Draft 2019 Actuarial Value Calculator Methodology

DEPARTMENT OF HEALTH & HUMAN SERVICES

Centers for Medicare & Medicaid Services

Center for Consumer Information & Insurance Oversight

200 Independence Avenue SW

Washington, DC 20201

Date: October 27, 2017

RE: Draft 2019 Actuarial Value Calculator Methodology

Introduction

Under the Essential Health Benefits, Actuarial Value, and Accreditation final rule (EHB Final

Rule) that was published in the Federal Register at 78 FR 12834 on February 25, 2013, the

Department of Health and Human Services (HHS) generally requires issuers of non-

grandfathered health insurance plans offered in the individual and small group markets, both

inside and outside of the Affordable Insurance Exchanges to use an Actuarial Value (AV)

Calculator for the purposes of determining levels of coverage. Section 1302(d)(2)(A) of the

Patient Protection Affordable Care Act (PPACA) 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.

On April 18, 2017, the Centers for Medicare & Medicaid Services (CMS) published a final rule,

Patient Protection and Affordable Care Act; Market Stabilization (Market Stabilization Final

Rule; 82 FR 18346), that amended 45 CFR 156.140(c), which establishes the de minimis

variation range for the actuarial value (AV) level of coverage. The rule changes the allowable

variation in the AV to -4/+2 percentage points, rather than +/-2 percentage points, as well as

allows certain bronze plans to have to a de minimis AV variation of -4/+5 percentage points.

Specifically, in the final Patient Protection and Affordable Care Act; Notice of Benefit and

Payment Parameters for 2018 (Final 2018 Payment Notice) at 81 FR 94058 (December 22,

2016), we amended the de minimis range for bronze plans in certain circumstances. That is, a

bronze health plan that either covers and pays for at least one major service, other than

preventive services, before the deductible, or meets the requirements to be a high deductible

health plan within the meaning of 26 U.S.C. 223(c)(2), may now have an allowable variation in

AV for such plans of -4 percentage points and +5 percentage points.

The draft 2019 AV Calculator, Methodology, and User Guide are being released with the

proposed rule entitled Patient Protection and Affordable Care Act; HHS Notice of Benefit and

Payment Parameters for 2019 (Proposed 2019 Payment Notice). This proposed rule includes

options for States to change their EHB-benchmark plans for plan years beginning in 2019. The

draft 2019 AV Calculator does not modify the standard population as a result of the proposed

rule for reasons described in a later section of this document.

Under § 156.400, the de minimis variation for a silver plan variation means a single percentage point.

Draft 2019 Actuarial Value Calculator Methodology Page 2

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. This document is meant to detail the specific methodologies used in the AV

calculation.

This document is revised from the 2018 version to incorporate updates in the draft 2019 version.

The first part of this document provides background that includes an overview of the regulation

that allows HHS to make updates to the AV Calculator as well as the updates that are

incorporated into the draft 2019 AV Calculator. The second part of the document provides a

detailed description of the development of the standard population and the AV Calculator

methodology. The first 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 second section

describes the AV Calculator interface and the calculation of AV based on the interface and the

continuance tables. The draft 2019 AV Calculator is available

at: http://www.cms.gov/cciio/resources/regulations-and-guidance/index.html. We note that the

draft 2019 AV Calculator does not affect any 2018 plans, and, when finalized, will only be

applicable for 2019 plans.

Comments

We will accept comments on the draft 2019 AV Calculator, as well as the draft 2019 AV

Calculator User Guide and the draft 2019 AV Calculator Methodology until 5 p.m. (Eastern

time) on Friday, November 17, 2017. Comments must be submitted to the CMS Actuarial Value

email at: a[email protected].

Part I: Background

Regulatory Background

The 2014 AV Calculator Methodology, along with the 2014 AV Calculator and the 2014 AV

Calculator User Guide, was originally incorporated by reference in the EHB Final Rule and

comprises part of the final rule for determining AV at 45 CFR 156.135. A revised version of the

2014 AV Calculator Methodology for 2015, along with the 2015 AV Calculator and 2015 AV

Calculator User Guide, was released as part of the final Patient Protection and Affordable Care

Act; HHS Notice of Benefit and Payment Parameters for 2015 (Final 2015 Payment Notice),

published in the Federal Register at 79 FR 13744 (March 11, 2014). Under the Final 2015

Payment Notice, we also finalized provisions for updating the AV Calculator in future years at

45 CFR 156.135(g). HHS has been updating the AV Calculator, its Methodology and its User

Guide annually using these provisions since finalizing these provisions at 45 CFR 156.135(g).

In the final Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment

Parameters for 2017 (Final 2017 Payment Notice) that was published at 81 FR 12204 (March 8,

2016), we amended the provisions at 45 CFR 156.135(g) to allow for additional flexibility in our

approach and options for updating of the AV Calculator in the future, to ensure our ability to

keep the AV Calculator reflective of the current market. Under the new 45 CFR 156.135(g) on

Draft 2019 Actuarial Value Calculator Methodology Page 3

updates to the AV Calculator, we state that HHS will update the AV Calculator annually for

material changes that may include costs, plan designs, the standard population, developments in

the function and operation of the AV Calculator and other actuarially relevant factors. In the

preamble of the Final 2017 Payment Notice, we stated we will publicly release a draft version of

the AV Calculator and the AV Calculator Methodology for comment before releasing the final

AV Calculator. The draft 2019 AV Calculator, Methodology and User Guide were updated in

accordance with 45 CFR 156.135(g).

In addition to the regulatory provisions at 45 CFR 156.135 and 156.140, additional guidance on

AV is available in the May 16, 2014 FAQs. Specifically, in Question 3, we clarify that issuers

must always use an actuarially justifiable process when inputting their plan designs into the AV

Calculator and that the AV Calculator is intended to establish a comparison tool and was not

developed for pricing purposes. A copy of the FAQ is available

at: https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/Final-Master-

FAQs-5-16-14.pdf.

