What Actuarial Value Means for Health Insurance

Actuarial value is a measure of the percentage of healthcare costs that are paid by a health insurance plan. It's become particularly important since the Affordable Care Act (ACA) was implemented because ACA compliance requires individual and small group health plans to fall within specific ranges in terms of their actuarial value.

This article will explain how actuarial value is determined, how it's used to separate health plans into recognizable categories, and what consumers need to know about using this to select a coverage option.

The concept itself is simple enough: A health plan pays a certain percentage of healthcare costs, and plan members pay the rest. But it's essential to understand that actuarial value isn't calculated on a per-enrollee basis, instead, it's calculated across a standard population.

(The 2024 actuarial value calculation methodology is based on standard population data across nearly 50 million group health insurance enrollees, as well as more than one million individual health plan enrollees.)

In other words, if a certain plan has an actuarial value of 70%, it will pay 70% of average healthcare costs across the whole standard population. It will not, however, pay 70% of each enrollee's costs.

One Plan, One Actuarial Value, Very Different Results for Individual Members

As an example, let's consider two people with the same plan which has a $2,500 deductible and a $5,000 out-of-pocket maximum that only covers preventive services before the deductible is met.

Let's say that Bob has coverage under this plan, and his only medical care during the year is a trip to urgent care for a few stitches when he cuts his hand. For simplicity's sake, we'll say that the urgent care bill was $1,500, after the health plan's network negotiated discount is applied. That's less than his deductible, so Bob will have to pay the entire $1,500. In other words, he has paid 100% of his healthcare costs for the year—and his insurer has paid 0% (assuming he didn't receive any preventive care).

Now let's consider Alan, who has coverage under the same plan. Alan is diagnosed with cancer in February and hits the plan's $5,000 out-of-pocket maximum the same month. By the end of the year, Alan's health insurance plan has paid $240,000 for his care, and Alan has paid $5,000 (his out-of-pocket maximum). In Alan's case, his insurance policy has paid 98% of his costs, and Alan has paid just 2% of the costs.

Remember, Alan and Bob both have the same plan, and for this example, we'll say it's a silver plan, which means it has an actuarial value of roughly 70% (assuming it's not an individual market silver plan with built-in cost-sharing reductions). Looking at it from this perspective, it's obvious that on an individual basis, there's wide variation in terms of the percentage of each enrollee's costs that are covered by the health plan, as it depends on how much health care each person needs during the year.

But overall, across a standard population, the plan that Bob and Alan have will cover an average of about 70% of costs.

The ACA and Actuarial Value

Under ACA regulations, all individual and small group plans with effective dates of 2014 or later are required to fit into one of four metal levels, which are categorized based on actuarial value.

(Note that catastrophic plans, which don't fit into the metal level categories and have an actuarial value below 60%, are also permitted in the individual market, but can only be purchased by people under the age of 30, or those who have a hardship exemption from the ACA's individual mandate.)

The metal levels are designed as bronze, silver, gold, and platinum. Bronze plans have an actuarial value of roughly 60%, silver plans 70%, gold plans 80%, and platinum plans 90%.

Because it's difficult for insurers to design plans that have a precise actuarial value, the ACA allows a de minimis range. It was initially +/-2 and is currently set at that level for most plans (with some exceptions, described below). But there has been some fluctuation in the de minimis rules over the years.

In December 2016, HHS finalized a rule that allows bronze plans (actuarial value roughly 60%) to have a de minimis range of -2/+5, starting in 2018 (in other words, between 58% and 65%).

Then in April 2017, HHS finalized market stabilization regulations that allowed the de minimis range to expand to -4/+2 for silver, gold, and platinum plans, and further expanded the new de minimis range for bronze plans to -4/+5.

These rules remained in place from 2018 through 2022. But starting with the 2023 plan year, HHS tightened up the de minimis ranges, allowing less flexibility on the lower end of the spectrum for each metal level. The following rules began to apply as of 2023 are are currently in use:

• Bronze plans can have actuarial values between 58% and 65% (note that the higher AV range applies to expanded bronze plans; regular bronze plans still have an AV cap of 62%, so the range is +2/-2 for non-expanded bronze plans).
• Silver plans in the small group market can have actuarial values between 68% and 72% (i.e. +2/-2). But in the individual market, silver plans must have an AV between 70% and 72% (i.e. +2/0). And the de minimis range is even tighter for cost-sharing reduction variations of silver plans.
• Gold plans can have actuarial values between 78% and 82% (i.e. +2/-2).
• Platinum plans can have actuarial values between 88% and 92% (i.e. +2/-2).

