Health Plan Actuarial Value Calculator

The Claros Analytics health plan design module, ClarosPlan, includes a cost calculator for each plan, which includes an actuarial value (AV) calculator. The basic actuarial value calculation is generated in seconds based on plan cost sharing details (coinsurance, copays, deductibles, maximum out of pocket or MOOP).

How is health plan actuarial value calculated?

AV is calculated by estimating the expected costs of a health insurance plan and determining the percentage of costs the plan sponsor and insured population will pay for those medical expenses. This is done by accounting for plan design cost sharing, the services covered under the health insurance plan, and how much the plan’s population is expected to use those covered benefits.

Actuarial Value Calculator Methodology

Rather than using a complicated spreadsheet, performing an inaccurate back-of-the-envelope calculation, paying high consultant fees, or waiting on information from health insurance companies, ClarosPlan allows users to quickly and easily generate an AV for each health insurance option. It can be calibrated to the characteristics of the group, which creates a more accurate picture of the group’s yearly expenses than using a standard population and their average costs. By using a more precise actuarial value calculation methodology, our applications empower our users with a higher level of insight into the expected cost of health care for employer groups.

Actuarial Value Example

Let’s look at an actuarial value example of an employer-sponsored health plan for a group with 1,000 enrollees. The expected claims for this group (projected using our Plan Design Modeling tool) are $6.4 million. Based on the cost sharing inputs used for the health plan design, the plan sponsor will pay $5 million of that.

Importance of Actuarial Value Calculations in Self-Funding

AV provides a benchmark for benefits advisors and the groups they work with to build and compare competitive plan designs based on the level of coverage provided for medical expenses. This allows them to:

Compare their health insurance program against marketplace or competitor plans

Assess how general benefit design changes impact the plan’s AV

Optimize their health plan design while remaining within the ACA-mandated requirement of 60% AV or higher for their health insurance program

See how new plan types and health insurance options, such as reference-based pricing (RBP), can be expected to impact their cost sharing arrangement
Evaluate the specific changes made to each self-funded group’s highly customized plan design

For those working with self-funded plans, generating a trustworthy forecast of the group’s expected claims and the subsequent AV is an essential piece of health plan management and optimization.

Limitations of Actuarial Value

While AV provides a good picture of the overall cost sharing of employer-sponsored coverage, it’s important to note its limitations, since it is merely one aspect of health insurance. Actuarial value does not:

Portray the level of coverage provided for each individual plan member. It is an average for the whole plan based on the expected claims for the plan’s population. Each individual plan member’s cost sharing breakdown will vary depending on their health status and health plan usage.

Predict employee satisfaction with a health plan. Some members may be more concerned with the coverage details of specific health care services under the health plan, such as maternity benefits or treatment for a preexisting condition. For example, one company’s Gold plan may be less attractive than another company’s Bronze plan if they’re not covering dialysis treatment at 100%.

Convey the affordability of health insurance for its members. The out of pocket costs for employees also includes monthly premiums, which could be unaffordable to some plan members. Employees who need higher coverage might opt for a lower tier plan to reduce their monthly premium while still incurring higher out of pocket costs overall.

Actuarial Value Summary

In conclusion, AV is an important, but not comprehensive, piece of assessing and optimizing health insurance plans. It provides additional insight into the expected cost of health care for both a plan sponsor and their employees. It can be used for benchmarking a health insurance program’s competitiveness. It can also be used to assess the impact of plan design changes on the cost sharing breakdown. Understanding AV and what it means for a health plan can help plan sponsors make informed decisions about their benefits offerings.

Advanced Topics and Capabilities

Many of our clients incorporate actuarial value into their comprehensive plan analysis and assessment to win and keep new employer groups:

Plan cost projections
Claims projections
Stop loss optimization
Assessing plan design changes (copays, coinsurance, deductibles, maximum out of pocket) and optimizing plan design
Forecast the impact of group changes, such as mergers and acquisitions, on plan outcomes
Assess the impact of geographic changes on plan outcomes

Learn more about our actuarial value calculator and plan design application by scheduling a call with our team.