Overview of the Draft 2019 AV Calculator Considerations and Updates

This section provides an overview of the key changes made between the revised final 2018 AV

Calculator and the draft 2019 AV Calculator and our consideration of updates. The 2018 AV

Calculator incorporated many key changes to the underlying data and assumptions to better

reflect the current PPACA-compliant market. Specifically, these changes had not been made to

the AV Calculator since its inception. We made many of these changes at once recognizing that,

due to the claims data update, AVs were already going to shift, and we anticipated limiting the

changes in the draft 2019 AV Calculator to provide stability in a year in which we were not

intending to change the underlying assumptions in the AV Calculator.

Additionally, in the proposed 2019 Payment Notice, we propose to allow States to have more

flexibility in defining their EHB-benchmark plans. While this proposal and other policies being

considered may have an impact on the standard population being covered by plans that are

required to comply with EHB, the exact impact of those policies is uncertain at this time.

Therefore, we do not propose at this time to make an adjustment based on those policies. In

future years we should have better information to consider whether further adjustments are

needed to the standard population. Given these unknowns, we believe that maintaining the

stability of the AV Calculator for 2019 is the best course of action. For these reasons, we limited

the changes in the draft AV Calculator for 2019. We will reassess whether other adjustments are

needed for the 2020 AV Calculator.

The only major change to the draft AV Calculator for 2019 is that we projected the AV

Calculator claims data forward an additional year. The draft 2019 AV Calculator updates the

factor applied to project the claims from 2015 to 2019. Similar to 2018, we reviewed a variety of

data sources on claims costs in developing the draft 2019 AV Calculator projection factors, and

took that data into consideration when selecting the projected rates for the draft 2019 AV

Calculator. For the 2018 AV Calculator, we used an annual projection factor of 3.25 percent for

medical costs and 11.5 percent for prescription drug costs annually to trend the 2015 claims data

to 2018. For the draft 2019 AV Calculator, we added a one-year projection factor of 5.4 percent

Draft 2019 Actuarial Value Calculator Methodology Page 4

for medical costs and 11.5 percent for drugs costs. To help ensure plan design stability for the

non-grandfathered individual and small group market plans that are required to comply with AV, in

selecting these projection factors, we took into consideration the need to limit dramatic changes in

AV. One of the conclusions of our review was that drug costs are continuing to be expected to

increase at a substantially different rate than medical costs, and therefore, we continued to use the

higher projection factor for drugs. However, for the medical

projection factor, we found that a

higher projection factor was needed than the previous projection factor to better ensure that we

are not under-projecting the AV Calculator given more recent market estimates. These projection

factors were only selected for use in the draft 2019 AV Calculator (used to determine the plan’s

metal level) to help consumers meaningfully compare plan designs. The AV Calculator is not

developed for pricing purposes.

Additionally, we updated the annual limitation on cost sharing, also known as the maximum out

of pocket (MOOP) limit, in the draft 2019 AV Calculator, as we have done in previous years.

Similar to prior years, this update was based on a projected estimate, to enable the AV Calculator

to comply with 45 CFR 156.130(a)(2). Since we may make the AV Calculator available prior to

the finalization of the annual limit on cost sharing for a given plan year, we use an estimated

annual limit on cost sharing in the AV Calculator, to ensure that the AV Calculator does not

contain an annual limit on cost sharing that is lower than the finalized one. For the draft 2019

AV Calculator, the MOOP limit and related functions have been set at $8,000 to account for an

estimated 2019 annual limitation on cost sharing. The 2019 annual limitation on cost sharing

will be specified in the 2019 Payment Notice.

Issuers that are required to meet AV standards

must comply with the limit established in the regulation, and may not use the projected estimates

stated in the draft 2019 AV Calculator when finalizing plan designs. Lastly, we updated three

naming conventions in the draft 2019 AV Calculator fields. Specifically, we updated a label to

reflect the draft 2019 AV Calculator, to refer to the MOOP in cell A5, and to refer to MH/SUD

(Mental Health/Substance Use Disorder) in cell A19 for terminology consistency.

Similar to previous years, the draft 2019 AV Calculator remains unlocked. This allows users to

view the source code for the AV Calculator algorithm. We note that the workbook structure is

also unlocked so that users may make copies of output tabs. However, users should not move or

copy the original “AV Calculator” tab either whole or in part, as doing so will result in

calculation errors for subsequent runs. This functionality should only be used after reviewing the

relevant instructions contained in the draft 2019 AV Calculator User Guide. Additionally, users

should not reveal hidden rows in the “AV Calculator” tab. Doing so invalidates the AV

estimates produced by the AV Calculator due to the potential introduction of calculation errors.

Furthermore, auto-filling rows may also impair the function of the calculator and result in run-

time errors.

While most of the changes described in this section do not impact current AVs, updating the draft

AV Calculator to project the claims data forward an additional year affects all AVs. Therefore, all

current AVs are impacted by the updates to the draft 2019 AV Calculator.

The proposed 2019 maximum annual limitation on cost sharing is $7,900 for self-only coverage and $15,800 for

other than self-only coverage.

Draft 2019 Actuarial Value Calculator Methodology Page 5

Part II: AV Calculator’s Methodology and Operation

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 that are likely to be covered by individual

and small group market health insurance in 2019. 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 refer to 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 are used to

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

The AV Calculator estimates the AV of a plan design based on the aggregated data contained in

the four sets of continuance tables representing each plan’s metal tier.

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 is 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 2018 to develop the standard population. Finally, the last section

describes the methodology for using the claims database to develop the continuance tables.

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 2015. This commercial database, which is the same source used for prior years’

AV Calculators, includes detailed enrollment and claims information for members of several

regional insurers. It incorporates both individual and small group market data and includes many

plans that are required to comply with EHB. The draft 2019 AV Calculator relies on both

individual and small group claims data to reflect the plans that are required to comply with AV

requirements. As described below, several adjustments were made to these data to more closely

represent the expected population of individual and small group market enrollees.

