Question

Describe, in words, what the actuarial value of an insurance contract is

Answer 1

The total percentage of average costs for covered benefits that will be paid by a health insurance plan under the patient protection and affordable care act(ACA) the health reform of U.S. enacted March 23,2010 , in insurance market place the health plans are available and they are divided into 4 mettalic tier levels -Bronze,Silver,Gold and platinum based on the actuarial values Bronze plans, for example, pay on average 60% of the medical costs of covered benefits. Silver plans pay 70 percent, Gold plans pay 80 percent and Platinum plans pay 90 percent.

By default, the actuarial value represents the corresponding percentage that will be paid by the individual policy holders. For example, if a Bronze plan pays (on average) 60 percent of covered medical expenses, Bronze policy holders would be responsible for (on average) the remaining 40 percent of the expenses excluding premiums, which are not included as part of the calculation.Bronze plans have an actuarial value of roughly 60 percent, silver plans 70 percent, gold plans 80 percent, and platinum plans 90 percent. Because it's difficult for insurers to design plans that have a precise actuarial value, the ACA allows a de minimus range. It was initially +/-2, but it has expanded a bit over the years.

Actuarial value represents the average across the entire population covered by the plan. But the percentage any given individual pays will be all over the place. So if, like most people, you only use your health coverage for small stuff (like checkups, tests, prescription drugs, etc.), then the percentage of medical costs your plan pays will be a lot less than 60 percent, and almost everything will come out of deductibles and copays. However, if you’re one of the few people who has a major medical expense in a given year, then your bronze-level insurance plan will cover much more than 60 percent of the cost.

For example, if a plan has an actuarial value of 70%, on average, you would be responsible for 30% of the costs of all covered benefits. However, you could be responsible for a higher or lower percentage of the total costs of covered services for the year, depending on your actual health care needs and the terms of your insurance policy.

Examples of How Actuarial Values with the Affordable Care Act:

Health insurance plans, regardless of their actuarial value, have various deductible, copayment and coinsurance levels that affect the monthly premium and how (and even when) the individual will pay for medical care. Health plans can differ greatly even within the same actuarial level. For example, Bronze Plan A might offer a $5,500 deductible and 0 percent coinsurance for a monthly premium of $250, while Bronze Plan B offers a $2,700 deductible with 50 percent coinsurance for a monthly premium of $300. The person with Bronze Plan A will spend more money to reach the deductible, but after that he/she will pay nothing (the 0 percent coinsurance) for covered medical expenses. The individual with Bronze Plan B, on the other hand, will pay less to get to the point where coinsurance kicks in, but once it does, he/she will be responsible for half (50 percent coinsurance) of covered medical expenses.

Large Group and Self-Insured Plans Have Different Rules:

The actuarial value metal level requirements in the ACA apply to individual and small group plans. But large group plans (in most states, that means more than 50 employees, but in a few states, it means more than 100 employees) and self-insured plans have different rules.

For large group and self-insured plans, the requirement is that the plan provides minimum value, which is defined as covering at least 60 percent of costs for a standard population. There's a minimum value calculator that's similar to the actuarial value calculator used for individual and small group plans, but the calculators do have several key differences.

Large group and self-insured plans don't have to conform to the metal level categories that apply in the individual and small group market, so there can be more variation from one plan to another in the large group and self-insured market. Those plans have to cover at least 60 percent of the average costs of a standard population, but they can cover any percentage of costs above that level, without having to mold their benefits to fit within narrowly-defined ranges