Patient Protection and Affordable Care Act; Actuarial Value Calculator Methodology

Actuarial Value Calculator Methodology

DEPARTMENT OF HEALTH AND HUMAN SERVICES

AGENCY: Department of Health and Human Services.

This document is incorporated by reference into the Patient Protection and Affordable Care Act;

Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation, published in

the Federal Register at 78 CFR 12834 (February 25, 2013) and comprises part of the final rule

for determining actuarial value at 45 CFR 156.135.

Introduction:

In the Essential Health Benefits, Actuarial Value, and Accreditation final rule, published in the

Federal Register, HHS requires use of an AV Calculator by non-grandfathered health insurance

plans offered in the individual and small group markets, both inside and outside of the

Affordable Insurance Exchanges (Exchanges) for the purposes of determining levels of coverage.

Section 1302(d)(2)(A) of the Affordable Care Act stipulates that AV be calculated based on the

provision of essential health benefits (EHB) to a standard population. The statute groups health

plans into four tiers: bronze, with an AV of 60 percent; silver, with an AV of 70 percent; gold,

with an AV of 80 percent; and platinum, with an AV of 90 percent. The final rule establishes

that a de minimis variation of +/- 2 percentage points of AV is allowed for each tier.

The AV Calculator represents an empirical estimate of the AV calculated in a manner that

provides a close approximation to the actual average spending by a wide range of consumers in a

standard population. Although producing an exact calculation of a very complex interaction of

use of health care services is not possible in a tool that is publicly available and able to

accommodate the majority of plans, the results provided by this AV Calculator are well within

the de minimis range established in the final rule (§156.140(c)) and ensure compliance with the

Affordable Care Act and final regulatory AV standards. This document is meant to detail the

specific methodologies used in the AV calculation. This revised and updated document

incorporates comments received on the proposed regulation and AV Calculator where applicable.

Details on comments on the AV Calculator are addressed in the comment and response of

§156.135 of the final rule.

This incorporated portion of the final rule provides a detailed description of the development of

the standard population and AV Calculator methodology. The following section details the data

and methods used in constructing the continuance tables that are used to calculate AV in

combination with the user inputs. The final section describes the AV Calculator interface and

the calculation of actuarial value based on the interface and the continuance tables. The

computer coding that combines the data inputs with the continuance tables is now accessible as a

part of the AV Calculator download, available at

http://cciio.cms.gov/resources/regulations/index.html.

Data Sources and Methods:

This section describes the data and methods used to create the building blocks of the AV

Calculator, including the development of the standard population. 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 and small

Actuarial Value Calculator Methodology Page 2

group market health insurance in 2014. This information is used to create a series of continuance

tables that describe the distribution of claims spending for a population of health insurance users

that we are proposing as the standard population. The standard population is the basis for these

continuance tables from a utilization perspective.

Because spending is affected by plan design through induced demand, the claims data is used to

develop four sets of continuance tables, based on bronze, silver, gold and platinum plan designs.

The AV Calculator estimates the actuarial value of a plan design based on the aggregated data

contained in the four sets of continuance tables representing each plan’s benefit structure.

The remainder of this document outlines the process for creating and using each of these

components in turn. The first section describes the large national claims database that was used

as the basis to develop the standard population. In addition, preliminary adjustments to that

database are described in the first section. The second section explains the process for adjusting

and supplementing the claims data in the national database to better estimate the individual and

small group markets in 2014 to develop the standard population. The third section describes the

methodology for using the claims database to develop the continuance tables. Finally, the last

section details the process for accounting for spending and utilization of certain EHB that are

poorly represented in the database.

National Database

To provide information on utilization and cost sharing for a standard population of enrollees,

HHS began with claims data from the Health Intelligence Company, LLC (HIC) database for

calendar year 2010. This commercial database includes detailed enrollment and claims

information for individuals who are members of several regional insurers and covers over 54

million individuals enrolled in individual and group health plans. A database including enrollees

in small group plans is desirable because 83 percent

of small group plans do not offer multiple

choices of plans, reducing selection bias between plans. Including claims in the small group

market permits the continuance tables to be based on induced demand assumptions that reflect

plan design options that will be available in 2014, particularly the bronze and silver options that

are described in §156.140 of this final rule. In addition, large group health plans tend to have

gold and platinum level benefit generosity, and data on these plans offer information about gold

and platinum plan design options. As described below, several adjustments were made to this

data to more closely represent the expected population of enrollees in 2014.

Since descriptions of the plan benefit design characteristics were not included in the database,

cost sharing variables, including copayments, coinsurance and deductibles from the claims data

were used to infer the member and plan shares of the total spending that is reflected in the

database, as described below.

The data contains spending, demographic and enrollment

information at the member level, including age, sex, family structure, presence of a pre-existing

condition, enrollment, spending, and number of claims. Enrollees are grouped into Product

Client Contracts (PCCs) defined by plan type (for example, PPO, HMO, indemnity, etc.) and

benefit design for a given contract or plan group. The AV Calculator treats each PCC as a

http://ehbs.kff.org/pdf/2012/8345.pdf (Table 4.1)

The AV Calculator does not incorporate information from individual plans because these data could not be used to

infer plan design.

Actuarial Value Calculator Methodology Page 3

separate health plan, since each PCC represents a uniform benefit structure under a contract or

plan group. However, in practice a regional health plan may operate multiple PCCs. All cost

data in the database are trended forward to 2014.

Spending and claims information is provided in the database both 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 (exc. Preventive Well Baby,

Preventive, and X-rays

)

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

o Specialty Drugs (high cost)

•

With the exception of preventive care, the claims database defines which services fall into each

category. In addition, the database provides 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). In the development of the continuance tables based on

If special cost-share provisions are indicated for Primary Care and/or Specialist Office Visits, certain office visits

will be split into their component parts only if those office visits include services that do not have special cost-

sharing provisions (not having special cost-sharing provisions is defined as being Subject to Deductible, Subject to

Coinsurance, with no special coinsurance rate and no copay). This is applicable to X-rays, and the component parts

are Primary Care Office Visit, Specialist Office Visit, and Other. For example, if Primary Care office visits are not

subject to the deductible and have a $20 copay, but X-rays are subject to the deductible and general coinsurance, a

Primary Care office visit that includes an X-ray will be split into two services, a Primary Care office visit and an X-

ray.

Actuarial Value Calculator Methodology Page 4

the standard population, we relied on this aspect of the database to account for separate

copayments and cost sharing payments applying to the professional and facility components of

services.

Preventive care is defined, and claims are categorized, using the CPT code list from the US

Preventive Services Task Force. The services defined as preventive care correspond to the

preventive services covered without cost sharing under section 2713 of the Affordable Care Act.