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 contain spending, demographic, and enrollment

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

existing condition, enrollment length, 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 2019 AV Calculator treats each

Draft 2019 Actuarial Value Calculator Methodology Page 6

PCC as a 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 projected forward to 2019.

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 (excluding Preventive Well

Baby, Preventive, and X-rays

)

• Specialist Visit

• Mental/Behavioral Health and Substance Use Disorder Outpatient Services

• Imaging (CT/PET Scans, MRIs)

• Speech Therapy

• Occupational and Physical Therapy

• Preventive Care/Screening/Immunization

• Laboratory Outpatient and Professional Services

• X-rays and Diagnostic Imaging

• Skilled Nursing Facility (SNF)

• Outpatient Facility Fee (e.g. Ambulatory Surgery Center)

• Outpatient Surgery Physician/Surgical Services

• Drug Categories

o Generics

o Preferred Brand Drugs

o 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 five service categories: Mental Health and Substance Use Disorder,

Advanced Imaging, Speech Therapy, and Occupational and Physical Therapy, Diagnostic

Laboratory, and Unclassified (medical). For this reason, Mental Health and Substance Use

Depending on the plan design, the AV Calculator may apply the same or separate cost sharing to primary care

visits and X-rays associated with primary care visits. The AV Calculator may also apply the same or separate cost

sharing to specialist visits and X-rays associated with specialist visits. See the section below on calculating AV for

further information.

Currently, the level of aggregation within the national claims database does not allow for the explicit distinction of

surgical services from other outpatient professional claims. While provisional outpatient surgery claims are the

main component by cost and utilization of the Outpatient Surgery Physician/Surgical Services category, the category

currently includes other outpatient professional claims not otherwise classified.

Draft 2019 Actuarial Value Calculator Methodology Page 7

Disorder, Advanced Imaging, Speech Therapy, Occupational and Physical Therapy, and

Diagnostic Laboratory will be referred to throughout this text as the five benefits with both

facility and professional components. In the development of the continuance tables based on 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 Public Health Service

Act.

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

to ensure that the data accurately represent utilization experience for enrollees. The full data

include 48,142,791 enrollees and 822,996 individual or small group 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. To

be included, plans must be a PPO, POS, HMO or EPO to reflect frequent types of plans that are

available in the AV-compliant markets, have at least one member with over $5,000 in spending

similar to the requirement for the 2014 AV Calculator’s standard population, have at least one

member with drug coverage, and have at least one member with full 2015 enrollment to ensure

data quality. Additionally, small group plans must have 100 or few employees. Individual plans

must have at least 50 members and, if the plan has over 1,000 members, they must have at least

one member with a maternity claim. To prepare the data for use in the continuance tables,

additional restrictions are made to exclude implausible plan designs. Plans with imputed

coinsurance rates that fall outside the range of 0-100 percent are dropped as are plans without an

imputed deductible. After these plan level restrictions, the database consists of 10,508,800

enrollees (4,435,905 individual/6,072,895 small group) and 191,080 plans.

Because the database does not include plan level PPACA-compliant information, individual

plans must also meet another set of requirements designed to identify plans that are PPACA-

compliant, as opposed to grandfathered or transitional plans. For these purposes, a plan is

identified as PPACA-compliant if the plan has 2.5 percent single new subscribers in 2015, if at

least 20 percent of its returning members were either from plans that allowed new enrollment in

2014 or from the group market, or if the plan’s primary state is a state which did not allow

transitional plans in 2015.

These requirements shrink the individual market population in the

dataset to 3,910,235 enrollees in 2,185 plans. Because most employer plans offered prior to the

obligation to cover EHB substantial coverage of EHB, these requirements apply only to

individual plans and not to the small group market.

Because the data does not directly include plan level information, the concept of a primary state is used to link a

plan to a state. By linking plans to states, we can incorporate state level policies to help identify PPACA-compliant

plans. A plan has a primary state if in either 2014 or 2015 90 percent of plan members came from one state. In the

unlikely event a plan has different 2015 and 2014 primary states, the 2015 primary state dominates.

https://kaiserfamilyfoundation.files.wordpress.com/2013/04/8085.pdf.

Draft 2019 Actuarial Value Calculator Methodology Page 8

Finally, the database is subject to enrollee level restrictions. Enrollees must have an age between

zero and sixty-four inclusive and a specified sex. Enrollees with less than 4 months of

enrollment in 2015 were also excluded.

The resulting database, consisting of 8,140,951

enrollees and 189,486 plans, is used to construct the continuance tables, subject to the additional

adjustments identified in the next two sections of this document.

For plans that meet all the requirements detailed above, the plan deductible is imputed as the 90

percentile of positive deductibles that are at least $250 lower than the amount of total spending

for all enrollees within a PCC, and plan MOOP is imputed as the 90

percentile of beneficiary

spending above $1,000 over all enrollees within a PCC. 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 four tiers of prescription drugs: generics, preferred brand drugs,

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

The claims costs incorporated into the continuance tables in the draft 2019 AV Calculator are

projected forward from 2015 to 2018 at an annual rate of 3.25 percent for medical expenses and

11.5 percent for drug expenses and from 2018 to 2019 at an annual rate of 5.4 percent for

medical costs and 11.5 percent for drugs costs.

Standard Population Development and Adjustment from Primary Claims Data

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

developing a standard population based on the expected enrollment in individual and small group

market plans in 2018. We intend to use this same standard population again, without adjustment

for 2019. While the use of post-PPACA 2015 individual and small group market data removed

the need to augment the data to the degree required in earlier versions of the AV Calculator,

utilization and spending in the data required some adjustment to represent utilization and

spending in the population expected to participate in the individual and small group markets in

2018.

In addition, the data from 2015 represent only the second year of qualified health plan

(QHP) implementation, and additional market shifts may occur as the market evolves. The data

are therefore weighted to match the expected 2018 age, sex, market-type, plan-type, and risk-

score distribution and adjusted for length of enrollment and selection effects.

