1. 18 September 20091 Health Plan Actuarial Value Variation Among Employers Actuarial Research Corporation Sarah Yi Jim Mays Middle Atlantic Actuarial Club 2009 Annual Meeting Session 6A

2. 18 September 20092 Outline of Presentation Background EBSA Project Data Methodology Results Policy Applications Questions and Comments

3. 18 September 20093 Background

4. 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. 5 Background Context – Health finance reform design – Minimum coverage rules – Modification of tax exclusion

6. 18 September 20096 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

7. 18 September 20097 EBSA Project

8. 18 September 20098 Research Questions/ Hypotheses How dispersed are employer-sponsored health insurance average actuarial values? To what degree does actuarial value predict plan cost?

9. 18 September 20099 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

10. 18 September 200910 Data

11. 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 200911

12. 18 September 200912 Uniqueness of NCS Data Definitive source for information on ESI parameters Well-established process Detailed specifications Large sample More reliable than other datasets

13. 18 September 200913 Use of NCS Data: Overview Plan provisions Premiums Plan characteristics Worker characteristics Establishment characteristics

14. 18 September 200914 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

15. 18 September 200915 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

16. 18 September 200916 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

17. 18 September 200917 Use of NCS Data: Premiums Premiums – Total premiums – Employer premiums – Employee premiums

18. 18 September 200918 Use of NCS Data: Plan Characteristics Plan characteristics – Plan type (FFS, PPO/POS, HMO) – Financing (insured, self-insured or combined)

19. 18 September 200919 Use of NCS Data: Worker and Establishment Characteristics Worker characteristics – Average wages – Union status Establishment size

20. 18 September 200920 Use of NCS Data Kept plans with medical and drug provisions Kept plans with a known plan type

21. 18 September 200921 Methodology

22. 18 September 200922 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

23. 18 September 200923 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

24. 18 September 200924 Simplified Cost-Sharing Provisions for Plan A $20 copay for each physician visit $450 deductible for each hospital confinement

25. 18 September 200925 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

26. 18 September 200926 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

27. 18 September 200927 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

28. 18 September 200928 Actuarial Value for Plan A Weighted average plan shares for each of the 16,000 people

29. 18 September 200929 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

30. 18 September 200930 Results

31. 18 September 200931 Table 1. Deciles of Actuarial Value for Single Coverage for Enrollees Under Age 65 Average Actuarial DecileValue 10.7687 20.8367 30.8655 40.8833 50.9014 60.9185 70.9357 80.9467 90.9548 100.9719 Overall0.8983

32. 18 September 200932 Table 2. Average Total Premium within Each Decile of Actuarial Value for Single Coverage for Enrollees Under Age 65 Average ActuarialTotal DecileValuePremium 10.7687344.75 20.8367308.04 30.8655311.48 40.8833324.91 50.9014324.26 60.9185318.59 70.9357333.08 80.9467322.28 90.9548332.49 100.9719348.15 Overall0.8983326.81

33. Table 3. Average Actuarial Value within Each Decile of Total Premium for Single Coverage for Enrollees Under Age 65 18 September 200933 Average TotalActuarial DecilePremiumValue 1155.930.8960 2228.030.8964 3259.230.8951 4284.930.8902 5303.710.9039 6328.550.9065 7353.530.8956 8377.270.9033 9421.590.8951 10555.870.9011 Overall326.810.8983

34. 18 September 200934 Table 4. Average Actuarial Value by Plan Characteristics for Single Coverage for Enrollees Under Age 65 Actuarial Plan CharacteristicsValue FFS0.8430 PPO/POS0.8889 HMO0.9405 Insured0.9051 Self-Insured or Combined Financed0.8860 Overall0.8983

35. 18 September 200935 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 Hour0.8936 Average Wage $15 per Hour or Higher0.9015 Union0.8903 Nonunion0.8998 Overall0.8983

36. 18 September 200936 Table 6. Average Actuarial Value by Establishment Characteristics for Single Coverage for Enrollees Under Age 65 Actuarial Establishment CharacteristicsValue Fewer than 10 Workers0.8687 10 to 24 Workers0.9037 25 to 49 Workers0.9036 50 to 99 Workers0.8848 100 to 499 Workers0.9000 500 to 999 Workers0.8990 1000 Workers or More0.9082 Overall0.8983

37. 18 September 200937 Policy Applications

38. 18 September 200938 Policy Applications Minimum standards design Actuarial Value-based changes to tax exclusion (e.g., taxing of “Cadillac Plans”)

39. 18 September 200939 Questions and Comments