To prepare the data for use in the continuance tables, several enrollment restrictions are applied

to ensure that the data represent a full year of utilization experience for enrollees. The full data

include 39,184,536 enrollees and 767,517 PPO/POS (Point of Service) plans. Restricting to

group PPO/POS with drug coverage and at least 50 enrollees brings the count down to

15,243,652 enrollees and 61,647 plans. In the absence of plan benefit design information directly

from the plans that submitted data to this commercial database, the cost-sharing parameters that

apply to individuals are inferred from the spending data to aid in the construction of the

continuance tables. To ensure that the imputation procedure can be applied effectively, plans

with utilization data that are likely incomplete are excluded. Specifically, to be included, plans

with more than 50 members must be PPO/POS plans with positive drug enrollment in at least

one month, and plans with over 1,000 members must additionally have at least one claim with a

maternity DRG. Moreover, all plans must have at least one member with over $5,000 in

spending. For plans that meet these requirements, the 90

percentile of positive deductibles that

are at least $250 lower than the amount of total spending for all enrollees within a PCC is set as

the plan deductible, and the 90

percentile of beneficiary spending above $1,000 over all

enrollees within a PCC is set as the plan maximum out-of-pocket (MOOP) limit. The

coinsurance rate is estimated by examining the coinsurance variable on claims for plan members

with spending between the deductible and the MOOP. Spending data are also used to impute

copayments for several services including in-patient (IP) services, emergency room (ER)

services, primary care office visits, specialist office visits, and five tiers of prescription drugs:

generics, preferred brand drugs, non-preferred brand drugs, and specialty high-cost drugs.

To prepare the data for use in the continuance tables, additional restrictions are made to exclude

implausible plan designs. Plans with zero spending for all enrollees and plans with imputed

coinsurance rates that fall outside the range of 0-100% are dropped. Additionally, plan-

demographic group combinations with negative realized actuarial value are dropped. Enrollees

with unspecified sex are also excluded. The resulting database consisting of 12,553,043

enrollees and 46,359 plans was used to construct the continuance tables, subject to the additional

adjustments identified in the next two sections of this document.

Standard Population Development and Adjustment from Primary Claims Data

The claims data, excluding the populations and plans noted above, provide the raw material for

developing a standard population based on the expected enrollment in individual plans for the

years 2014 and beyond. Utilization and spending in this data do not necessarily represent

utilization and spending in the population expected to participate in the individual and small

group markets in 2014. Further adjustment is therefore necessary to reflect the expected

enrollment in plans required to use the AV Calculator in 2014.

We anticipate that the standard population should be composed of the following:

Actuarial Value Calculator Methodology Page 5

Newly insured individuals: Most currently uninsured individuals will be eligible to enroll in the

individual or small group markets beginning in 2014. Because the data in the commercial

database represent a population insured under group policies with guaranteed issue, utilization in

this group is likely to adequately represent utilization among the newly insured. However, it is

possible that there is pent-up demand for health services in this group due to their prior lack of

insurance. The AV Calculator is intended for multiple years of use and pent-up demand (to

whatever extent it occurs) is likely to greatly diminish over time. The continuance tables

therefore do not incorporate any adjustment for additional utilization due to pent-up demand in

this group.

Individuals in the status quo individual market: After January 1, 2014, utilization in the group of

enrollees in the individual market is likely to be comparable to enrollees in the database, so no

adjustments in addition to those noted above are incorporated to account for this group.

Individuals in the small group market: The database consists of individuals with group coverage,

and we expect the 2014 small group population to be very similar to the current group market

enrollees. Therefore, no adjustments in addition to those noted above are incorporated to account

for this group.

Individuals moving out of employer coverage: If individuals move from employer coverage to

the individual market, their utilization is likely to be comparable to enrollees in the database, so

there is no adjustment in addition to those noted above to account for this group.

Individuals with Medicaid eligibility for part of the year: During the course of a year, some

individuals enrolled in Medicaid will become ineligible due to income and will enroll in the

individual or small group markets. Utilization in this group is likely to be similar to that among

enrollees in the group market because the ability to move up out of Medicaid income levels and

into employment likely indicates better health status than that of the average Medicaid

beneficiary. Therefore, no adjustments are incorporated to account for this group.

High risk individuals: As of December 2011 (the most recent date for which data with detailed

demographic information on enrollees is available), about 220,000 people were enrolled in state

high risk pools (HRPs), and about 49,000 were enrolled in the federally-administered or state-

administered Pre-existing Condition Insurance Plans (PCIP).

Average spending for individuals

in both the HRPs and the PCIP is substantially higher than spending for enrollees in the claims

database. Individuals in state high-risk pools have average spending of about $10,900 per year,

based on 2010 annual state high-risk pool expenses reported by the National Conference of State

Legislatures (NCSL)

and most have annual spending that consistently exceeds their plan’s

MOOP. Based on data from the federally-administered and state-run PCIP programs, individuals

in PCIP have average spending of about $28,000 per year, and many of these individuals are past

the MOOP. While states have the flexibility to keep high risk pools open beyond 2014, the

continuance tables include adjustments to the existing utilization data to account for both of these

populations as described in the following section.

The December 2011 PCIP enrollment data by state is available on the Healthcare.gov website:

ttp://www.healthcare.gov/news/factsheets/2012/09/pcip09142012a.html.

NCSL annual spending data by state is available on the organization’s website: http://www.ncsl.org/issues-

research/health/high-risk-pools-for-health-coverage.aspx.

Actuarial Value Calculator Methodology Page 6

Constructing Continuance Tables

Continuance tables summarize the claims experience and utilization of the standard population

and are therefore the key input to calculating actuarial value. Specifically, a continuance table

describes the distribution of claims spending for a population of health insurance users who face

a particular benefit structure. The set of continuance tables underlying the AV Calculator reflect

the standard population developed by the Secretary to implement section 1302(d) of the

Affordable Care Act. The continuance tables themselves, as a representation of the standard

population and not the standard population itself, are a component of the rules for determining

actuarial value under the final rule and are available at

http://cciio.cms.gov/resources/regulations/index.html#pm.

The continuance tables rank enrollees by allowed total charges (after any provider discounts but

before any member cost-sharing) and group them by ranges of spending. These ranges of

spending define the rows of the continuance table. The data are then used to calculate the

number of enrollees with total spending falling within each range, the cumulative average cost in

the range for all enrollees, and the average cost for all enrollees whose total spending falls within

the range. For each service type listed above, the columns of the continuance table display the

average cost of spending on that service type that is attributed to cumulative enrollees in each

range and the average frequency of the service type per enrollee.

To construct the continuance tables from the underlying utilization data, enrollees are separated

into groups based on common plan enrollment, sex, and age bracket, and each group is assigned

to a metal level based on the estimated actuarial value of the plan. Separate continuance tables

are created based on the utilization of enrollees in the same metal tier, sex, and age bracket.

Because continuance tables are constructed for plan designs with similar actuarial values, the

tables must account for changes in utilization induced by plan design. To account for this

induced demand, each continuance table reflects utilization of individuals from the claims

database in plans with actuarial values in each of the four metal tiers. That is, each plan in the

database is assigned an actuarial value based on the service utilization and plan payments for

enrollee groups in that plan, and enrollees are grouped by these values into the metal tiers. The

continuance tables for each metal tier are based on utilization data from enrollees in the claims

database with estimated actuarial values within +/- 5 percentage points of the target actuarial

value for each metal tier.

