Health Care Reform Update: Determining Actuarial Value

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THE LATEST HEALTH CARE REFORM UPDATE:

HHS Outlines Intended Approach for Determining Actuarial Value for Individual and Small Group Coverage (Including Good News for HSAs and HRAs)
On Feb. 24, the Department of Health and Human Services (HHS) released a bulletin that describes their approach to valuing plans that will be offered in the nongrandfathered small and individual markets after Jan. 1, 2014 (whether or not offered as qualified health plans inside an exchange).  The bulletin also describes HHS's intended approach for implementing one of the features of health care reform that is intended to make individual coverage obtained through an exchange affordable for eligible low-income individuals -- the actuarial value (AV) calculator would be used to determine required cost-sharing reductions for such individuals who purchase silver-level individual coverage through an exchange.

Standard Data: HHS's proposed approach to the actuarial value requirements established by the Patient Protection and Affordable Care Act (PPACA) would be to create a national standardized approach to determining a plan's actuarial value (AV) and develop a national "actuarial value calculator" to score plans based on their included benefits.  However, the bulletin also allows for a proposed degree of state-by-state flexibility.  Since provider payment levels and utilization can vary substantially by state, the bulletin provides for a means for states to develop their own standardized deviation of the national actuarial value formula that insurers could use to come up with AV scores in that state. 

AV Calculator Tool: HHS intends to develop a publicly available calculator tool, pre-loaded with standard data, which insurers would use to calculate their plans' AVs by inputting key information about benefit coverage and cost-sharing provisions.  A plan's AV would need to be within two percentage points above or below the specified AV for the level (e.g., a gold plan's AV could be between 78 percent and 82 percent).  HHS is soliciting comments on exactly what input fields the calculator should consider and how AVs should be calculated for plan designs that do not fit within the calculator's logic.

Treatment of HSAs and HRAs: The bulletin also makes a provision to address the treatment of employer contributions to health savings accounts (HSAs) and health reimbursement arrangements (HRAs) linked to high-deductible health plans (HDHPs).  HHS recognized that simply calculating the actuarial value of the HDHP based on the insurance product alone would understate the value of coverage and cause many HDHPs to fall below the bronze level of coverage required.  However, they also noted that accounting for the total coverage provided by the combination of the HDHP and the full value of the HSA or HRA could overstate actuarial value because, empirically, only a portion of these accounts are used toward health in a given year.  To address the issue fairly, HHS states in the bulletin, "we intend to propose that for purposes of calculating the AV of an employer health benefit plan, the annual employer contribution to the employee's HSA associated with a qualifying HDHP and the amount made available for the first time in a given year under a HRA that is linked to an employer health benefit plan shall be considered part of the benefit design of the health plan."  (Editorial comment: "How will the insurer know what HSA contributions an employer will make?")
HHS has solicited comments on the proposed bulletin, but has not specified a date by which comments must be submitted.  The full 16-page bulletin can be found at:
http://www.cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.