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California’s individual health insurance market offers plans with a wide and complex array of benefit levels and cost-sharing provisions. Some policymakers and stakeholders are concerned that this complexity makes it difficult for consumers to evaluate plans, and that a good summary of the protection afforded by these health insurance products might help consumers better assess which plans fit their needs.
A number of cost-sharing provisions interact to determine what a plan will pay versus what the consumer will pay, but the interplay of these provisions can make it difficult for consumers to understand which plans are likely to be the best value.
To better understand these complex cost-sharing arrangements, the human resources consulting firm Watson Wyatt Worldwide was asked to describe how actuarial value can be used to evaluate health plans. Actuarial value is a summary measure of likely payments by a plan. It measures the percentage of medical expenses paid by a health plan for a standard population, ranging from 0.00 for a plan that pays nothing to 1.00 for a plan that pays all medical expenses.
This paper describes Watson Wyatt’s analytic approach, presents the strengths and limitations of actuarial value as a summary measure, and offers observations about the use of actuarial value to assess diverse health plans.
The complete report is available under Document Downloads.