use comparison shopping to find the best match for their needs and preferences.

Actuarial Value and Price

The Affordable Care Act permits price discrimination on the basis of actuarial value. Insurers can charge more for platinum and gold than silver and bronze.The higher actuarial value suggests that on average insurers will pay more and consumers will pay less for insurance benefits under a Platinum plan than for other levels.

Calculating Actuarial Value


The Centers for Medicare and Medicaid have developed an actuarial value calculator tool for use by insurers and plan sponsors. The basic formula divides the below-described insurance costs for a standard population:

A. Divide the expected amount of insurance payments for a one year period

B. By the total amount of insurance costs over a -year period

Minimum Actuarial Value

How much coverage do I need? written on whiteboard

The idea of a minimum level of cost sharing favors consumers. The costs of health insurance in the US consumes substantial portions of the average household budget. They pay for coverage so that they will not fall victim to massive medical debt in the event of illness or injury.

Prior to the Affordable Care Act, many insurers issued policies that lacked sufficient coverage and payment to protect families. Minimum actuarial value is an essential part of major medical coverage.

The Four Types of Obamacare Plans


Obamacare used the structure of metal tiers to group policies that had similar balances of expected insurance payments to expected consumer payments. The Actuarial value expresses the ratio of insurance and consumer payments as a percentage. The percentage is the actuarial value of the plan.

– Platinum Plans

The top tier platinum plans have an actuarial value of 90 percent. The plan pays 90 percent of the costs of essential benefits after the consumer pays the deductible. The insurer pays the entire costs of covered benefits after the subscriber passes the deductible limit or out-of-pocket limit.

  • Insurers charge the highest premiums for platinum because of low deductibles, few copays, low coinsurance, and high levels of costs sharing.
  • Insurers can raise prices for individual members for age, location, and tobacco usage.

– Gold Plans


Gold level plans have an actuarial value of 80 percent, and insurers will pay about 80 percent on average of the costs of covered benefits.

  • Gold plans have moderate but reachable deductibles; they fit well with users with moderate to heavy demands for medical care. Those with moderate demands should get cost sharing for a substantial portion of the annual cycle.
  • Gold members like all other plans must use network resources to get the best value for their investment in the plan. Spending outside of the network may not get cost sharing from HMOs and may not count towards the deductibles and limits in any plan.

– Silver Plans

The Silver type plans have an actuarial value of 70 percent. Silver plan policyholders with incomes at or below 250 percent of the poverty guideline can get costs sharing reduction assistance from the Marketplace or a state exchange.

  • Silver plans strike a mid-range balance between deductibles and premiums.
  • Health Savings Accounts match with Silver High Deductible Health Plans. This pre-tax savings program is a powerful tool for handling out-of-pocket expenses and building an asset for the consumer’s future use.

– Bronze Plans

The minimum level bronze plans have an actuarial value of 60 percent. Bronze plans feature the lowest monthly premiums and the highest average deductibles.

  • Consumers with low demands for medical care select bronze plans
  • Bronze plans have essential health benefits including no cost prevention and wellness benefits.

Actuarial Value in Health Insurance


In Obamacare, actuarial value helps organize the four types of plans. The metal tiers require that plans meet or exceed the actuarial value assigned to the particular tier.

The Marketplace and state exchange use actuarial value to ensure that consumers have a desirable range of choices in health coverage. The consumers can select among combinations of coverage, cost sharing, deductibles, and out-of-pocket costs.

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