To estimate actuarial value for each plan, the realized actuarial value of the imputed benefit

characteristics is calculated for groups of enrollees by age, sex, and spending bracket; the

spending brackets are $0 to $250, $250 to $500, $500 to $1,500, $1,500 to $5,000, $5,000 to

$15,000, $15,000 to $25,000, and $25,000 and over. Nonlinear least squares regressions, a

statistical technique, are used to develop models estimating actuarial value based on the imputed

cost shares in each of the spending brackets.

The utilization data are then used to create continuance tables for each sex/age group and each

metal tier. Only utilization data from enrollees with exactly 12 months of enrollment or

newborns are used in the continuance tables in order to represent a consumer’s view of what

cost-sharing to expect in a full 12 months of eligibility. The continuance tables for bronze and

Actuarial Value Calculator Methodology Page 7

silver plans are based on utilization of enrollees in PPO/POS plans with between 50 and 250

enrollees with estimated actuarial values in the bronze and silver range.

Utilization data from

all group plans with more than 50 enrollees and estimated actuarial values in the gold and

platinum range is used to construct continuance tables for gold and platinum plans.

To produce a single continuance table for each metal tier, each of the separate continuance tables

representing age/sex groups for a given metal tier are assembled into a single metal-level-

specific continuance table, with each sex/age-group cell weighted by expected individual market

participation in the corresponding metal tier for enrollees with those characteristics.

Expected

market participation for each sex/age group is estimated by a model developed by HHS to

predict 2014 insurance enrollment. The model estimates market enrollment in a manner that

incorporates the effects of policy choices and accounts for the behavior of individuals and

employers. The model was developed with reference to existing models such as those of the

Congressional Budget Office and the Office of the Actuary, to characterize medical expenditures

and enrollment choices across the 2014 marketplace. The model is made up of integrated

modules which predict the number and characteristics of enrollees and their medical

spending. The outputs of the model, especially the estimated enrollment and expenditure

distributions, were used to analyze estimated enrollment in the 2014 marketplace. For a

continuance table representing a particular metal tier, the HHS model predicts the share that each

age/sex group represents of the full enrollee population at that metal tier.

Separate continuance tables for medical services and prescription drugs underlie the AV

Calculator to accommodate the input of benefit structures with separate deductibles for these

types of spending. To estimate costs for a plan with a separate drug benefit, the continuance

table must include only non-drug claims to determine actuarial value for the medical portion of

the plan. To produce a single AV for this type of plan, the plan-covered spending on drugs and

medical services are added together and divided by total spending.

Because enrollees in the current group market do not fully represent the population expected to

enroll in the individual and small group markets in 2014 (including the Exchanges), the

continuance tables are adjusted to include spending by enrollees in both the federal and state-

administered PCIP and the state HRPs. As explained above, PCIP and HRP enrollees generally

have spending far above the individual market average, and most exceed the MOOP; however

we have only average claims for this population. To adjust for the presence of these individuals,

first the incremental spending for all PCIP enrollees is averaged across all market enrollees,

including PCIP, by dividing the increment of expected spending for all PCIP members above the

expected spending for the standard population by the expected individual market population in

2014. An analogous calculation is made for HRP enrollees.

Because the bronze and silver tables use only enrollees in plans with between 50 and 250 enrollees, the overall

means are distorted due to random observations of extreme spending above the 99

percentile. To account for this

distortion, enrollees above $45,000 in total allowed spending were combined between the two continuance tables,

with the average proportion and utilization rates being applied for all buckets above $45,000 for both bronze and

silver tables. A further ad hoc adjustment of reducing bronze spending by 4% for all enrollees below the $45,000

cut-off rate is made to emulate the difference in mean spending observed in the full empirical HIC distributions.

We expect that small group participation is similar to individual market participation in terms of age and sex

distribution.

Actuarial Value Calculator Methodology Page 8

Second, both of these per-member-per-year amounts are added to the average-cost-per-member

column in the final row of each combined continuance table, which represents the average cost

over all enrollees. This step adjusts the continuance tables to reflect that spending by PCIP and

HRP enrollees is expected to increase average total spending for enrollees that are reflected in

the standard population and the continuance tables.

Third, a weighted portion of the per-member-per-year costs for PCIP and HRP enrollees is added

to the average-cost-per-enrollee column of each row of the continuance table. The weight for

each row is chosen so that the median of the distribution of medical spending for PCIP and HRP

enrollees is equal to that of ER spending, and the median of drug spending is equal to that of

generic drug spending. For the combined medical and drug continuance tables, the weight of

each row is chosen so that the median of the combined distribution for PCIP and HRP enrollees

is equal to that of ER spending. ER spending was chosen for this process because the distribution

of ER spending in the claims database was the most closely aligned of all spending types to the

observed distribution of spending among PCIP/HRP enrollees. This step spreads spending for

PCIP and HRP enrollees across the distribution of enrollee spending in accordance with

observed distributions of spending for high-risk enrollees relative to MOOP. It is important to

note that incorporating spending for PCIP and HRP enrollees creates a gap in the continuance

tables between the average-cost-per-enrollee derived from the national claims database and the

data used in the AV calculation, as it is the sum of the weighted portion of the per-member-per-

year costs for PCIP and HRP enrollees and the average-cost-per-enrollee from the claims

database that is used in the calculation.

Essential Health Benefits Generally Not Represented in Current Policies

Certain EHB that must be covered under the definition of EHB in this final rule are relatively

uncommon among the insured population reflected in the 2010 claims database that was used to

develop the standard population and the continuance tables. These EHB services include

pediatric oral and vision, and habilitative services. The continuance tables incorporate a number

of assumptions and additional data sources to ensure the AV Calculator will account for these

benefits.

Pediatric oral services must be covered by all EHB- benchmark plans. The continuance tables

incorporate assumed utilization of pediatric dental visits based on estimates from an analysis

performed for the National Association of Dental Plans (NADP). The NADP estimated per-child

per month cost for preventive services is annualized and then multiplied by the expected

participation rate of children in the exchange based on the ACAHIM Market Enrollment model.

Spending for these services is incorporated into the continuance tables using a similar method to

that described above for incorporating PCIP and HRP spending. First, the per-member-per-year

spending is added to the average-cost-per-member column in the final row of each combined

continuance table, which represents the average cost over all enrollees. This accounts for the

increase in average per-member spending for these services. Next, a weighted portion of the per-

member-per-year cost is added to the average-cost-per-enrollee column of each row of the

continuance table, with the weight proportional to the ratio of the spending limit for that row to

Actuarial Value Calculator Methodology Page 9

the highest cumulative-average-cost-per-enrollee listed in the continuance table.

This spreads

the cost for pediatric dental services across the spending distribution but puts the bulk of those

costs in the highest spending brackets, under the assumption that enrollees who spend more on

all services are likely to spend more on pediatric oral services.

Pediatric vision services must also be covered by all EHB benchmark plans. Spending for these

services is incorporated into the continuance tables by the same method for pediatric dental

services using a cost estimate from a public employee health plan.

Generally, habilitative services are intended to create and/or maintain function. Given the

transitional nature of the approach to habilitation services in EHB in the final rule and that the

utilization of these services is assumed to be low across the entire enrollee population, at this

time the continuance tables do not incorporate any additional adjustments for these services.

