Healthcare Actuary Value Calculation

Actuary Services:
Actuaries are professionals who perform the mathematical analysis necessary for setting insurance premium rates.

A health plan’s actuaries are responsible for ensuring that the plan’s operations are conducted on a financially sound basis.

Actuarial Services includes Plan pricing, plan valuation, forecasting, product development, financial reporting, claim experience and provider contracting etc.

Actuarial Value: It is the percentage of covered costs that the plan expects to pay for an enrollee in the plan.

Example, a person with a plan that had an actuarial value of 70% would be responsible for on average 30% of the cost of the covered benefits under the plan.

Actuary Value will be calculated based on the provision of essential health benefits (EHB) to a standard population.

Actuarial Value for Metal Levels:

As Exchanges are implemented and begin open enrollment on October 1 of 2013, all people will begin to choose coverage based on a particular “metal level” – bronze, silver, gold, or platinum. Each metal level is representative of how rich a plan is, based on the average estimated actuarial value of 60%, 70%, 80%, and 90% respectively. Every plan must cover a certain identified set of benefits deemed “essential” and certain preventive services are covered at 100%. Some plans may cover more than the minimum essential health benefits. This additional coverage will be reflected in the plan’s actuarial value. Plans could vary in the way co-pays, coinsurance, and deductibles are applied, which means that two plans at the same metal level could cost individuals with the plans in different ways.

Data Sources and Metric Calculation:

The inputs for AV calculation are information on utilization, cost-sharing and total costs for health services for a standard population of health plan enrollees resembling those likely to be covered by individual.

Below is a list of metrics that are commonly aggregated directly from claims and eligibility data that then get included in the actuarial cost model.

1.       Eligibility
Member-Month Exposure, Earned Premium

2.       Claim Amounts
Claim Payments, Allowed Charges, Billed Charges, Non-Claim Payments (e.g., capitation, invoices)

3.       Utilization Counts
Admissions, Bed Days, Visits, Procedures, Prescriptions Dispensed, Day Supply, Other Units

The above metrics are then used to derive the following summary metrics that are the focal points of the actuarial cost model.

Summary Metrics
Claim PMPM, Utilization Frequency, Unit Cost, Provider Discount, Actuarial Value (AV), Medical Loss Ratio (MLR)

And it requires members spending and claims information for total services and for each of the following medical and drug service categories:

• Emergency Room Services
• All Inpatient Hospital Services (including mental health and substance use disorder
• services)
• Primary Care Visit to Treat an Injury or Illness (ex: Preventive Well Baby, Preventive, and X-ray 3)
• Specialist Visit
• Mental/Behavioral Health and Substance Abuse Disorder Outpatient Services
• Imaging (CT/PET Scans, MRIs)
• Rehabilitative Speech Therapy
• Rehabilitative Occupational and Rehabilitative Physical Therapy
• Preventive Care/Screening/Immunization
• Laboratory Outpatient and Professional Services
• X-rays and Diagnostic Imaging
• Skilled Nursing Facility
• Outpatient Facility Fee (e.g., Ambulatory Surgery Center)
• Outpatient Surgery Physician/Surgical Services
• Drug Categories
• Generics
• Preferred Brand Drugs
• Non-Preferred Brand Drugs
• Speciality Drugs (high cost)

In addition, a breakdown of whether a service and associated cost is considered part of Outpatient Surgery, Physician/Surgical Services or Outpatient Facility Fees for the following service categories: Mental Health and Substance Use Disorder, Advanced Imaging, Rehabilitative Speech Therapy, Occupational and Physical Therapy, Diagnostic Laboratory, and Unclassified (medical).

Business rules to follow – for AV calculation:
Below rules need to be follow to extract the member and claims information for AV calculation.

• To ensure that the imputation procedure can be applied effectively, plans with utilization data that are likely incomplete are excluded.
• Plans with more than 50 members must be PPO/POS plans with positive drug enrollment in at least one month
• Plans with over 1,000 members must additionally have at least one claim with a maternity DRG.
• All plans must have at least one member with over $5,000 in spending
• Exclude plans with zero spending for all enrolled
• Plans with imputed coinsurance rates that fall outside the range of 0-100% are dropped
• Plan-demographic group combinations with negative realized actuarial value 
• Enrollees with unspecified sex

How to Calculate Actuarial Value?

The Centers for Medicare and Medicaid Services (CMS) issued a Revised Final 2018 Actuarial Value (AV) calculator to account for the final rule on market stabilization under the Patient Protection and Affordable Care Act.

Payers can use this calculator to predict Actuarial Value for health plans.

Note: The AV Calculator does not allow the user to subject recommended preventive care to a copay or deductible because the Affordable Care Act directs that these services be covered by the plan at 100%.

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