Demographic Distribution: Expected market participation for each sex/age group was estimated

as a blend of both a predicted individual demographic distribution, and the observed 2015 small

group distribution.

The individual demographic distribution was predicted by a model

We note that the treatment of newborns in the claims data is not different from the treatment of any other age

group and the standard population data is reweighted to fit the expected age distribution.

AV Calculators prior to the 2018 AV Calculator included augmentation for individuals previously enrolled in high

risk pools (HRPs) and Pre-existing Condition Insurance Plans (PCIP). As those individuals are now represented in

individual market-enrollment, the draft 2019 AV Calculator, like the 2018 AV Calculator, does not include similar

adjustments.

The demographic distribution is based on the following age groups: 0 to 6 year olds, 7 to 18 year olds, 19 to 25

year olds, 26 to 40 year olds, 41 to 54 year olds, and 55 to 64 year olds.

Draft 2019 Actuarial Value Calculator Methodology Page 9

developed by HHS. 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 Marketplaces. The small group demographic distribution was predicted by the

observed 2015 small group market distribution from the national claims dataset. Use of this

distribution assumes that the demographic distribution of small group plans will remain

relatively constant. We did not update the demographic distribution in the draft 2019 AV

Calculator and retained the demographic distributions from the 2018 AV Calculator.

Transitional Plan Population: When we built the 2018 AV Calculator, transitional plans were

expected to no longer be allowed in 2018 and some of the population enrolled in transitional

plans in 2015 were expected to move into the PPACA-compliant market. This population was

likely to have different risk characteristics from the existing PPACA-compliant risk pool. To

account for the updated risk pool, claims from the population in imputed PPACA-compliant

plans were reweighted by risk quartile to match the observed risk pool of the combined PPACA-

compliant and transitional individual markets from the national database. We did not make

changes to this adjustment in the draft 2019 AV Calculator.

Length of Enrollment: To represent the full population of enrollees, including those with less

than one full year of enrollment, we annualized claims for enrollees with less than full year

enrollment based on age, gender and risk quartile. To annualize the claims, for each age, gender

and risk quartile group, we calculated a claim annualization factor for each length of enrollment.

This factor is equal to the average total spending of full year enrollees divided by the average

total spending of full year enrollees at that length of enrollment. For example, the spending of a

25 year-old female enrollee in the second risk quartile with four months of enrollment is

multiplied by a factor calculated using the spending of full-year 25 year-old female enrollees in

the second risk quartile, where the factor is equal to the average total spending in the full year

divided by average total spending during the first four months of enrollment. The four month

cutoff was chosen after analysis of risk score characteristics and consultation with other data

sources indicated that enrollees with four to eleven months of enrollment had comparable

characteristics to those with full year enrollment. Enrollees with less than four months of

enrollment had substantially lower risk scores, indicating the data do not contain enough

information to adequately annualize their spending. The average number of months of

enrollment in the claims data was more than 9 months.

Selection Effects in Bronze Plans: While the AV Calculator is designed to reflect the standard

population within each metal tier, the bronze metal level population in 2015 displayed evidence

of selection due to new features of the underlying individual market data. The observed

distortion in the tail of the bronze 2015 spending distributions is not expected to persist through

2019 as factors such as pent-up demand decrease over time. To mitigate the impacts of this

bronze plan selection basis, the draft 2019 AV Calculator imputes the percentage of zero

spenders and the upper end of the bronze spending distribution using the silver spending

distribution.

Previous versions of the AV Calculators also had an adjustment to the bronze plan spending range, and this

adjustment is replacing those adjustments.

Draft 2019 Actuarial Value Calculator Methodology Page 10

Increased use of HMOs: As evidence suggests that HMO and EPO plans represent a substantial

proportion of the available Marketplace plans, the draft 2019 AV Calculator relies on claims data

from HMO and EPO plan types as well as PPO and POS plans.

To ensure appropriate

weighting to anticipate the 2019 market, for the continuance tables, HMO and EPO claims,

including both individual and small group claims, are weighted with PPO and POS claims.

Consideration of Additional Updates Not Made in the AV Calculator

When we rebuilt the standard population for the AV Calculator for 2018 (that we intend to use

for 2019), we considered a variety of other updates for both claims data and for the operation and

function of the AV Calculator. For example, for the claims data, we considered the impact of

specific service categories such as habilitative services, pediatric dental and vision, wellness

incentives, urgent care, and preferred generic drugs. For habilitative services, the previous

versions of the AV Calculator continuance tables did not incorporate any additional adjustments

for these services, and we reconsidered how to address habilitative services with the updated

claims data. We found that the 2015 claims data indicate an increased utilization of speech,

occupational and physical therapies relative to earlier years, consistent with these services being

included in the 2015 data.

We also determined in reviewing the 2015 claims data that there is

insufficient evidence to support continuation of the pediatric dental and vision augmentations,

which were incorporated in the original 2014 AV Calculator. While it is uncertain whether

utilization in the future will be consistent with utilization in 2015, there is insufficient evidence

to support additional adjustments for these services at this time.

Additionally, we considered whether to add an input to the AV Calculator to allow users to input

benefit-specific cost sharing with respect to urgent care. Utilization of these services in the

current data is relatively minimal, so we decided not to add an input, but we will continue to

monitor the standardization and growth of urgent care services. We may reconsider the addition

of adjustments for functionality related to these services in future years. We also considered

expanding the number of drug tiers available, such as adding a potential preferred generic drugs

category, but due to both data limitations and lack of standardization in the market with regard to

an additional drug tier type, we are not expanding the number of drug tiers at this time. The

definitions of the drug tiers used in the AV Calculator are discussed in the AV Calculator User

Guide. We remind AV Calculator users that issuers must always use an actuarially justifiable

process when inputting their plan designs into the AV Calculator.