The AV Calculator Interface:

This section describes the AV Calculator interface and how inputs into the calculator are used to

determine AV. Under the final rule, the inputs for the calculator were based on the 10 broad

categories of EHB and determined through a combination of consultation with actuarial experts

and testing the magnitude of the effect of parameters on the calculated actuarial value as well as

comments received on the proposed rule. The calculator is designed to produce a summarized

AV rounded to the nearest tenth of a percentage point based on the continuance tables described

above and the cost sharing inputs described below.

Plan Benefit Features Allowed as Inputs

Plan design structures are characterized by cost-sharing features that determine the division of

expenses between the plan and the insured. The ratio of the share of total costs paid by the plan

relative to the total costs of covered services is the AV of the plan. No summary calculator could

capture every single potential plan variation, nor are they necessary for an accurate calculation of

AV. However, empirically, the vast majority of the variation between the AVs of health plans is

captured by a finite number of variables, and the calculator focuses on accurately determining

plan actuarial values based on this set of key plan characteristics. Therefore, the calculator

includes only these key characteristics that have a significant effect on actuarial value.

The user inputs a combination of metal tier and cost-sharing features, and the AV Calculator uses

these inputs and the continuance tables to produce an AV for the health plan. The metal tier

input allows the AV Calculator to account for induced demand by using the set of continuance

tables for that specified metal tier. This is necessary to take into account the differences in

utilization that are based on generosity of the health plan (i.e. induced utilization).

Deductibles, general rates for coinsurance, and out-of-pocket maximums generally have a

significant effect on utilization and the share of plan-covered expenses. The AV Calculator

allows the user to specify either an integrated deductible that applies to both medical and

prescription expenses or separate deductibles for each type of spending. Similarly, if a plan

For example, assume that the highest cumulative average cost per enrollee is $10,000. If the spending limit for a

row of the continuance table is $1,000, the weight is proportional to 1,000/10,000.

Actuarial Value Calculator Methodology Page 10

design has separate medical and drug maximum out-of-pocket spending limits, the user may

specify either an integrated MOOP or separate MOOPs for medical and drug spending. The user

may also specify different coinsurance rates for medical and drug spending.

The AV Calculator allows the user to specify coinsurance rates and copayments for the medical

services listed on pages 3-4 of this document, which have a less significant effect on actuarial

value than the deductible, general coinsurance, and out-of-pocket maximum. In addition the AV

Calculator considers whether they are subject to deductible.

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%.

The AV Calculator also allows users to specify other plan details. For inpatient and skilled

nursing facility services, the default option is that copayments and coinsurance costs apply per

stay, but these may be applied at the per day level by choosing the corresponding options. If

inpatient copayment costs are applied per day, the user may specify that these copayments only

apply for a set number of days chosen by the user, ranging from the first one to ten days in the

hospital. Users may also specify that cost sharing for primary care visits only applies after a set

number of visits chosen by the user, ranging from one to ten visits. Alternatively, users may

specify that the deductible or coinsurance does not apply to primary care services until after a set

number of visits, ranging from one to ten visits; during this initial set of visits, the enrollee pays a

per-visit primary care copayment. Users may specify cost-sharing for four tiers of prescription

drugs: generics

, preferred brand drugs, non-preferred brand drugs, and specialty high-cost

drugs. Additionally, the user may specify that for specialty tier drugs, the enrollee pays the

lesser of either the specialty drug coinsurance or a set dollar limit chosen by the user. The

calculator also incorporates health savings accounts (HSAs) and health reimbursement

arrangements (HRAs) that are integrated with group health plans if the amounts may only be

used for cost-sharing; to use this option the user must include an annual amount contributed by

the employer or in the case of HRAs, the amount first made available (sometimes referred to in

this document as “HRA contributions”).

Plans typically apply very different cost-sharing structures to in-network and out-of-network

utilization. However, our empirical analysis of the claims database and other analyses by the

American Academy of Actuaries indicate that relatively little utilization actually occurs out of

network in terms of total dollars. In testing of the AV Calculator, AVs including and excluding

out-of-network spending differed by less than one percent. In addition, § 156.130(c) of the final

regulation requires that only in-network costs apply to the MOOP. For standard plans with in-

For the purposes of the AV Calculator, preventive care means the services required to be covered without cost

sharing under the ACA and its implementing regulations. See 45 C.F.R. § 147.130 and 77 Fed. Reg. 16501 (Mar. 21,

2012).

From a technical perspective, it is important to note that the generic drug category in the claims data base includes

maintenance drugs. To address the fact that not all maintenance drugs are generics and that some of those drugs are

high cost, we have revised the definition of the generic drug category to only include maintenance drugs that cost

less than $50 per prescription.

Actuarial Value Calculator Methodology Page 11

network and out-of-network tiers, the AV Calculator therefore produces estimates of actuarial

value based only on in-network utilization and allows the user to specify only in-network cost-

sharing parameters. This is consistent with §156.135(b)(4) as finalized.

The final version of the AV Calculator can accommodate plans utilizing a multi-tiered network

with up to two tiers. Users may input separate cost-sharing parameters—such as deductibles,

coinsurance rates, MOOPs, and schedules for service-specific copayments and coinsurance—and

specify the share of utilization that occurs within each tier. The resulting actuarial value is a

blend of the AV for the two tiers.

Calculating Actuarial Value

AV is the anticipated covered medical spending for EHB coverage (as defined in §156.110(a))

paid by a health plan for a standard population, computed in accordance with the plan’s cost-

sharing, and divided by the total anticipated allowed charges for EHB coverage provided to a

standard population. It is reflected as the percentage and basically means the value of the total

expenditures for EHB that are covered by the plan. The denominator of this calculation is

simply the average allowed cost of all services for the standard population in the year for a

specified metal tier; the numerator is calculated as the share of average allowed cost covered by

the plan, using the cost-sharing parameters specified.

The remainder of this section describes each step in the calculation of actuarial value for the

various plan structures that may be specified by the user. Before proceeding with the

calculation, the calculator checks that the user has specified the necessary deductibles,

coinsurance, and MOOPs consistent with the choice of integrated or separate deductibles and

MOOPs for medical and drug expenses. The calculator also checks that the deductible is less

than the MOOP and that the MOOP (or sum of the MOOPs, for plans with separate medical and

drug MOOPs) is less than $6,500.

Using the AV Calculator, if the user’s chosen inputs for deductible and MOOP are not exactly

equal to the spending thresholds used in constructing the continuance table, the values are pro-

rated using linear interpolation. For instance, if a user enters a $150 deductible, then the AV

Calculator estimates the amount of spending below the deductible by interpolating between the

average cost per enrollee that occurs below the $100 threshold on the continuance table and the

average cost per enrollee that occurs below the $200 threshold on the continuance table. In this

case, if the average cost per enrollee at the $100 threshold was $85 and the average cost per

enrollee at the $200 threshold was $185, the interpolated average cost per enrollee would be

$135 (halfway between $85 and $185).

