Choosing the “Best” Plan in a Health Insurance Exchange: Actuarial Value Tells Only Part of the Story

By Ryan Lore, Jon R. Gabel, Roland McDevitt, and Michael Slover
The Commonwealth Fund, August 2012

In the health insurance exchanges that will come online in 2014, consumers will be able to compare health plans with respect to actuarial value, or the percentage of health care costs that a plan would pay for a standard population. This analysis illustrates the out-of-pocket costs that might result from plans with various plan designs and actuarial values. We find that average out-of-pocket expense declines as actuarial values rise, but two plans with similar actuarial values can produce very different outcomes for a given person. The overall affordability of a plan also will be influenced by age rating, income-related premium subsidies, and out-of-pocket subsidies. Actuarial value is a useful starting point for selecting a plan, but it does not pinpoint which plan will produce the best overall value for a particular person.

Consumers anticipate some health care needs when choosing a plan, but many health care expenses are not predictable and some consumers are drawn to low cost-sharing plans because they prefer to minimize risk. Even when provided with information about the plans and their premiums, it can be hard for people to choose a plan that best meets their expected medical needs.

Although this analysis focuses on out-of-pocket expense, premiums, and affordability, it should be noted that there are other important considerations in judging the value of a plan. Health plans also differ in network access and quality of care. Exchanges are responsible for providing information to help consumers evaluate these dimensions, including the ability for consumers to search for particular providers in each plan’s network.

The important contribution of this study is that it shows that choosing an exchange plan based on its actuarial value (bonze, silver, gold, platinum) does not necessarily predict what out-of-pocket expenses may be. There are so many other variables that out-of-pocket expenses can be quite different for plans with the same actuarial value.

Some of the variables include the size of the deductible, whether or not some services are covered before the deductible is met, the amount of copayments, the amount of coinsurance, the maximum cost exposure, the age of the patient, income levels in qualifying for premium subsidies and for out-of-pocket subsidies, and, most important of all, how much medical care you require during the year, much of which may be totally unpredictable.

Under a properly designed single payer national health program – an improved Medicare for all – none of these variables would apply. You would not be forced to choose each year from plans that are unaffordable, or that underinsure, or both. Insurance would not be an issue. When you need health care, you get it. Period.