We further considered changes to allow the Begin Primary Care Cost-Sharing After a Set

Number of Visits and Begin Primary Care Deductible/Coinsurance After a Set Number of

Copays options to apply to Mental/Behavioral Health and Substance Use Disorder Outpatient

Services. This change could help plans test out innovative plan designs for benefits that are

impacted by MH/SUD parity requirements. The purpose of the AV Calculator is to determine

http://www.bcbs.com/healthofamerica/HoA-Jan_Consumer_Exchange-Report.pdf.

Because these services are the same services expected for rehabilitative services, we changed the naming of these

inputs into the AV Calculator to remove the references to rehabilitative.

For additional information, refer to the May 16, 2014 FAQs that are available at:

https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/Final-Master-FAQs-5-16-14.pdf

Draft 2019 Actuarial Value Calculator Methodology Page 11

the metal tier level of the plan and it was not intended as a tool to demonstrate parity. Due to the

complexity of this change and the potential to cause significant confusion for plans, the draft

2019 AV Calculator does not incorporate any changes to these options at this time.

We also considered but are not introducing any changes with regard to separate AV calculations

for family plans. The clarification provided in the Patient Protection and Affordable Care Act;

HHS Notice of Benefit and Payment Parameters for 2016 final rule (Final 2016 Payment Notice)

that was published at 80 FR 10750, at page 10824, (February 27, 2015) on application of cost-

sharing limitations for individuals who are enrolled in non-self-only plans sufficiently removes

the distinction in usage to the point that we do not think there is a current need for separate

family plan AV calculations.

Constructing Continuance Tables

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

and are therefore the key input to calculating AV. Specifically, a continuance table describes the

distribution of claims spending for a population of health insurance users in plans with a

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

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

AV under the EHB Final Rule and are available

at: http://www.cms.gov/cciio/resources/regulations-and-guidance/index.html. Those continuance

tables were updated in accordance with 45 CFR 156.135(g) to reflect a new standard population

and the plan designs and costs projected in the 2018 market and were not adjusted for 2019

outside of projecting the claims data forward an additional year.

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 AV 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 AVs, 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

AVs from the respective metal tier. That is, each plan in the database is assigned an AV 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

Draft 2019 Actuarial Value Calculator Methodology Page 12

on utilization data from enrollees in the claims database with estimated AVs within +/- 5

percentage points of the target AV for each metal tier, with the exception of the bronze

continuance table, which is based on all plans with estimated AVs below 65 percent.

To estimate AV for each plan, the realized AV 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 AV 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. The continuance tables for each metal level are based on utilization of enrollees in

plans with the respective metal level AV. 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 as discussed above.

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 AV 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.

The AV Calculator Interface

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

used to determine AV. The inputs for the AV 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 AV as well as comments received.

The AV Calculator is designed to produce a summarized AV that is displayed to the nearest

hundredth 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 allowed costs paid by

the plan relative to the total allowed 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 AV

Calculator focuses on accurately determining plan AVs based on this set of key plan

characteristics. Therefore, the AV Calculator includes only these key characteristics that have a

Draft 2019 Actuarial Value Calculator Methodology Page 13

significant effect on AV.

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 MOOPs 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 drug expenses or separate

deductibles for each type of spending.

Similarly, if a plan design has separate medical and

drug MOOP 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 page 6 of this document, along with the deductible, general coinsurance, and

MOOP. In addition, the AV Calculator allows the user to specify whether services are subject to

deductible or subject to coinsurance, and whether any copayments apply only after the deductible

is met.

The AV Calculator does not allow the user to subject recommended preventive care to a

copayment or deductible because the Affordable Care Act directs that these services be covered

by the plan at 100 percent.

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. Due to data limitations, the option to limit the number of days to which the copayment

applies imposes a limit to the number of days a copayment applies per year and not per stay. For

example, if the user limits the copayment per day to one day, an enrollee with two hospital stays

within a year would pay the copayment only once. 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

Given how the AV Calculator tallies spending relative to the deductible, similar plans with separate or combined

deductibles imply different cost-sharing schemes. For example, a plan with a $1000 medical deductible, a $0 drug

deductible, and a $10 copayment for generic drugs will have slightly different cost sharing than a plan with a $1000

combined deductible and a $10 copayment for generic drugs. In the case of a separate drug deductibles, the $10 drug

copayment will not be credited toward the medical deductible. In the case of the combined deductibles, depending

on the exact plan design, the $10 drug copayment could move medical spending into the coinsurance range more

quickly.

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

sharing under Section 2713 of the Public Health Service Act and its implementing regulations. See 45 CFR

147.130.

Draft 2019 Actuarial Value Calculator Methodology Page 14

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 AV 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”).

The AV Calculator produces estimates of AV 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).

The draft 2019 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 AV is a utilization-weighted blend

of the AV for the two tiers.

Calculating AV

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 a percentage and can be thought of as the share of the total

expenditures for EHB that can be expected to be covered by the plan. The denominator of this

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

specified metal tier; the numerator is the share of average allowed cost covered by the plan,

using the cost-sharing parameters specified.

The remainder of this section describes the nine steps in the calculation of AV for the various

plan structures that may be specified by the user:

• Step 1: Set the metal tier (by identifying the continuance tables on which the

calculation will be based)

• Step 2: Calculate average expenses over all enrollees (by identifying the

denominator of the AV calculation, the average cost over all enrollees for a

plan of the specified metal level)

From a technical perspective, it is important to note that the generic drug category in the claims database 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. The remaining maintenance drug claims are split between preferred brand and non-

preferred brand drugs.

Draft 2019 Actuarial Value Calculator Methodology Page 15

• Step 3: Calculate expenses covered by employer contributions to HSAs and

HRAs, if applicable

• Step 4: Calculate plan-covered expenses for spending before the deductible is

met

• Step 5: Determine applicable enrollee spending level for MOOP

• Step 6: Calculate plan-covered expenses for spending between the deductible

and the MOOP (in the coinsurance range)

• Step 7: Calculate plan-covered expenses for spending above the MOOP

• Step 8: Apply tiered network, if applicable (to calculate AV in Tier 2)

• Step 9: Calculate AV and corresponding metal tier (to assign AV and metal

tier)

Before proceeding with the above calculation, the AV 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 AV

Calculator also checks that the deductible is less than or equal to the MOOP and that the MOOP

(or sum of the MOOPs, for plans with separate medical and drug MOOPs) is less than $8,000.

