18 September Health Plan Actuarial Value Variation Among Employers Actuarial Research Corporation Sarah Yi Jim Mays Middle Atlantic Actuarial Club 2009 Annual Meeting Session 6A

18 September Outline of Presentation Background EBSA Project Data Methodology Results Policy Applications Questions and Comments

18 September Background

EBSA Project Research was funded by the Employee Benefits Security Administration (DoL/EBSA) The views and opinions contained in this report are solely those of the authors and do not necessarily reflect the official policy or position of the Department of Labor or the Employee Benefits Security Administration. 18 September 20094

5 Background Context – Health finance reform design – Minimum coverage rules – Modification of tax exclusion

18 September Background Definition of Actuarial Value: the fraction of average recognized medical charges which a health plan would have paid, had it been covering a standardized population with standardized medical spending levels Actuarial Value is a single statistic that captures the effect of deductibles, copayments/coinsurance, and out-of-pocket maximums

18 September EBSA Project

18 September Research Questions/ Hypotheses How dispersed are employer-sponsored health insurance average actuarial values? To what degree does actuarial value predict plan cost?

18 September Goals Actuarial values for each health insurance plan in the NCS Percentile distributions of actuarial value Summary distributions of plan costs within actuarial value deciles

18 September Data

National Compensation Survey Produced by Bureau of Labor Statistics Data not available for public use Three stage survey design – Selection of areas – Selection of establishments (from private industry) – Selection of occupations within establishments Plans remain in sample for 5 years 18 September

18 September Uniqueness of NCS Data Definitive source for information on ESI parameters Well-established process Detailed specifications Large sample More reliable than other datasets

18 September Use of NCS Data: Overview Plan provisions Premiums Plan characteristics Worker characteristics Establishment characteristics

18 September Use of NCS Data: Plan Provisions From Summary Plan Description documents abstracted by BLS analysts Consistent with National Compensation Survey: Employee Benefits in Private Industry in the United States, 2005

18 September Use of NCS Data: Plan Provisions Covered services (inpatient hospital, outpatient hospital, physician visits, mental health, prescription drugs) Cost-sharing parameters – Deductibles – Copayments – Coinsurance – Out-of-pocket maximums – Presence of benefit maximums

18 September Use of NCS Data: Premiums Collected in person or on phone by field economists Potential mismatch in plan types (medical, prescription, dental, vision) between provision and premium data

18 September Use of NCS Data: Premiums Premiums – Total premiums – Employer premiums – Employee premiums

18 September Use of NCS Data: Plan Characteristics Plan characteristics – Plan type (FFS, PPO/POS, HMO) – Financing (insured, self-insured or combined)

18 September Use of NCS Data: Worker and Establishment Characteristics Worker characteristics – Average wages – Union status Establishment size

18 September Use of NCS Data Kept plans with medical and drug provisions Kept plans with a known plan type

18 September Methodology

18 September Methodology Run a claims payment program on each plan to calculate actuarial value Sort plans into deciles of actuarial value Sort plans into deciles of premium Make two-way tables

18 September Standardized Population Data for Claims Program Based on the MEPS public use files Controlled to National Health Accounts totals Adjusted to 2005 levels Over 16,000 individual records Representative of under 65 active ESI enrollees

18 September Simplified Cost-Sharing Provisions for Plan A $20 copay for each physician visit $450 deductible for each hospital confinement

18 September Person 1’s Utilization and Covered Charges Total covered charges = $5,000 Physician office visits = 5 Physician office visit covered charges = $1,000 Hospital confinements = 2 Inpatient hospital covered charges = $4,000

18 September Person 1’s Cost-Sharing for Plan A Physician ($1,000, 5 visits, subject to $20 copay per visit) Cost-sharing collected is 5*$20 = $100 Hospital (2 confinements at $2,000 each, subject to $450 deductible per confinement) Cost-sharing collected is 2*$450 = $900 Total cost-sharing = physician cost-sharing + hospital cost-sharing = $100 + $900 = $1000

18 September Plan Share for Plan A with Person 1’s Utilization and Covered Charges Plan payment = total covered charges – cost- sharing For Person 1, plan payment = $5,000 - $1,000 = $4,000 Plan share = plan payment/ total covered charges Plan share for Plan A for Person 1 = $4,000/$5,000 =.8

18 September Actuarial Value for Plan A Weighted average plan shares for each of the 16,000 people

18 September Summary of Methodology Run a claims payment program on each plan to calculate actuarial value Sort plans into deciles of actuarial value Sort plans into deciles of premium Make two-way tables

18 September Results

18 September Table 1. Deciles of Actuarial Value for Single Coverage for Enrollees Under Age 65 Average Actuarial DecileValue Overall0.8983

18 September Table 2. Average Total Premium within Each Decile of Actuarial Value for Single Coverage for Enrollees Under Age 65 Average ActuarialTotal DecileValuePremium Overall

Table 3. Average Actuarial Value within Each Decile of Total Premium for Single Coverage for Enrollees Under Age September Average TotalActuarial DecilePremiumValue Overall

18 September Table 4. Average Actuarial Value by Plan Characteristics for Single Coverage for Enrollees Under Age 65 Actuarial Plan CharacteristicsValue FFS PPO/POS HMO Insured Self-Insured or Combined Financed Overall0.8983

18 September Table 5. Average Actuarial Value by Worker Characteristics for Single Coverage for Enrollees Under Age 65 Actuarial Worker CharacteristicsValue Average Wage Less than $15 per Hour Average Wage $15 per Hour or Higher Union Nonunion Overall0.8983

18 September Table 6. Average Actuarial Value by Establishment Characteristics for Single Coverage for Enrollees Under Age 65 Actuarial Establishment CharacteristicsValue Fewer than 10 Workers to 24 Workers to 49 Workers to 99 Workers to 499 Workers to 999 Workers Workers or More Overall0.8983

18 September Policy Applications

18 September Policy Applications Minimum standards design Actuarial Value-based changes to tax exclusion (e.g., taxing of “Cadillac Plans”)

18 September Questions and Comments