What Is Actuarial Value?
Actuarial value is the percentage of total average costs for covered benefits that will be paid by a health insurance plan under the Patient Protection and Affordable Care Act (ACA).
Also known as "Obamacare," the U.S. health reform enacted March 23, 2010, established health insurance plans available on the Health Insurance Marketplace that are divided into four “metallic” 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%, Gold plans pay 80%, and Platinum plans pay 90%.
- Actuarial value is the estimated average percentage of healthcare expenses that will be paid by an insurance plan under the ACA Health Insurance Marketplace.
- The four levels of health insurance plans—Bronze, Silver, Gold, and Platinum—are differentiated based on their actuarial value.
- The higher the actuarial value (i.e., Gold and Platinum), the higher the premiums, but also the lower your out-of-pocket costs.
- Health insurance plans may differ greatly, even within the same actuarial level.
Understanding Actuarial Value
By default, the actuarial value represents the corresponding percentage that will be paid by the individual policyholders. For example, if a Bronze plan pays (on average) 60% of covered medical expenses, Bronze policyholders would be responsible for (on average) the remaining 40% of the expenses excluding premiums, which are not included as part of the calculation.
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 insurance coverage for small expenses (like checkups, tests, prescriptions, etc.), then the percentage of medical costs your plan pays will be a lot less than 60%, 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% of the cost.
Actuarial values set the terms for cost-sharing between health insurance providers and the insured. That is just one aspect of health insurance plans. Contrary to their tier names, actuarial values are not representative of the quality of these plans, meaning they do not assign ratings to the quality of care provided or breadth of the network covered by providers in these plans. As such, it is up to the consumer to research and select the option that is best suited to them.
Examples: How Actuarial Values Work 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 insurance plans can differ greatly even within the same actuarial level.
For example, Bronze Plan A might offer a $5,500 deductible and 0% coinsurance for a monthly premium of $250, while Bronze Plan B offers a $2,700 deductible with 50% coinsurance for a monthly premium of $300. The person with Bronze Plan A will spend more money to reach the deductible, but after that, they 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, they will be responsible for half (50% coinsurance) of covered medical expenses.