Each year’s AV Calculator uses an estimated MOOP limit and the actual MOOP will be

finalized in the final annual HHS notice of benefit and payment parameters. Plan designs must

not exceed the annual MOOP limit that is established in regulation, regardless of the estimated

limit included in the AV Calculator. For plans with separate medical and drug components, the

AV Calculator calculates the equivalent combined deductible. If the equivalent combined

deductible is greater than the combined MOOP, the AV Calculator sets the equivalent combined

deductible equal to the MOOP. This updated equivalent combined deductible is then used as the

deductible for the remaining calculations. The AV Calculator flags results obtained using this

method. Additionally, if the effective coinsurance (i.e., the coinsurance after adjusting the level

of plan-covered spending to account for copayments) based on user inputs is 100 percent, the

MOOP and deductible are set equal to each other for AV calculations.

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

The proposed 2019 maximum annual limitation on cost sharing at $7,900 for self-only coverage and $15,800 for

other than self-only coverage.

Draft 2019 Actuarial Value Calculator Methodology Page 16

The user enters the desired metal tier for the calculation, and the AV 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

Section 156.135(c) provides that, for plans other than those in the individual market that at the

time of purchase are offered in conjunction with an HSA or with integrated HRAs that may be

used only for cost sharing, annual employer contributions to HSAs or amounts newly made

available under such HRAs for the current year are counted towards the total anticipated medical

spending of the standard population that is paid by the health plan. When the HSA or HRA

Employer Contribution box is checked and the entered annual contribution amount is positive,

because the value of a contribution to this type of HSA or HRA can affect expected utilization,

the AV Calculator treats the actuarial average spending of the employer contributions as covered

“first-dollar” spending for covered EHB services, as if the annual contribution amount is applied

at the very beginning of an enrollee’s spending in a benefit year.

Specifically, 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 AV 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 Before the Deductible is

Met 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.

Step 4: Calculate Plan-Covered Expenses for Spending Before the Deductible is Met

The AV Calculator next computes any plan-covered expenses for spending before the deductible

is met for each benefit type and includes these expenses in the numerator. The computation

process identifies the relevant deductible for each benefit type, which depends on whether the

plan includes separate medical and drug deductibles or a combined deductible. For plans with a

combined (“integrated”) deductible, the relevant deductible is always the combined deductible.

For plans with separate medical and drug deductibles the relevant deductible is the medical

deductible for medical services and the drug deductible for drug services.

The following terms are used throughout the subsequent discussion of calculating plan-covered

expenses during the deductible range:

Draft 2019 Actuarial Value Calculator Methodology Page 17

• The adjusted deductible is the deductible divided by the percentage of spending

below the deductible that satisfies the deductible. For example, this excludes

spending on copays that are also subject to the deductible. This calculation is

iterative to ensure that the adjusted deductible remains consistent with the

percentage of spending below the deductible that satisfies the deductible.

• The average cost of a benefit during the deductible range (hereafter in this section

simply average cost of a benefit) is the average cost of that benefit listed in the

row of the continuance table corresponding to spending at the relevant adjusted

deductible (which may be pro-rated, if necessary).

• The per-service cost of a benefit is the average cost of a benefit as described

above divided by the benefit type frequency.

• Special cost sharing is defined as any cost sharing for a service type other than

subjecting that service to the deductible and the general coinsurance rate without

including a special coinsurance rate or copay.

The process for calculating plan-covered expenses and enrollee-covered expenses below the

deductible for a given benefit type depends on whether the benefit type is subject to the

deductible or to a copayment as follows:

• If the benefit type is subject to neither the deductible nor a copayment, the

plan covers all spending on that benefit type below the relevant deductible.

The AV Calculator identifies the average cost of that benefit, all of which is

included in plan-covered expenses. There is no enrollee-covered expense

associated with this benefit type.

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

covers all spending on that benefit type below the deductible, less enrollee

copayments. The AV Calculator subtracts the copayment for the benefit type

from the per-service cost to produce plan-covered expenses per service for

this benefit type. The AV Calculator multiplies this result by the benefit type

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

track enrollee out-of-pocket costs, the copayment is multiplied by the benefit-

type frequency to determine enrollee spending.

• If the benefit type is subject to the deductible and not subject to a copayment,

or subject to the copayments applying only after deductible, the plan covers

no spending on that benefit type below the relevant deductible. The average

cost of the benefit is applied to the enrollee-covered expenses. If the benefit is

subject to copayments applying only after the deductible, then copayments are

not considered until after the deductible range. The AV Calculator will return

an error if the benefit applies the copayment only after deductible and the

deductible is not checked for the benefit.

The iterative calculation of the adjusted deductible was added in the 2018 AV Calculator. Please note that any

attempts to reproduce AV without the iterative calculation may differ from the AV calculated by the AV Calculator.

Before the deductible is met, services may not be subject to a coinsurance rate. Therefore, if a plan has benefits

with only coinsurance and no deductible or copay, the AV Calculator assumes that there is no enrollee-covered

expense associated with this benefit type before the deductible is met. To help AV Calculator users understand the

AV Calculator’s operation in these cases, the AV Calculator’s Additional Notes field will indicate if a service has no

enrollee cost sharing in the deductible range.

Draft 2019 Actuarial Value Calculator Methodology Page 18

• If the benefit type is subject to the deductible and the user has entered a

copayment rate applying during the deductible, the plan covers no spending

on that benefit type below the relevant deductible. The difference between the

per-service cost of a benefit and the copayment amount multiplied by the

frequency of the service applies towards enrollee-covered expenses for the

deductible. The cost of the copays applies only to the point at which the

enrollee reaches the MOOP, but not the point at which the enrollee reaches the

deductible. Compared to plans with no copayment during the deductible, this

increases the total amount of per member spending required before the

deductible is met.

