Actuarial Value Calculator
“Actuarial Value” is a new word for an old idea. It’s simply the measure of the “richness” of a plan design. That is, how strong or weak are the deductibles and co-pays? If a change in deductible is worth 3%, for example, then the actuarial value has changed by 3%. It could just as easily be called “Plan Value”.
The phrase “Actuarial Value” is now embedded in the new reform law and has raised awareness and interest in this concept. Plans must have a minimum actuarial value of 60%, among other things, to avoid penalties for employers with more than 50 employees.
The ability for consumers to make side-by-side comparisons of health insurance products — based on their actuarial value — is at the heart of the reform law’s insurance exchange concept. But with guaranteed issue coverage, no pre-existing condition exclusions and no ability to use health status to set rates, benefit design will be one of the few tools left for insurers to differentiate their products.
This is a very valuable concept for consultants and employers.
1. First, there is a need for all employers to measure the Actuarial Value (AV) of their plan before 2014. The department of Health and Human Services (HHS) has announced that it intends to make available to the public an AV calculator that could be used to determine the actuarial value of plans.
2. The value of plan design changes has always been of interest at renewal time for employers. Changing plan design to keep up with inflation and dampen renewal increases is sometimes an annual event. However, determining the value has been cumbersome – either ask the carrier for numerous options, or, in the case of self funded employers, get an estimate from somebody who might not be fully qualified to do so. The third option, re-computing the entire claim data set under a different plan design seems like high science, but will deploy some intense resources and can be very misleading since the claims mix is erratic year to year.
3. The calculator can be a great aid to those trying to avoid the “Cadillac Tax” by changing plan design.