By Joe Touschner

In a bulletin released late last week, HHS provided some indication of how it will use the key concept of actuarial value in rating health plans under the Affordable Care Act.  The same bulletin shared some clues on the cost-sharing reductions that some moderate income families will receive when they enroll in exchange plans.

Actuarial value is a measure of how generous, on average, a health plan is.  It’s expressed as a percentage of the cost of covered services that the plan pays; the remaining costs are covered by plan enrollees through deductibles, co-pays, co-insurance, and other cost-sharing.  It’s important to note that actuarial value measures the overall percentage paid by the plan for a standard population–the generosity of the plan for any particular individual depends on that person’s use of covered benefits and could well differ from the measured actuarial value.  See this report from Consumers Union for a more in-depth explanation of actuarial value.

Under the Affordable Care Act, all non-grandfathered plans in the individual and small group markets (inside and outside exchanges) must offer an actuarial value at one of four specified levels–60 (bronze), 70 (silver), 80 (gold), or 90 (platinum) percent. 

So what does the new bulletin tell us?  It tells us how plans will be measured to determine whether they fit into one of the specified levels.  It indicates that HHS will use a standard calculator, into which plans can input their cost-sharing amounts, to determine actuarial value.  A plan will enter its deductible, co-pay, and co-insurance amounts and the calculator will return it actuarial value.  This standardized method will ensure that AV is calculated the same way for different plans, enabling valid comparisons between plans.  This will allow families to know that all silver plans, for instance, have the same overall generosity, so they can choose plans based on other aspects, like provider network, quality ratings, and any variation in benefits covered. 

There will be some room for state flexibility, however.  While HHS will develop a nationally-representative standard population to use when measuring actuarial value, states will have the option of developing a their own standard population using state claims data to reflect state demographics.

The bulletin also address the cost-sharing reductions that will be available for individuals who enroll in silver-level exchange plans and have incomes below 400 percent of the federal poverty level.  These reductions are an important element, along with premium tax credits, in making exchange plans affordable for moderate-income enrollees.  The bulletin clarifies that those who qualify for cost-sharing reductions will be able to enroll in plans that have a higher actuarial value and lower cost-sharing, making them more affordable.  The guidance lays out how plans should modify cost-sharing, starting with the out-of-pocket limit, then altering co-pays and deductibles, if necessary.  The bulletin provides some guidelines for making these changes, for instance that lower-income enrollees can’t face higher cost-sharing for the same service than higher-income enrollees.

This bulletin provides some further clues on how the Affordable Care Act will help families compare health plans and afford the one they choose to purchase.  But it’s not the only guidance we’ve seen recently from HHS.  Stay tuned for a coming post on another recent bulletin on another of those ACA topics we’ve been tracking closely–the essential health benefits.