Understanding Actuarial Value and Minimum Value
As implementation of the Affordable Care Act (ACA) moves forward, you may have heard the terms actuarial value and minimum value used interchangeably. While the two don't carry the exact same meaning, they both play an important role in the ever-changing health care landscape.
What is actuarial value?
A health insurance plan's "actuarial value" is the percentage of the total allowable cost of benefits provided by the plan. The remaining percentage represents the out-of-pocket costs an individual covered by the plan would pay. For example, an actuarial value of 80% means that an average person would typically pay 20% out-of-pocket for their covered benefits and the plan would pay the remaining 80%.
Beginning in 2014, individual and small group non-grandfathered health plans sold inside and outside of the exchange will be categorized into four basic coverage levels, based on their actuarial value. These categories will be described as metallic tiers — Bronze, Silver, Gold, and Platinum — which must have actuarial values of approximately 60%, 70%, 80%, and 90% respectively.
While the metallic tiers represent the actuarial values for coverage, The ACA permits insurers to sell a Catastrophic Plan in the non-group market to individuals who: (1) are under the age of 30; or (2) would otherwise be exempt from the requirement under the ACA to have coverage because available coverage is unaffordable or enrollment in available coverage would be a hardship.
What is minimum value?
"Minimum value" is a term used in the Affordable Care Act to describe the actuarial value threshold for determining whether an employer is subject to a penalty under the employer shared responsibility requirement. A plan fails to provide minimum value if its share of the total allowed costs of benefits provided is less than 60% of such costs. For employers with 50 or more full-time equivalent employees, failure to provide minimum value could trigger financial penalties under the ACA's employer shared responsibility provision.
Individuals who are offered minimum essential coverage through an eligible employer-sponsored plan are not normally eligible for premium tax credits or cost-sharing subsidies through an exchange. However, if their employer-sponsored plan has a minimum value below 60%, or if the lowest cost of self-only coverage to the employee exceeds 9.5% of the household income, they may be eligible for a premium tax credit or cost-sharing subsidy through an exchange because the plan does not meet "minimum value", or affordability standards.
Note: There is a safe harbor designed to help employers determine whether the health coverage they offer is "affordable" - 9.5 percent of wages the employer paid to an employee may be used to determine the standard for affordability versus 9.5 percent of the employee's household income.
Where can I get more information?
Wellmark is here to inform, lead, assist and support you through all of the ACA changes. For more information about actuarial or minimum values, call your Wellmark representative.
Wellmark is not providing any legal advice with regard to compliance with the requirements of the Affordable Care Act (ACA) or the Mental Health Parity Addiction Equity Act (MHPAEA). Regulations and guidance on specific provisions of the ACA and MHPAEA have been and will continue to be provided by the U.S. Department of Health and Human Services (HHS) and/or other agencies. The information provided reflects Wellmark's understanding of the most current information and is subject to change without further notice. Please note that plan benefits, rates, renewal rate adjustments, and rating impact calculations are subject to change and may be revised during a plan's rating period based on guidance and regulations issued by HHS or other agencies. Wellmark makes no representation as to the impact of plan changes on a plan's grandfathered status or interpretation or implementation of any other provisions of ACA. Any questions about Wellmark's approach to the ACA of MHPAEA may be referred to your Wellmark account representative. Wellmark will not determine whether coverage is discriminatory or otherwise in violation of Internal Revenue Code Section 105(h). Wellmark also will not provide any testing for compliance with Internal Revenue Code Section 105(h). Wellmark will not be held liable for any penalties or other losses resulting from any employer offering coverage in violation of section 105(h). Wellmark will not determine whether any change in an Employer Administered Funding Arrangement affects a health plan's grandfathered health plan status under ACA or otherwise complies with ACA. Wellmark will not be held liable for any penalties or other losses resulting from any Employer Administered Funding Arrangement. For purposes of this paragraph, an "Employer Administered Funding Arrangement" is an arrangement administered by an employer in which the employer contributes toward the member's share of benefit costs (such as the member's deductible, coinsurance, or copayments) in the absence of which the member would be financially responsible. An Employer Administered Funding Arrangement does not include the employer's contribution to health insurance premiums or rates.