Actuarial Value, Employee Benefits Compliance, Large Employers, Marketplaces, Minimum Value

What’s the Difference between Actuarial Value and Minimum Value under the ACA?

Actuarial Value and Minimum Value are two terms under the Affordable Care Act (ACA) that often generate confusion.  This article explains the two terms and how they apply to health plans of large and small employers.

Summary
What: Actuarial Value is a measure of the plan's generosity. Minimum value is the minimum actuarial value that all plans must provide. It is the 60% actuarial value.
Who: Actuarial value: Small insured non-grandfathered plans and individual policies must meet specified actuarial values (60%, 70%, 80% or 90%). Minimum value: Large insured plans and all size self-insured plans must provide at least 60% minimum value.
When: As of January 1, 2014, all non-grandfathered small insurance products sold in or outside a Health Insurance Marketplace (Exchange) must meet one of the specified actuarial values. For large and self-insured plans, the requirement to provide at least minimum value applies as of the first day of the 2014 plan year.
Where: These requirements apply both inside and outside the Exchanges.
Why: Actuarial value: To help consumers make apples-to-apples comparisons among different health insurance policies. Minimum value: To ensure that all health insurance policies and plans provide meaningful coverage at or above a threshold level (the 60% actuarial value level).
How: To determine actuarial value or minimum value, plans can either use calculators or design-based safe harbor checklists provided by the federal government, or can hire an enrolled actuary to provide an actuarial certification.

What is the difference between “actuarial value” (AV) and “minimum value” (MV)?

“Actuarial value” is a measure of a plan’s generosity.  The actuarial value is the percentage of total allowed costs paid by the plan, as opposed to the percentage paid by the participant.  Issuers of small group and individual policies must specify the actuarial value of each policy, beginning in January 2014.  These are often referred to as the “precious metal” levels, because the ACA requires “qualified health plans” sold on an Exchange (now called a Health Insurance Marketplace) to sell plans that are either “bronze” (60% actuarial value), “silver” (70%), “gold” (80%) or “platinum” (90%).  Plans must meet their “metal level” within 2 percentage points. For example, a silver plan must pay 68%-72% of actuarial value.  The bronze level plan will have the lowest premium cost, but if an enrollee uses medical services, the enrollee will have to pay a higher share of the cost.  Conversely, the platinum level plan will have the higher premium cost, but if an enrollee uses medical services, the enrollee will have to pay a lower percentage of incurred claims.

“Minimum value” is the 60% actuarial value level, and it is the threshold that all (non-grandfathered) plans must meet or exceed, as of the 2014 plan year.  Large insured and all size self-insured plans are not required to meet the specific actuarial values listed above, but they must provide at least 60% actuarial value.   This means that the plan pays on average at least 60% of the total cost of allowed benefits under the plan, and the enrollee pays—via deductibles, coinsurance, copayments and other out-of-pocket amounts— on average no more than 40% of the total cost of allowed benefits.  Only grandfathered plans are exempt from the requirement to provide at least minimum value.

So large employer plans do not have to meet specified actuarial values in 2014.  At some future date will they have to meet specified actuarial values above the minimum value level?

That depends.  Plans sold in Exchanges/Marketplaces must meet specified actuarial values (plus or minus two percentage points).  In 2014 and 2015 the Small Business Health Options Program (SHOP) Marketplace is available only to “small” employers, defined as those with up to 100 employees, but states can limit eligibility to employers with up to 50 employees, and many states (including California) have done so.  In 2016 “small” will be expanded to include employers with up to 100 employees, and in 2017 and beyond states can allow employers of all sizes to buy coverage in the Marketplaces.   In states that do, large employer plans purchased in the Marketplace will have to meet specified actuarial values, the same as small employer plans.

How are actuarial value and minimum value calculated?

As noted previously, actuarial value is the percentage of total allowed expenses paid by the plan.  What this means is that the percentage of allowed expense not paid by the plan will be paid via cost-sharing by the enrollee.  Cost-sharing includes the deductible, co-payments, co-insurance, and other out-of-pocket costs paid by the enrollee. Cost-sharing does not include the premium, nor does it include balance billing for out-of-network services or amounts due for benefits not covered under the plan.

Actuarial value and minimum value are not calculated on an individual basis;  they are calculated on an overall actuarial basis.  Thus, in a particular year, a particular enrollee could end up paying more than 40% of the overall costs of allowed services under the policy or plan, but the plan would still meet the minimum value requirement.