Step 1: Set Metal Tier

CMS has estimated that the MOOP allowable by law in 2014 will be $6,400 extrapolated from the 2013

maximum of defined by the IRS: http://www.irs.gov/pub/irs-drop/rp-12-26.pdf. The AV Calculator allows for a

MOOP up to 6,500 to ensure that once the maximum is defined, the calculator will be able to accommodate a

slightly higher actual allowed MOOP.

Actuarial Value Calculator Methodology Page 12

The user enters the desired metal tier for the calculation, and the calculator selects the

corresponding continuance tables for use in all remaining steps of the calculation.

Step 2: Calculate Average Expenses over all Enrollees

The denominator of the AV calculation is the average cost over all enrollees for a plan of the

specified metal level, found in the final row of the corresponding continuance table in the

column for average cost

Step 3: Calculate Expenses Covered by Employer Contributions to HSA and HRA, if

Applicable

Consistent with §156.135(c), employer contributions to the HSA or amounts first made available

in HRAs that are integrated with group health plans (if the amounts may only be used for cost-

sharing) are counted toward actuarial value. For example, a $1,000 HSA employer contribution

is treated in the AV Calculator as if a plan with a $1,000 deductible is reduced to $0. The $1,000

HSA contribution does not get counted as $1,000 in the numerator of the AV Calculator because

the equation is based on expected spending for a standard total population, not for individuals.

Instead the $1,000 contribution is counted as the average dollar value it would cost to reduce a

$1,000 deductible to $0.

When the HSA or HRA Employer Contribution box is checked and the entered annual

contribution amount is positive, the calculator treats this as covered “first-dollar” spending for

covered EHB services. Specifically, the benefit is applied as if the annual contribution amount is

applied at the very beginning of an enrollee’s spending in a benefit year, and so applies to

enrollee spending that is less than or equal to the deductible.

To be considered in this way, the AV Calculator requires that the HSA or HRA annual

contribution amount be less than or equal to the deductible for the purposes of including the HSA

or HRA contribution in the actuarial value of the plan. The AV Calculator uses the continuance

table for combined expenses to identify the average cost per enrollee at the annual HSA or HRA

contribution amount. If the annual contribution amount falls between two spending thresholds in

the continuance table, this amount is pro-rated as described in the previous section. The pro-

rated amount is plan-covered expenses and is included in the numerator. Next, the calculator

identifies any plan-covered benefits obtained in the deductible stage and subtracts them from the

numerator, to avoid double-counting when these benefits are included in the numerator during

the regular benefit calculation steps described in Step 4: Calculate Plan-Covered Expenses for

Spending Below Deductible Amount below. At the conclusion of these steps, plan-covered

expenses in the numerator include average costs at the annual HSA or HRA contribution amount

less any plan-covered expenses in the deductible stage below the HSA or HRA contribution

amount.

It is important to note that incorporating spending for PCIP and HRP enrollees creates a gap between the average-

cost-per-enrollee derived from the national claims database and the data used in the AV calculation, as it is the sum

of the weighted portion of the per-member-per-year costs for PCIP and HRP enrollees and the average-cost-per-

enrollee from the claims database that is used in the calculation.

Actuarial Value Calculator Methodology Page 13

We note that while the AV Calculator cannot accommodate situations in which the HSA or

integrated HRA employer contribution exceeds the deductible, the value of the account can still

be accommodated by using the alternative methods for AV calculation allowed under

§156.135(b).

Step 4: Calculate Plan-Covered Expenses for Spending Below Deductible Amount

The AV Calculator next computes any plan-covered expenses for spending below the amount of

the deductible for each benefit type and includes these expenses in the numerator. The

computation process depends on whether the plan includes separate medical and drug

deductibles or a combined deductible. For plans with a combined (“integrated”) deductible, the

calculator computes the deductible portion of the benefit in the same way for both medical and

drug benefit types. For plans with separate deductibles, the calculator computes the deductible

portion of the benefit separately for medical and drug benefit types. This section first describes

the computation process that applies to plans with combined deductibles and to medical benefits

in plans with separate deductibles, and then describes the computation for drug benefit types in

plans with separate deductibles.

For plans with a combined deductible, the calculator computes plan-covered expenses in the

deductible range for all medical and drug benefit types listed in the calculator, relying on the

continuance table for combined expenses. For plans with separate deductibles, the calculator

uses only medical benefit types and utilizes the continuance table for medical expenses. The

process for calculating plan-covered expenses for a given benefit type varies depending on

whether the benefit type is subject to the deductible or to a copayment as follows:

If the benefit type is subject to neither deductible nor copayment, the plan covers all

spending on that benefit type below the deductible. The calculator identifies the

average cost of that benefit listed in the row of the continuance table corresponding to

spending at the plan deductible (which may be pro-rated, if necessary). This is total

per-member spending for this benefit in the relevant range, all of which is included in

plan-covered expenses.

If the benefit type is subject to copayment but not deductible, the plan covers all

spending on that benefit type in this range, less enrollee copayments. The calculator

identifies the average cost of that benefit, as above. Next, the calculator divides this

amount by the benefit type frequency to estimate the per-service cost. Subtracting the

copayment for the benefit type from the per-service cost produces plan-covered

expenses per service for this benefit type. The calculator multiplies this result by the

benefit type frequency to produce total plan-covered expenses for the benefit type.

This is added to the total plan covered expenses. The calculator may use one of

several variations on this process to compute plan-covered spending, depending on

whether the user selects options that affect how the AV Calculator applies copays or

general cost-sharing requirements.

In this instance, the AV Calculator computes

•

Variations on the process include the following: (a) If the user limits IP copays to a set number of days, the AV

Calculator compares the IP frequency at the Annual HSA Contribution Amount to the set number of days. If the IP

frequency is less than or equal to the set number of days, the calculation proceeds normally. However, if the IP

frequency is greater than the set number of days, the AV Calculator multiplies the set number of days by the copay

and subtracts the resulting total copay spending from the average cost of the benefit to compute plan-covered

Actuarial Value Calculator Methodology Page 14

plan-covered spending based on the average spending and frequency for each benefit

type at the deductible level.

If the benefit type is subject to deductible and is among a subset of benefit types

(mental health and substance abuse, advanced imaging, rehabilitative speech therapy,

occupational and physical therapy, and diagnostic laboratory), and if the plan has no

separate deductible for outpatient professional and/or facility services, the calculator

follows the process described in the prior two bullets for the outpatient professional

and outpatient facility portions of the service category. The calculator determines

whether to follow the process described in the first or second bullet for the outpatient

professional and outpatient facility portions based on the deductible and copayment

requirements for those two benefit types.

For x-ray, diagnostic imaging, and non-preventive well baby benefits, if they are

subject to deductible and if primary care and/or specialist office visit benefits are not

subject to deductible, the calculator applies the steps laid out in the first two bullets to

the primary care and specialist portions of those service categories. The calculator

determines whether to follow the process described in the first or second bullet for the

primary care and specialist portions based on the deductible and copayment

requirements for those two benefit types.

