I’m working on a couple of different manuscripts and I am involved in a few side discussions on the question of how do enrollees experience value when they purchase ACA health insurance plans?
Actuarial value is a technical concept that attempts to describe one form of value — roughly what percentage of allowed claims from a standardized population distribution does an insurer pay through either premiums, reserves or Wall Street start-up money? Bronze plans have the insurer pay about 60%, Silver plans have the insurer pay about 70%, while Gold and Platinum see the insurer pay about 80% and 90% respectively. This is a good short-hand. It is a very imperfect short hand as it is based on standard populations which really may only have a chance to be standardized in large states and it is based on national average cost profiles. An insurer with a low cost profile in the same market covering the same people will have a lower effective actuarial value than an insurer with a much higher cost profile.
Where I’m stuck right now is thinking about the mirror-image of insurer side actuarial value — individual side actuarial value.
I’m stuck on two parts. First, actuarial value is a collective number. It applies to hundreds of thousands of people. It never applies to a single individual. Given the differences in claims probability at the individual enrollee level and differences in benefit design, it is quite plausible that a Bronze plan with 60% AV is a better value than a Gold plan with 80% AV even before we look at premium differences.
Secondly, AV is mostly an insurer side concept. Individual side AV is a residual of the insurer side concept. We would think that the individual AV for a Bronze plan would be about 40%. I don’t think that is right, even accounting for the standardized population instead.
That 40% is what the insurer does not pay.
That 40% is not what the individual pays.
That 40% is made up of a lot of different components:
- Individual cost-sharing (deductible, co-pays, coinsurance)
- Third party payments of cost-sharing (Ryan White AIDS programs, kidney disease groups etc)
- Co-payment coupons for drugs
- Bad debt ultimately paid for by the provider groups
There may be a few more things at play, but those would be the big ones in my mind.
There is a wedge between what the insurer expects the individual to bear as part of the actuarial value of a plan and what the individual actually experiences. I’m not sure how big that wedge is, nor how important that wedge could be.
We need to really think more about a standardized way of presenting individual level insurance value to people as I don’t think the insurance side “actuarial value” model is all that useful in the production of a fuzzy residual.