Actuarial Value — Plant, Animal, or Mineral?

Did you know that your future health insurance plan will be based on an actuarial value?  I didn’t.  I didn’t even understand why premium costs were different, why co-payments were different, let alone know what THAT term meant!  And I will bet that I’m not the only one in this situation either.  Now that the Affordable Care Act (ACA) has become law and new health insurance markeplaces are about to go into affect (October 1, 2013), you really do need to understand how your new insurance plan will work and what you are ultimately paying for.

So what is an actuarial value?  It is just a percentage….that’s it.  A percentage paid by a health plan of the total “allowed” costs of the plan benefits.  The federal government set up four plan levels based on percentages, or actuarial values. These are referred to as the metallic plans: Bronze (60%), Silver (70%), Gold (80%), and Platinum (90%). As plans increase in actuarial value they cover a greater share of your medical expenses overall. 

For example, if your plan has an actuarial value of 60% (Bronze) the insurance carrier is responsible for 60% of your healthcare expenses and you will be responsible for the remaining 40%.  Your 40% is a combination of deductibles, co-pays, and co-insurance on a yearly basis to the maximum out-of-pocket per your metallic plan. The ratio for the Silver Plan is 70/30.  The insurance plan will pay 70% of the expenses and you will pay 30% of the expenses…and so forth.  Just remember, the actuarial value relates to the percentage ratio of what your health carrier is responsible for paying within your health plan. 

What makes up your out-of-pocket expense, the percentage you are responsible for?

  • Deductible:  An amount of money, set by the policy, that you are responsible before your insurance company pays benefits.
  • Co-payments (co-pays):  Found in HMOs (health management organizations) and PPOs (preferred provider organizations).  It’s a specified amount of money you will pay for each doctor visit. Prescriptions usually carry co-pays as well.
  • Co-insurance:  Sharing the cost of medical care between you and the insurance company. This is found in major medical policies. Co-insurance would be paid after you have satisfied your annual deductible. The most common co-insurance is 80/20 (Silver Plan). The insurance company pays 80% of the medical costs and you would be responsible for the remaining 20%.

Now that you understand how actuarial value works you can start weighing the pros and cons for each plan against your needs.  Maybe you aren’t worried about multiple re-occurring doctor visits and high cost monthly prescriptions, you could look at a lower plan, Bronze or Silver, higher out-of-pocket costs up front until you meet your maximum plan deductible but lower monthly premiums.  Maybe you have heavier medical expenses and a higher level insurance plan will help you with your re-occurring out-of-pocket expenses. But remember, to offset this higher assistance from your health insurance you will end up paying a higher monthly premium.  I suggest you get out your calculator and start sharpening your pencils!

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