For primary care services, if the user specifies that the deductible and/or coinsurance

applies only after a set number of visits with copayments, the AV Calculator

compares the set number of copay visits to the frequency of visits when total average

spending is equal to the deductible. If the frequency of visits is less than or equal to

the set number of copay visits, then the calculator uses the process described in the

second bullet to compute plan-covered expenses. However, if the frequency of visits

exceeds the set number of copay visits, the calculator computes the per-service cost

for spending at the deductible using the process described in the second bullet. The

calculator then computes total plan-covered spending at the deductible by multiplying

this per-service cost by the set number of copay visits and subtracting from the result

the set number of copay visits multiplied by the copay amount.

•

To calculate plan-covered expenses up to the amount of the deductible for drugs in plans with

separate medical and drug deductibles, the calculator relies on the continuance tables for the plan

metal tier that are constructed from drug claims. For each drug benefit type, the calculator

identifies the average cost for that benefit listed in the row of the continuance table that

corresponds to the plan drug deductible (which may be pro-rated, if necessary). If the benefit

type is not subject to either deductible or copayment, the calculator adds this per-member

spending amount to the total plan-covered expenses in full. If the benefit type is subject to

copayment but not deductible, the calculator divides average cost for that benefit by the

spending. (b) If the user selects the option restricting primary care cost sharing to care after a set number of visits,

the AV Calculator first determines whether or not the primary care frequency at the Annual HSA Contribution

Amount exceeds the set number of visits. If the frequency is less than or equal to the set number of visits, the copay

does not apply and the plan-covered spending equals the full value of average cost for that service. However, if the

frequency is greater than the set number of visits, the AV Calculator subtracts the set number of visits from the

frequency and multiplies the result by the copay to obtain total enrollee copay spending. The AV Calculator then

subtracts total enrollee copay spending from the average cost for that service to compute total plan-covered

spending.

Actuarial Value Calculator Methodology Page 15

frequency for the benefit type to estimate the per-service cost. The calculator next subtracts the

copayment for the benefit type from the per-service cost and multiplies the resulting value by the

benefit-type frequency to produce total plan-covered expenses for the benefit type. This result is

added to the total plan-covered expenses.

At the conclusion of these steps, plan-covered expenses in the numerator include all plan-

covered expenses for spending up to the amount corresponding to the deductible.

The calculator also tracks the average cost per enrollee at the amount of the deductible, which is

used in later steps. For plans with an integrated deductible, this is the average cost per enrollee

at a level of spending equal to the deductible, listed in the corresponding row of the combined

continuance table. For plans with separate deductibles, this is the sum of the average cost per

enrollee at spending equal to the medical deductible, listed in the corresponding row of the

medical continuance table, and the average cost per enrollee at spending equal to the drug

deductible, listed in the corresponding row of the drug continuance table. For plans with

separate medical and drug deductibles, the calculator uses the drug-claim continuance table to

track the average cost per enrollee corresponding to the plan drug deductible (which may be pro-

rated); this value is also used in later steps.

Step 5: Determine Applicable Spending Level for MOOP

To identify the spending level at which an enrollee will hit the MOOP, the calculator first

determines a modified MOOP that takes into consideration benefit types excluded from

coinsurance. It examines each medical and drug benefit type and if a benefit has a copayment,

the calculator multiplies this copayment by the average frequency at the deductible for the

benefit type. The resulting value, which represents the amount of copayment an enrollee pays

for that benefit type at the deductible, is subtracted from the MOOP to obtain the amount that an

enrollee would have to pay in coinsurance for the remaining service types before reaching the

MOOP limit. The calculator may use one of several variations on this process, similar to those

described above in the section on HSAs and HRAs, to compute the amount of copay an enrollee

pays for each benefit type, depending on whether the user selects options that affect how the AV

Calculator applies copays or general cost-sharing requirements. In this instance, the AV

Calculator computes total copay spending based on the average spending and frequency for each

benefit type at the deductible level. Additionally, if the user specifies that primary care services

are subject to copays for a set number of visits before the deductible and/or coinsurance applies,

the AV Calculator subtracts from the MOOP the lesser of the following two amounts: either the

frequency of primary care visits at the deductible multiplied by the copay amount or the set

number of copay visits multiplied by the copay amount.

If the benefit type is subject to coinsurance and is among a subset of benefit types that have both

a professional and facility component (mental health, substance abuse, imaging, pediatric vision,

pediatric dental, rehabilitative speech therapy, occupational therapy, physical therapy, and

laboratory), and if the plan has no coinsurance requirements for outpatient professional and/or

facility services, the calculator applies the process described in the prior paragraph to the

outpatient professional and facility portions of the service category. To do so, the calculator

relies on the coinsurance and copayment requirements for outpatient professional and outpatient

facility services.

Actuarial Value Calculator Methodology Page 16

Similarly, for x-ray and non-preventive well baby benefits, if they are subject to coinsurance and

if primary care and/or specialist office visit benefits are not subject to coinsurance, the calculator

applies the process described in the first paragraph of this section to the primary care and

specialist portions of the service category. To do so, the calculator relies on the coinsurance and

copayment requirements for primary care and specialist office visits.

Upon completion of these adjustments, the resulting “modified MOOP” represents the amount

that an enrollee would have to pay in coinsurance for all remaining service types before reaching

the MOOP limit. If the plan has separate MOOPs for medical and drug spending, the calculator

carries out the above steps separately for medical and drug benefit types and their corresponding

MOOPs, producing a modified MOOP for medical spending and a modified MOOP for drug

spending.

Next, the calculator computes the spending level at which the modified MOOP will apply. To do

so, the calculator subtracts the deductible from the modified MOOP and divides the resulting

value by one minus the coinsurance rate, or the percentage of costs borne by the enrollee for

services subject to coinsurance; it then adds the deductible to this value to calculate the total

amount of spending at which out-of-pocket costs paid by the enrollee reach the modified MOOP.

The calculator matches this amount to the appropriate row in the combined continuance table to

obtain the average cost per enrollee at the modified MOOP limit. For plans with separate

MOOPs, the calculator performs this process separately for medical and drug benefits and their

corresponding deductibles, modified MOOPs, and continuance tables to obtain separate average

cost estimates for medical and drug spending at the relevant modified MOOP.

While the modified MOOP created by this adjustment does not capture the precise effect of

copayments, it provides a value that adequately fulfills the needs of the remaining calculation

steps. Small differences between the modified MOOP calculated by this method and the exact

MOOP that applies are unlikely to have a significant effect on the output of the AV Calculator.

Step 6: Calculate Plan-Covered Expenses for Spending Between the Deductible and the

MOOP

To calculate expenses covered by the plan in the coinsurance range (that is, the plan’s spending

for services when spending is between the amount corresponding to the deductible and the

amount corresponding to the modified MOOP), the calculator examines each of the medical and

drug benefits listed in the calculator to determine whether they are subject to coinsurance and

copayment. The computation for each benefit type depends on the coinsurance and copayment

requirements applying to that type. First, the calculator computes plan-covered expenses for

benefits not subject to the overall plan coinsurance rate or benefits subject to the overall plan

coinsurance rate within set limits. Second, the calculator computes the average cost per enrollee

at the modified MOOP adjusted for costs for all services not subject to the overall plan

coinsurance rate. Finally, this adjusted average cost is used to compute plan-covered expenses

for benefits subject to the overall plan coinsurance rate. The narrower the range between the

deductible and the MOOP, as in the case for bronze plans, the smaller the role this computation

plays in the overall actuarial value of the plan.

