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October 2011 St@teside

Creating a Usable Measure of Actuarial Value

On October 17, Consumers Union hosted a briefing in Washington, D.C., which sought to explain the concept of actuarial value, review its role in the context of the Affordable Care Act (ACA), and hone in on the challenges of creating a measure that can be used to compare health plans.The briefing included a wide range of panelists that provided varying perspectives on using actuarial value:

  • Lynn Quincy, Senior Policy Analyst at Consumers Union
  • Cori Uccello, Senior Health Fellow at the American Academy of Actuaries
  • Gary Claxton, Vice President and Director of the Health Care Marketplace Project at the Kaiser Family Foundation
  • Kevin Counihan, President of CHOICE Administrators Exchange Services

The briefing covered various issues including:

  • The definition of actuarial value and how to make it a useful measure for consumers;
  • Potential approaches to calculating actuarial value;
  • How different estimating techniques affect the actuarial value; and
  • Lessons learned from the Massachusetts experience.

Lynn Quincy presented the results of a study examining consumers’ understanding of health insurance concepts and plan options.The study showed that though consumers are very interested in knowing the value of their plan choices, it is difficult for them to assess it due to their lack of familiarity with many health insurance concepts, including cost-sharing and actuarial value. That unfamiliarity makes it difficult for them to weigh the numerous features offered by various plans. The study offers suggestions that can help consumers make informed choices. For example, using metal tiers (i.e., bronze, silver, etc.) to rank plan generosity is an intuitive and easy-to-use technique. Also, disclosures should avoid using percentages and terms such as “on average” and “allowed cost” (used in the federal disclosure). Finally, estimates must be truly comparable across plans.

Cori Uccello explained that since there is no uniform method for determining an actuarial value, the method chosen will depend on the goals of the calculation. She presented two options for calculating the actuarial value, achieving different goals and having different data requirements. One option is for plans with similar benefit designs to have similar actuarial values. The drawback, however, is two-fold: 1) this approach would use a common standardized data set, which is difficult to obtain; and 2) actuarial values will not necessarily correspond to actual consumer out-of-pocket costs. The second option is for the actuarial value to correspond more directly with the expected share of spending per plan. Under this option, plans would use their own data, which is easier to obtain. However, a potential problem with this approach is that, if plans with similar plan designs from different insurers are in different benefit tiers, it will make it difficult for consumers to understand how to assess the plan value.

Gary Claxton showed how three consulting firms came up with very different estimates for cost-sharing for individual coverage. Although they used some common assumptions regarding premiums and services, they made different assumptions about the distribution of health expenses across the population, as well as how patients are believed to respond to varying levels of cost-sharing in their use of services. These results underscore the importance of reducing the variation in evaluating the actuarial value of health insurance plans. The greater the variation in plan designs, the more difficult it will be for consumers to compare plans.

Kevin Counihan gave an overview of lessons learned from the consumer research studies that were undertaken after the implementation of the Massachusetts’ reform. Most of these lessons confirm some of the key points brought up by the other presenters. While the metal categories were useful to consumers and created the perception of value, they were incomplete in that they did not provide information with respect to other consumer needs such as provider network, price, and reputation of the plan.  The studies also underscored both the need for decision-support tools and the need to standardize benefit plans.

The presentations identified the pros and cons of using the actuarial value as a way to help consumers in their purchasing choices, and outlined issues to consider in making it a more useful tool for product comparison.  Using metal tiers to assess actuarial value is one of the most effective ways for consumers to understand the relative generosity of health insurance plans. However, consumers need to understand the limitations of this measure, in that the actuarial value is not necessarily correlated with premiums and does not reflect other important plan features consumers might be interested in (e.g., provider network adequacy and quality, care management programs, wellness programs, and consumer service).  Still, the greater the competition in the market and the greater the degree of standardization required by the U.S. Department of Health and Human Services and states in evaluating the actuarial value of insurance products, the less variation there will be in plan designs.  This, in turn, will make the actuarial value a more useful tool for consumers when they compare plans.