Some claims are composed of multiple components, each with separate inputs for cost sharing in

the AV Calculator. The assignment of special cost sharing to claims with multiple components

is as follows:

• If the benefit type is one of the five benefit types with both facility and

professional components, then the cost sharing depends on the combination of

cost sharing entered both for that service type, and for the outpatient facility

and professional service types. If special cost sharing is entered for the

service type and for one or both of outpatient facility and professional

services, or if special cost sharing is entered for only the service type, the cost

sharing associated with the service type is used. If special cost sharing is not

entered for the service type and is entered for one or both of outpatient facility

and professional services, the cost sharing associated with outpatient services

is used. For example, if Speech Therapy is not subject to the deductible, is

subject to coinsurance, and is subject to a $40 copay, and Outpatient Facility

claims are subject to the deductible, and subject to a specific 60 percent

coinsurance rate, the Outpatient Facility component of a Speech Therapy

claim will be subject to the $40 copay. The AV Calculator’s Additional Notes

field will indicate if the service-level cost sharing overrides the outpatient

cost-sharing input in a particular AV calculation.

• If the benefit type is a primary care or specialist visit, then the cost sharing

that applies to any X-ray service provided as part of the visit depends on the

cost sharing entered for primary care and/or specialist visits and X-rays. If

special cost sharing is entered for one or both of primary care and specialist

visits and for X-rays, or if special cost sharing is entered for only X-rays, the

cost sharing associated with X-rays is used. If special cost sharing is not

entered for X-rays and is entered for one or both of primary care and specialist

visits, the cost sharing associated with primary care and/or specialist visits is

used. For example, if Primary Care office visits are not subject to the

deductible and are subject to 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 and the primary care cost sharing will apply to both. The AV Calculator’s

At this time, subjecting drugs to a copayment in the deductible range and a special coinsurance rate in the

coinsurance range is not supported by the AV Calculator. Plans may apply both a copayment and the general

coinsurance rate to prescription drugs by entering a copayment and selecting the Subject to Coinsurance option.

Draft 2019 Actuarial Value Calculator Methodology Page 19

Additional Notes field will indicate if the office visit cost sharing overrides

the X-ray cost-sharing input in a particular AV calculation.

The AV Calculator also supports three specific variations on the general deductible process

described above:

• If the user limits IP copayments to a set number of days, the AV Calculator

compares the IP frequency at the adjusted deductible 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 copayment and subtracts the resulting total copayment

spending from the average cost of the benefit to compute plan-covered

spending.

• 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 adjusted deductible amount exceeds the set

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

visits, the copayment 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

copayment to obtain total enrollee copayment spending. The AV Calculator

then subtracts total enrollee copayment spending from the average cost for

that service to compute total plan-covered spending.

• If the user specifies that the primary care deductible and/or coinsurance

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

compares the set number of copayment 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 copayment visits, then the AV

Calculator treats this service as if it was subject to a copayment but not the

deductible. However, if the frequency of visits exceeds the set number of

copayment visits, the AV Calculator computes total plan-covered spending at

the deductible by multiplying the per-service cost by the set number of

copayment visits and subtracting from the result the set number of copayment

visits multiplied by the copayment amount.

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 adjusted deductible.

The AV 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

Draft 2019 Actuarial Value Calculator Methodology Page 20

separate medical and drug deductibles, the AV 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 Enrollee Spending Level for MOOP

To identify the spending level at which an enrollee will reach the MOOP, the AV Calculator

considers both enrollee expenses during the deductible phase and enrollee expenses during the

coinsurance phase. To account for enrollee spending below the deductible, the AV Calculator

determines a modified MOOP. If a benefit has a copayment, the AV Calculator multiplies this

copayment by the average frequency at the adjusted deductible for the benefit type. The

calculator then sums the enrollee copayment expenses across all benefits. 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 the coinsurance range for the remaining service types before reaching the MOOP limit.

The resulting “modified MOOP” represents the amount that an enrollee would have to pay in the

coinsurance range for all remaining service types before reaching the MOOP limit. If the plan

has separate MOOPs for medical and drug spending, the AV 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 AV Calculator computes the spending level at which the modified MOOP will apply.

For this calculation, the AV Calculator utilizes an iterative process that involves both the

effective and realized coinsurance rate. In the AV Calculator, all coinsurance rates are expressed

as the percentage of spending the plan pays. The effective coinsurance rate is the percentage of

costs borne by the plan for services subject to coinsurance, accounting for copayments. The

initial effective coinsurance rate is calculated using the overall average mix of spending on

service types. In contrast, the realized coinsurance rate is the coinsurance rate the enrollee

receives during the coinsurance range, which accounts for different mixes of spending on service

types at different levels of total spending.

To find the point at which the MOOP is reached during the first iteration of this calculation, the

AV Calculator first subtracts the deductible from the modified MOOP and divides the resulting

value by one minus the effective coinsurance rate. For future iterations, the calculator uses the

realized coinsurance rate from the previous iteration as the effective coinsurance rate. The AV

Calculator 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. For plans with

separate MOOPs, the AV 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.

The coinsurance for the five benefits with facility and professional components as well as X-rays associated with

primary care visits is determined by a similar method to the one applied for costs under the deductible. For the five

benefits with facility and professional components, their cost sharing is overridden by the outpatient facility and

professional cost sharing if and only if the services does not have special cost sharing entered and the corresponding

outpatient component does have special cost sharing applied. For X-rays associated with primary care and specialist

visits, the primary care visit cost sharing applies if and only if the primary care is subject to special cost sharing,

while X-rays are not subject to special cost sharing.

Draft 2019 Actuarial Value Calculator Methodology Page 21

The steps above describe the basic way of determining when a MOOP is reached. As detailed

below, the AV Calculator may use one of several variations on this process. First, the AV

Calculator may use a variation on the method to compute the modified MOOP. For example, if

the user specifies that primary care services are subject to copayments for a set number of visits

before the deductible and/or coinsurance applies, the AV Calculator subtracts from the MOOP

the lesser of either: 1) the frequency of primary care visits at the deductible multiplied by the

copayment amount; or 2) the set number of copayment visits multiplied by the copayment

amount.