The calculator computes plan-covered expenses for benefits not subject to the overall plan

coinsurance rate and benefits subject to a restricted form of the plan coinsurance rate as follows:

Actuarial Value Calculator Methodology Page 17

For each benefit type that is subject to coinsurance at a coinsurance rate different

from the overall plan coinsurance rate, the calculator subtracts the average cost of that

benefit corresponding to spending at the deductible from the average cost of that

benefit corresponding to spending at the modified MOOP to obtain the average costs

for that benefit that are attributed to spending in the range between the deductible and

the modified MOOP. Multiplying this average cost by the benefit’s coinsurance rate

produces plan-covered expenses for this benefit in the range, which are included in

the numerator.

For each benefit type subject to copayment but not coinsurance, the calculator divides

average cost at spending at the deductible for that benefit by the frequency for that

benefit type to estimate the per-service cost at that spending level. The calculator

then subtracts the benefit copayment from the per-service cost and multiplies the

result by the benefit frequency to produce plan-covered spending for the benefit

corresponding to spending at the deductible. Next, the calculator follows a similar

process to calculate plan-covered spending for the benefit corresponding to spending

at the modified MOOP. Finally, the calculator subtracts plan-covered spending at the

deductible from plan-covered spending at the modified MOOP and adds the resulting

value to the total plan-covered spending. The calculator may use one of several

variations on this process, similar to those described above in the section on HSAs

and HRAs, to compute plan-covered spending, depending on whether the user selects

options that affect how the AV Calculator applies copays or general cost-sharing

requirements. In this instance, the AV Calculator computes plan-covered spending at

the deductible level based on the average spending and frequency for each benefit

type at the deductible level, and it follows an analogous process to compute plan-

covered spending at the modified MOOP level.

If the benefit type is subject to coinsurance and is among a subset of benefit types

(mental health and substance abuse, advanced imaging, rehabilitative speech therapy,

occupational and physical therapy, and diagnostic laboratory), and if outpatient

professional and/or facility services are not subject to coinsurance, the calculator

applies the process described in the first two bullets to the outpatient professional and

outpatient facility portions of the service category. The calculator determines

whether to follow the process described in the first or second bullet for the outpatient

professional and outpatient facility portions based on the coinsurance and copayment

requirements for those two benefit types.

•

If specialty high-cost drugs are subject to coinsurance at a coinsurance rate different from the overall plan

coinsurance rate and if the user selects the option to limit the amount of beneficiary cost sharing on specialty high-

cost drugs, the calculator compares this specialty-drug spending limit to the beneficiary cost-sharing amount under

the specialty-drug coinsurance rate. To compute this latter value, the AV Calculator multiplies the average cost for

the benefit in the range between the deductible and the MOOP by one minus the specialty-drug coinsurance rate. If

the beneficiary cost-sharing amount is less than or equal to the specialty-drug spending limit, the calculation

proceeds as described above. However, if the beneficiary cost-sharing amount exceeds the specialty-drug spending

limit, the AV Calculator computes plan-covered spending in the range between the deductible and the modified

MOOP by subtracting the specialty-drug spending limit from the average cost of the specialty drug benefit in this

range.

Actuarial Value Calculator Methodology Page 18

For x-ray, diagnostic imaging, and non-preventive well baby benefits, if they are

subject to coinsurance and if primary care and/or specialist office visit benefits are

not subject to coinsurance, the calculator applies the steps laid out in the first two

bullets to the primary care and specialist portions of those service categories. The

calculator determines whether to follow the process described in the first or second

bullet for the primary care and specialist portions based on the coinsurance and

copayment requirements for those two benefit types.

For specialty high-cost drugs, if they are subject to the plan coinsurance rate and if

the user selects the option to limit the amount of beneficiary cost sharing on those

drugs, the calculator follows a process analogous to that described above to determine

whether the beneficiary cost-sharing amount for spending between the deductible and

the modified MOOP exceeds the specialty-drug spending limit. If the beneficiary

cost-sharing amount is less than or equal to the specialty-drug spending limit, the

calculator treats the benefit as subject to plan coinsurance and incorporates it into the

numerator using the process described below. However, if the beneficiary cost-

sharing amount exceeds the specialty-drug spending limit, the AV Calculator

computes plan-covered spending by subtracting the spending limit from the average

cost for that benefit between the deductible and the modified MOOP.

For primary care, if the benefit is subject to plan or benefit-specific coinsurance and if

the user selects the option to begin cost sharing after a set number of visits, the

calculator compares the set number of visits to the frequency for primary care at the

modified MOOP. If the set number of visits is less than or equal to the frequency at

the modified MOOP, then plan-covered spending equals the difference between the

average cost of services at the modified MOOP and the average cost of services at the

deductible. However, if the set number of visits is greater than the frequency at the

modified MOOP, the calculator computes the beneficiary cost-sharing amount by

subtracting the set number of visits from the frequency and multiplying the result by

the coinsurance rate. The AV Calculator then computes plan-covered spending by

subtracting the beneficiary cost-sharing amount from the difference between the

average cost of services at the modified MOOP and the average cost of services at the

deductible.

•

At the completion of these steps, the numerator includes plan-covered expenses in the range of

spending between the MOOP and deductible for all services except those that are subject to the

plan’s overall coinsurance rate.

Next, to account for spending on services already considered in this step, the calculator subtracts

the sum of the average cost for each of those services from average cost per enrollee for

spending at the modified MOOP to obtain adjusted average cost at the modified MOOP.

The AV Calculator follows a similar process if primary care services are subject to coinsurance and the user

specifies that cost-sharing only applies after a set number of visits with copays. If the set number of copay visits is

less than or equal to the frequency for primary care at the modified MOOP, the AV Calculator computes plan-

covered spending in this range using the process described above but subtracting the copay amount multiplied by the

frequency for primary care at the modified MOOP. Similarly, if the set number of copay visits exceeds the

frequency at the modified MOOP, the calculator computes plan-covered spending in this range as described above

but contracting the copay amount multiplied by the copay visit limit.

Actuarial Value Calculator Methodology Page 19

Finally, the process for computing plan-covered expenses in the coinsurance range for the

remaining benefit types depends on both whether the plan has integrated or separate deductibles

and whether the deductible or deductibles equal the MOOP. If the plan has an integrated

deductible, plan-covered expenses for services not already considered in this step (i.e., services

subject to the overall plan coinsurance rate) are equal to the coinsurance rate multiplied by

spending on these remaining services. This spending is calculated as the difference between

average cost at the level corresponding to the modified MOOP, adjusted as described above for

spending on services already considered in this step, and average cost at the level corresponding

to the deductible.

