All About Actuarial Value in Health Insurance

Get the Best Bang for Your Buck

Pink piggy bank with glasses and stethoscope
Pink piggy bank with glasses and stethoscope. Getty Images/David Franklin/Photographer's Choice

A health plan’s actuarial value is the percentage of the plan members’ health care expenses the plan is actually expected to pay. A health plan’s members pay the remaining expenses in the form of cost sharing like deductiblesco-pays, and co-insurance.

Below is an fictional example of how actuarial value works with made-up figures for a mythical health insurance plan.

This health plan provides health insurance to 100,000 different members.

Over the course of a year, the plan’s members have a total of $200,000,000 in health care expenses.

A health plan with an actuarial value of 80 percent is expected to pay 80 percent of the $200,000,000 in health care expenses or $160,000,000 total over the course of the year. The health plan’s members pay the other $40,000,000 of the expenses through their deductibles, co-pays, and co-insurance.

A health plan with an actuarial value of 60 percent is expected to pay 60 percent of the $200,000,000 or $120,000,000 total toward the yearly health care expenses of its members. That health plan’s members will pay the remaining $80,000,000 toward their expenses.

Why Actuarial Value Matters to You

Actuarial value figures give you a way to compare the value of competing health plans; in other words, how much bang you get for your buck. If you’re comparing two health plans and they each have an actuarial value of 70 percent, then it’s fair to assume that they’re of equal value.

If plan A has a monthly premium of $250 while plan B costs $500 per month, it’s pretty clear that you’ll get more bang for your buck if you buy the cheaper plan A.

Likewise, if you’re comparing two health plans that have the same monthly premium but have different actuarial values, the health plan with the higher actuarial value is probably the better deal.

 It will likely cover more of your health care expenses for the same monthly premium cost.

While you can use a health plan’s actuarial value to estimate how much of your health care expenses a plan will cover, don’t count on that estimate being totally accurate for your individual expenses. Here’s why: 

Actuarial Value Is Figured For the Plan as a Whole

The actuarial value of a health insurance plan is usually figured for the plan’s membership as a whole, rather than for a particular individual. Just because you have a health plan with an actuarial value of 80 percent doesn’t necessarily mean the plan will pay 80 percent of your individual health care expenses. The percentage of your individual health care expenses the plan pays depends on how you use your health insurance.

For example, if you need a $400,000 bone marrow transplant this year, you’re clearly going to exceed your out-of-pocket maximum. After you exceed your out-of-pocket maximum, your health plan will begin paying 100 percent of your covered expenses.

If your out-of-pocket maximum is, say, $10,000 then your health plan will pay approximately $390,000, or 97.5 percent, of your health care expenses this year.

However, if you only see the doctor once this year when you sprain your ankle, your health insurance may not pay anything at all toward your health care expenses. If you have a deductible of $1,000 and your sprained ankle care only cost $200, you’ll pay that entire bill as part of your deductible. If you don’t have any more health care expenses this year, at the end of the year, you’ve paid $200 toward your care and your health insurance has paid $0.

However, when you add up the health care expenses of each and every member in the health plan, situations like the above examples balance each other out. This should result in the health plan paying very close to the percentage of the entire membership’s expenses predicted by the plan’s actuarial value.

Actuarial Value Doesn’t Consider Non-Covered Expenses

When calculating a health plan’s actuarial value, keep in mind that actuaries only use health care expenses that are covered by the health plan. For example, if a health plan doesn’t cover liposuction, the cost of liposuction isn’t included in actuarial value calculations even though some of the health plan’s members may choose to get liposuction over the course of the year.

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