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 adjusted deductible and

the amount corresponding to the modified MOOP), the AV Calculator examines each of the

medical and drug benefits listed in the AV Calculator to determine plan-covered spending during

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

copayment requirements applying to that type. The narrower the range between the deductible

and the MOOP, as in the case with some bronze plans, the smaller the role this computation

plays in the overall AV of the plan.

The AV Calculator computes plan-covered expenses for all benefits as follows:

• For each benefit type that is subject to coinsurance, the AV Calculator

identifies the applicable coinsurance rate, either a service-specific rate or the

general rate, for that benefit. The AV Calculator then 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 that is not subject to the deductible or coinsurance, but is

subject to copayment, the AV Calculator divides average cost at the

deductible for that benefit by the frequency for that benefit type to estimate

the per-service cost at the deductible. The AV Calculator then subtracts the

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 AV 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.

Draft 2019 Actuarial Value Calculator Methodology Page 22

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 AV Calculator follows

a similar process to calculate plan-covered spending for the benefit

corresponding to spending at the modified MOOP. Finally, the AV 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 AV 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 copayments 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.

The AV Calculator supports two specific variations on the calculation of expenses between the

deductible and MOOP:

• 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 AV 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 AV 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 AV 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 AV 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

Draft 2019 Actuarial Value Calculator Methodology Page 23

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

For the five benefits with facility and professional components and X-rays associated with

primary care or specialist visits, the AV Calculator determines the applicable cost sharing for

expenses between the deductible and the MOOP in the same way it determines the applicable

cost sharing for the deductible. For the five benefits, if that benefit has special cost sharing it

applies to claims with both components.

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. The AV Calculator calculates the

realized coinsurance rate here and compares it to the effective coinsurance rate used in step 5. If

they are equal, the calculator moves on to step 7. If they are not equal, the calculator repeats

steps 5 and 6, this time with the recently calculated realized coinsurance rate as the effective

coinsurance rate in step 5.

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 AV 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 AV 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 Tiered Network, if Applicable

If the plan is a blended network plan, the AV Calculator first performs all steps above using the

deductible, coinsurance rate, MOOP and benefit-specific deductible, coinsurance, and

copayment requirements entered for Tier 1, and then multiplies the numerator calculated in step

7 by the portion of total claims costs specified by the user as anticipated to be used in Tier 1.

The result becomes the preliminary numerator. The AV 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 Tier 2 network.

Once this process is complete, the AV Calculator adds the preliminary and secondary numerators

to produce the new final numerator.

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 copayments. If the set number of copayment

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 copayment amount

multiplied by the frequency for primary care at the modified MOOP. Similarly, if the set number of copayment

visits exceeds the frequency at the modified MOOP, the AV Calculator computes plan-covered spending in this

range as described above by subtracting the copayment amount multiplied by the copayment visit limit.

Draft 2019 Actuarial Value Calculator Methodology Page 24

Step 9: Calculate AV and Corresponding Metal Tier

In the final step, the AV Calculator computes the final AV 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 AV, the AV Calculator divides the numerator by the denominator. If the AV is

outside of the ranges corresponding to each metal tier, the AV Calculator outputs the AV and the

message “Error: Result is outside of [-4,+2] percent de minimis variation.”

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 AV Calculator outputs the AV, metal tier,

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

AV Calculator provides the user the option to reset the “Desired Metal Tier” parameter to the

observed metal tier and rerun the AV calculation. If the user declines, the AV Calculator outputs

the AV, 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 CSR plan variation requirements or the expanded bronze plan AV de

minimis range in accordance with 45 CFR 156.140(c). CSR requirements are available to

eligible enrollees with household incomes below 250 percent of the Federal Poverty Level (FPL)

under section 1402(a) through (c) of the Affordable Care Act. Under the regulations

implementing 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.

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 intended type of CSR plan. The below table provides

information 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.

Similarly, in accordance with 45 CFR 156.140(c), the draft 2019 AV Calculator allows the user

to calculate AV for bronze plans that meet certain requirements, and therefore would be allowed

to utilize an expanded bronze plan de minimis range. The requirements for using the expanded

45 CFR 156.420.

Draft 2019 Actuarial Value Calculator Methodology Page 25

bronze plan de minimis range require that the bronze plan either covers and pays for at least one

major service, other than preventive services, before the deductible or meets the requirements to

be a high deductible health plan within the meaning of 26 U.S.C. 223(c)(2). For the bronze plans

that meet either of these requirements, the allowable variation in AV for such plans is -4

percentage points and +5 percentage points.

The draft 2019 AV Calculator does not check the

plans for compliance with the requirements to use the expanded bronze plan de minimis range.

To run an expanded bronze plan in the AV Calculator, the user should check the box entitled

Indicate if Plan Meets CSR or Expanded Bronze AV Standard and then select the radio button

entitled Expanded Bronze (56%-65%). This process will automatically update the Desired Metal

Level to Bronze. If an expanded bronze plan is incorrectly run without Bronze selected as the

Desired Metal Level, the user will receive the following output messages “Calculation resolved

without matching metal tiers” or “Error: Result is outside of de minimis variation for Expanded

Bronze” to indicate that the AV calculation is not successful. An expanded bronze plan AV

calculation is successful in the AV Calculator when the user receives the output message

“Expanded Bronze Standard (56% to 65%), Calculation Successful”. It is the responsibility of

the bronze plan issuer to ensure that its bronze plan meets the requirements under this policy at

45 CFR 156.140(c) if the issuer uses that expanded bronze plan de minimis range in the AV

Calculator.

For information on the expanded bronze plan policy at 45 CFR 156.140(c), please refer to the Final 2018 Payment

Notice and the Market Stabilization Final Rule.