Measuring the generosity of employer-sponsored health plans: an actuarial-value approach

The actuarial value of a health insurance plan has long been used by plan administrators to appraise their company’s probable outlay on health insurance claims. But the insured view the actuarial value as a measure of the generosity afforded by a health plan. This study estimates the actuarial values of employer-sponsored health insurance plans using survey data collected from the BLS National Compensation Survey (NCS) and the Medical Expenditure Panel Survey, which is administered by the Agency for Healthcare Research and Quality. These estimates, along with existing health-insurance provisions estimates published by NCS, could provide a more comprehensive assessment of employer-sponsored health insurance benefits offered to American workers if measures of statistical significance were applied to them.

The National Compensation Survey of the Bureau of Labor Statistics (BLS) publishes annually an online bulletin that provides the detailed provisions of employer-sponsored health insurance (ESHI) plans.¹ The published data include information on distributions of plan types, such as the percentage of employees enrolled in fee-for-service (FFS) plans or enrolled in health maintenance organization (HMO) plans. These publications also provide information on detailed features and characteristics of plans; this information includes the contractual cost-sharing features of health insurance. Cost-sharing features include deductible amounts, coinsurance rates, copays, and out-of-pocket expense maximums. These and other features of plans published by BLS describe, in part, the designs of ESHI plans offered to American workers. What have not yet been published, however, are actuarial values, a measure of the generosity of health plans. This article shows how reliable actuarial values could be useful to consumers—allowing consumers to compare one plan’s value with another—if such measures were to become available in the future.

The actuarial value of a health insurance plan is the average total costs of covered healthcare expenses the insurer is contractually obligated to pay.² Actuaries have long used actuarial-value estimates to estimate payouts of plans.³ But from a policyholder’s perspective, a plan’s actuarial-value estimates the financial protection provided by the plan. This financial protection could be viewed as the generosity of the plan. The insurer typically computes the actuarial value of a specific plan by using the plan’s actual claim-payment experience. For instance, if an insurer pays 70 percent of costs that are defined as covered under the plan, the actuarial value of that plan equals 70 percent. Using this general concept of generosity, we take a more comprehensive approach by estimating the average actuarial value of a collection of ESHI plans that were gathered as part of the National Compensation Survey (NCS).

Because claims data from ESHI plans are typically not available to the survey or research community, our study estimates claim payments from a claims-payment model. This model uses healthcare utilization rates and expense levels of a simulated standardized population of healthcare users enrolled in ESHI plans. These utilization rates and expenses are derived from the household component of the Medical Expenditure Panel Survey, which is administered by the Agency for Healthcare Research and Quality. The actuarial values estimated from this claims-payment approach, along with the current NCS published benefit statistics, should provide a more robust picture of ESHI plans provided to American workers.

Construct of an actuarial-value calculator

There are several methods that can be used to construct an actuarial-value calculator. Each method attempts to estimate the percentage of covered health costs paid by an insurer. In its most simplistic form, an actuarial value can be expressed as

Read the rest of this article at the Source: Bureau of Labor Statistics