Calculating Actuarial Value: Only In-Network EHBs Are Counted

The federal government created an actuarial value calculator—which is updated annually—that insurers use to determine the actuarial value of the plans they're proposing for the following year.

Only services that are considered essential health benefits (EHBs) are counted in the calculation. Insurers can cover additional services, but that doesn't count towards the actuarial value of the plan.

In addition, actuarial value calculations only apply to in-network coverage, so the out-of-network coverage that a plan provides—if any—is not part of the determination of a plan's actuarial value.

(The majority of individual/family health plans do not provide out-of-network coverage. For individual and small group health plans that do provide out-of-network coverage — PPOs and POS plans — there are no limits on how high cost-sharing or total out-of-pocket costs can be for out-of-network care.)

Large Group and Self-Insured Plans Have Different Rules

The actuarial value metal level requirements in the ACA apply to individual and small group plans. But large group plans and self-insured plans have different rules. (In most states, large group means more than 50 employees, but in four states, it means more than 100 employees.)

For large group and self-insured plans, the requirement is that the plan provides minimum value, which is defined as covering at least 60% of costs for a standard population (if an employer with 50+ employees offers a plan that doesn't provide minimum value, they risk a financial penalty under the employer mandate).

There's a minimum value calculator that's similar to the actuarial value calculator used for individual and small group plans, but the calculators do have several key differences.

Large group and self-insured plans don't have to conform to the metal level categories that apply in the individual and small group market, so there can be more variation from one plan to another in the large group and self-insured market.

To provide minimum value, group health plans have to provide "substantial" coverage for inpatient and physician care, and must cover at least 60% of the average costs of a standard population. But they can cover any percentage of costs above that level, without having to mold their benefits to fit within narrowly defined ranges.

Plans With the Same Actuarial Value Usually Have Different Plan Designs

The actuarial value calculator allows insurers to design unique plans that all end up within the same actuarial value range. This is why you can look at 10 different silver plans and see 10 very different plan designs, with a wide range of deductibles, copays, and coinsurance.

California's health insurance exchange requires all plans for individual and small groups to be standardized, which means that within a particular metal level, all of the available plans are virtually identical in terms of benefits from one plan to another, although they all have different provider networks.

There are several other states that require some standardized plans but also permit non-standardized plans. And HealthCare.gov once again began offering standardized plans as of 2023, alongside non-standardized plans.

But plan standardization is not the same thing as actuarial value. If a state or exchange requires plans to be standardized, all available plans will have the same exact benefits across whatever metrics are used for standardization (deductibles, copays, coinsurance, out-of-pocket maximum, etc. although things like drug formularies and provider networks will vary from one plan to another).

This is in contrast to actuarial value requirements, which allow for significant variation in terms of plan design and benefits, even for plans that have the same actuarial value.

The variation among plans at the same metal level can happen even when the plans have the exact same actuarial value (i.e., two plans with different benefit designs can both have an actuarial value of exactly 80%).

But the de minimis range allowed at each metal level further increases the variation allowed within a single metal level. A plan with an actuarial value of 58% is a bronze plan, and so is a plan with an actuarial value of 65%, although the plan with an AV of 65% is classified as an "expanded bronze" plan, which means it covers at least one major non-preventive service before the deductible. Obviously, those two plans will have very different benefit designs, but from a consumer's perspective, they are both bronze plans.

The tighter AV ranges for 2023 and future years are designed to minimize significant variation in the coverage that various health plans offer at a given metal level.

Summary

Actuarial value, or AV, is a measure of the percentage of a standard populations medical costs that are paid by a health plan. Under the ACA, individual and small group health plans must fit into one of four categories, which are determined based on each plan's actuarial value. A plan with an AV of roughly 60% will be a bronze plan, while a plan with an AV of roughly 90% will be a platinum plan.

A small de minimus range is allowed, so health plans do not have to hit those values exactly. But the allowable range was tightened up starting in 2023, keeping plans at each metal level to a tighter AV range.

Large group and self-insured health plans generally need to have an AV of at least 60%, but are not required to conform to metal levels or specific AV ranges.

A Word from Verywell

If you're shopping for health insurance, understanding the metal level system is an important part of figuring out what plan will best fit your needs. If you're shopping for health insurance in the exchange and you're eligible for cost-sharing reductions, you have to pick a silver-level plan in order to take advantage of that benefit. Otherwise, you can select from among any of the available plans. But understanding the metal level system will help you to make an informed choice.