If the plan has separate medical and drug deductibles, the remaining plan-covered expenses in

this range have two components. The first component, for medical spending, is equal to the

coinsurance rate multiplied by spending on medical services in the range between the modified

MOOP and deductible. This spending is calculated as the difference between average cost at the

level corresponding to the modified MOOP, adjusted as described above for spending on

services already considered in this step, and average cost for drug benefits subject to the plan’s

overall coinsurance rate at spending corresponding to the modified MOOP, less the difference

between average cost at the deductible and average cost for all drug benefits at the deductible.

That is, the calculator adjusts both the modified MOOP and the deductible for costs attributed to

drugs so that spending on medical services can be considered separately. The second

component, for drug spending, is calculated in a parallel manner, and is equal to the drug

coinsurance rate multiplied by drug spending in the range between the modified MOOP and

deductible. This spending is computed as the difference between average cost for drug benefits

subject to the plan’s overall coinsurance rate at spending corresponding to the modified MOOP

and average cost for all drug benefits at the deductible. Again, the calculator adjusts both the

modified MOOP and the deductible for costs attributed to medical services so that spending on

prescription drugs can be considered separately.

If the medical deductible for a plan with separate deductibles is equal to the MOOP, the

calculator computes the medical component using a coinsurance rate equal to one, because all

medical expenses in this range are covered by the plan. If the drug deductible is equal to the

MOOP, the calculator computes the drug component using a drug coinsurance rate equal to one,

because all drug expenses in this range are covered by the plan.

For plans with separate MOOPs for medical and drug spending, the calculator uses a variation of

the process described above: calculating plan-covered expenses separately for medical and drug

spending falling between the corresponding separate deductibles and modified MOOPs. This

variation is described below. First, for benefits not subject to the overall plan coinsurance rate or

benefits subject to a restricted form of the plan coinsurance rate, the calculator uses the same

process as described above to calculate spending between the deductible and the modified

MOOP, but it uses the medical deductible and modified MOOP for calculations involving

medical benefits and the drug deductible and modified MOOP for drug benefits. At the

conclusion of this step, the numerator includes plan-covered expenses in the range of spending

between each benefit type’s corresponding MOOP and deductible for all services except those

that are subject to the plan’s overall unrestricted coinsurance rate.

Second, the calculator subtracts the sum of the average cost of medical services not subject to the

unrestricted plan coinsurance rate from the average cost per enrollee at the modified medical

MOOP, and performs a corresponding calculation for drug services not subject to the

Actuarial Value Calculator Methodology Page 20

unrestricted plan coinsurance rate. This step adjusts the average costs for medical and drug

benefits at the corresponding modified MOOPs to account for spending on benefits not subject to

the unrestricted plan coinsurance rate.

Finally, for benefits subject to the plan coinsurance rate without restriction, the calculator uses a

similar process as described above to calculate spending between the deductible and the MOOP;

however, this step relies on the separate medical and drug deductibles and modified MOOPs to

calculate spending for medical and drug benefits. As in the above process, the calculator

computes spending separately for medical and drug benefits. However, it is unnecessary to

adjust the deductible and modified MOOP to account for spending in the other benefit type due

to the separate medical and drug deductibles and modified MOOPs.

At the conclusion of this step, the numerator includes plan-covered expenses for all spending

below the MOOP (or MOOPs).

Step 7: Calculate Plan-Covered Expenses for Spending Above the MOOP

The plan covers all expenses for spending on covered benefits above the MOOP. To calculate

the amount of this spending, the calculator computes the difference between average cost over all

enrollees and average cost at the modified MOOP, and includes the full amount in the numerator.

If the plan has separate MOOPs for medical and drug spending, the calculator computes the

difference between the average cost for medical benefits over all enrollees and the average cost

for medical benefits at the modified medical MOOP and performs a corresponding calculation

for drug benefits; the full amount for both benefit types is included in the numerator. At the

conclusion of this step, the numerator includes plan-covered expenses over the full range of

spending.

Step 8: Apply Network Blending, if Applicable

If the plan is a blended network/POS plan, the calculator multiplies the numerator calculated in

step 7 by the portion of total claims cost specified by the user as anticipated to be used in the first

tier. The result becomes the preliminary numerator. The calculator then repeats steps 3 through

7, utilizing the information about the deductible, coinsurance rate, MOOP and benefit-specific

deductible, coinsurance, and copayment requirements contained in the Tier 2 columns of the AV

Calculator to calculate a secondary numerator. This secondary numerator is then multiplied by

the portion of total claims cost specified by the user to reflect utilization of the second tier

network. Once this process is complete, the calculator adds the preliminary and secondary

numerators to produce the new final numerator. In order to guarantee that the change in AV is

due to a change in cost-sharing requirements, please note that when calculating for cost-sharing

reductions (CSR) plan variations, these percentages cannot vary from the percentages used for

the standard silver plan.

Step 9: Calculate AV and Corresponding Metal Tier

In the final step, the calculator computes the final actuarial value amount, classifies the plan by

metal tier, and determines whether the metal tier matches the desired metal tier input by the user.

To compute the actuarial value, the calculator divides the numerator by the denominator. Under

this proposal, if the actuarial value is outside of these ranges, the calculator outputs the actuarial

value and the message “Error: Result is outside of +/- 2 percent de minimis variation”.

Actuarial Value Calculator Methodology Page 21

The AV Calculator compares the observed metal tier to the user’s desired metal tier. If the

desired metal tier matches the observed metal tier, the calculator outputs the actuarial value,

metal tier, and the message, “Calculation Successful.” If the plan does not match the desired

metal tier, the calculator provides the user the option to reset the “Desired Metal Tier” parameter

to the observed metal tier and rerun the actuarial value calculation. If the user declines, the

calculator outputs the actuarial value, the metal tier, and the message, “Calculation resolved

without matching metal tiers.”

Additionally, users may select the option to determine whether the plan design satisfies the

Affordable Care Act cost-sharing reduction (CSR) requirements for enrollees falling below 250% of

the Federal Poverty Level (FPL) under section 1402(a) through (c) of the Affordable Care Act.

Under the rule proposed to implement section 1402, issuers of qualified health plans must provide

plan variations to eligible lower-income enrollees, who have enrolled in silver qualified health plans

in the individual market through the Exchange.

As proposed these plan variations must have

reduced cost sharing and meet specified AV levels depending on the enrollee’s household income.

To use the AV Calculator to verify the AV of a plan variation, users should select the indicator that

the plan meets the CSR standard, and select the desired metal tier. In the below table, we provide

guidance on which metal tier should be chosen to align with the expected utilization for each plan

variation. Please note that the metal tier continuance tables indicated below should be used

regardless of any error message prompting the use of a different continuance table.

Household Income Silver Plan Variation AV Desired Metal Tier

100-150% of FPL Plan Variation 94% Platinum

150-200% of FPL Plan Variation 87% Gold

200-250% of FPL Plan Variation 73% Silver

After the other information has been entered, and the AV is calculated, the AV Calculator will

produce an additional output message, which describes whether the plan satisfies the AV

requirements for enrollees at a particular percentage of FPL.

“Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014,” 77 FR 73118,

73214-15 (Dec. 7, 2012), proposed to be codified at 45 CFR §§ 156.410 – 156.420.