Monday, April 03, 2017

Kaiser and me, on average AV

Drew Altman, president and CEO of the Kaiser Family Foundation, wrote on March 22 that under Ryan's ACA repeal plan, the average deductible in the individual market for health insurance would rise $1550 from current levels in the ACA-compliant market.

That was based on an estimate that the average actuarial value in the current market is 72%, vs. a norm of 65% that CBO calculated for Ryan's bill. Actuarial value (AV) is the percentage of the average user's yearly medical costs covered by plan. It's calculated according to a formula mandated by the ACA.

The 72% average AV figure jumped out at me, because in April 2016 I calculated the average weighted AV in the individual market as 75.5%.  Altman's piece cites an average AV in the ACA marketplace of 79%.That's exactly what I initially calculated, though I later bumped my estimate to 80%, based on likely silver plan selection by enrollees eligible for Cost Sharing Reduction at different income levels (see note at first asterisk, here).

The difference in the overall estimate appears to stem from estimates of metal level selection (bronze, silver, etc., with AV set by statute at each level) in off-marketplace enrollment, which is something of a black box. I used unsubsidized enrollees in the ACA marketplace as a proxy and calculated their average weighted AV at 68.7%.  According to an as-yet unpublished methodology note forwarded to me, Kaiser appears to have relied on 2016 data from the online broker eHealth, which included  a metal level breakout among their customers indicating an average weighted AV of 65.8%:

Metal levels correspond to color here. Red signifies catastrophic plans (AV 57% according to this 2013 Kaiser estimate), which is what bumps eHealth down.  It also indicates a younger clientele among its 77,000 unsubsidized plan applicants than that of the ACA marketplace, as catastrophic plans are only available to applicants up to age 30 except in rare cases.

Even assuming an off-marketplace average AV of 65.8%, I'm not sure how Kaiser got as low as 72% overall.  Kaiser cites data from Mark Farrah Associates indicating that as of the end of open enrollment 2016 -- before the yearly "no-pays" were weeded out -- 37.5% of individual market enrollees were off-marketplace. If you bump marketplace enrollment down from 12.7 million to 11.1 million, where it was at the end of the first quarter, that bumps off-marketplace enrollment to 40% of the total.  Split 79 (for marketplace) and 66 (for off-marketplace)  evenly and you get 72.5%. But again, Farrah data indicates that 40% were off-marketplace. A 60-40 split would yield an average of 73.7%.

Average AV may rise in the course of each year as attrition proceeds. In July 2016, CMS essentially translated my finding that the average marketplace plan was "gold equivalent" from AV terms to deductibles, reporting the median deductible in the marketplace at $858. That data brief, based on ACA enrollment as of April 2016, included a breakout of enrollment by metal level that for the first time included enrollment figures for each level of Cost Sharing Reduction (AV 94%, 87% and 73%) -- and yielded an average weighted AV for the marketplace as a whole of 81.4%.

I can't resist noting here that I appear to have been the first observer to have ventured an estimate of AV in the ACA-compliant individual market, as well as in the ACA marketplace per se, and various subgroups. To my mind, the most significant finding was the divide at 200% FPL, after which Cost Sharing Reduction falls off a cliff. For marketplace enrollees with incomes up to 200% FPL (the majority), average weighed AV is 86%. For all other groups, it's below 70%. That shows the power -- and the limitations -- of CSR.  But once Republicans unveiled Ryan's bill, and CBO estimated its average likely AV at 65%, the AV average for the whole current marketplace has also proved a useful point of contrast between ACA and AHCA.


  1. Maybe they're talking about true actuarial value, not labelled actuarial value. Silvers aren't really all 70% AV. If they were, all across the country they'd have similar premiums, but they don't.

    1. That's true, but Kaiser is not questioning the AV formula.