How does the Medical Loss Ratio (MLR) relate to Minimum Value?  I thought health insurers had to apply at least 80% or 85% of their premiums to pay claims, or pay rebates to policyholders? 

The medical loss ratio (MLR) is different from Minimum Value, but both concepts affect plan costs and claims payments.  The MLR relates to total premiums and requires carriers to use at least a specified percentage of premiums received to pay claims.  Minimum value relates to the total cost of allowed benefits under the plan, and requires the plan to pay (on average) at least a specified percentage of these total costs. Since the premium amount for a bronze plan would be lower than the premium for a platinum plan, for example, a carrier in the small group market will be required to apply at least 80% of the (lower) premiums collected for its bronze plan to pay at least 60% of the total cost of benefits covered under the bronze plan, and will be required to apply 80% of the higher premiums collected for its platinum level plan to pay at least 90% of the cost of benefits covered under its platinum plan.

How will an employer know what actuarial value its coverage provides, or if it even meets minimum value?

A plan sponsor can use either of the first two methods listed below to determine if its plan provides minimum value or what actuarial value it provides.  The third method below applies only to minimum value calculations, not to actuarial valuations generally.  The calculators and safe harbor checklists are free of charge; however, if a plan or issuer hires an actuary to provide an actuarial certification, it will have to pay for the services of the actuary.

  • Minimum Value Calculator and Actuarial Value Calculator (on the HHS website):  An employer can enter information about its health plan’s benefits, coverage and cost-sharing terms to determine whether the plan provides minimum value and what actuarial value it provides.
    • The minimum value calculator is at cciio.cms.gov/resources/files/mv-calculator-final-2-20-2013.xlsm
    • The actuarial value calculator is at cciio.cms.gov/resources/files/av-calculator-final-2-20-2013.xlsm
  • Actuarial Certification:  A plan sponsor or carrier may request certification  by an enrolled actuary to determine the plan’s actuarial value or to determine if the plan provides minimum value.  This may be needed if the plan contains nonstandard features that preclude the use of the MV Calculator and safe harbor checklists.
  • Design-based Safe Harbor Checklists:  HHS and the IRS have said they will provide design-based safe harbors in the form of checklists that employers can use to compare to their plans’ coverage. If a plan’s terms are consistent with or more generous than any one of the safe harbor checklists, the plan will be treated as providing minimum value. This method would not involve calculations, and could be completed without hiring an actuary.

How will these safe harbor checklists work?

Each safe harbor checklist will describe the cost-sharing attributes of the four “core” categories of benefits and services:

  • Physician and mid-level practitioner care,
  • Hospital and emergency room services,
  • Pharmacy benefits, and
  • Laboratory and imaging services.

As of April 5, 2013, HHS and the IRS had not yet issued these checklists.

Under what circumstances will a plan be required to hire an enrolled actuary to provide an actuarial certification?

As noted above, an actuarial certification may be needed if a plan contains nonstandard features that preclude the use of the MV Calculator and safe harbor checklists.  Nonstandard features would include quantitative limits (for example, limits on covered hospital days or physician visits) on any of the four core categories of benefits and services.

If a plan uses the MV Calculator and offers an essential health benefit (EHB) outside of the parameters of the MV Calculator, the plan may hire an actuary to determine the value of that benefit only and add it to the result derived from the MV Calculator to reflect that value.

Do most employers’ group health plans currently provide minimum value?

Yes.  Based on statements by HHS (in the preamble to the proposed regulations on Essential Health Benefits and Actuarial Value), most group health plans currently meet the 60% actuarial value requirement.  In fact, HHS estimated that at least 96-98% of participants in employer-sponsored group health plans are in plans that provide at least minimum value.  An example of an employer plan that might not meet the 60% requirement is a “mini-med” or catastrophic coverage only plan.

When did the government publish these calculators, and will they be revising them, or are these final calculators?

HHS released its Actuarial Value Calculator on February 20, 2013; and its Minimum Value Calculator, or MV Calculator, on February 25, 2013, in connection with the final rule on essential health benefits (EHBs).  HHS also released explanations of the methodology used to determine Actuarial Value and Minimum Value.  According to HHS, the calculator is available for “informal external testing.” Users of the MV Calculator are encouraged to submit any technical issues or operational concerns to HHS and, if necessary, HHS will release a revised version of the MV calculator.

AV vs MV