Actuarial Value

Actuarial Value as a Summary of a Plan's Cost Sharing

A health plan's cost sharing can involve a deductible, several coinsurance rates, copayments for different services and an annual out-of-pocket limit, and actuarial value reduces that whole schedule to one number that can be compared across plans. Because the number is calculated for a fixed reference population, two plans with different designs can be ranked by generosity without the comparison being distorted by who happens to buy them. The measure is best known from the US Affordable Care Act, where it sorts plans into bronze, silver, gold and platinum tiers, but the ratio itself can be computed for any insurance scheme or health system that charges patients at the point of use. The figure says little about what any one person will pay. The phrase has different technical meanings in pensions and life insurance, and here it is used in its health insurance sense only.

The ratio behind the percentage

Actuarial value is a ratio of two expected totals for the same group of people over the same benefit year. The numerator is what the plan is expected to pay for covered services, and the denominator is the total allowed cost of those services, which is the plan's paid amount plus the cost sharing paid by members. Premiums appear in neither term.

$$AV = \frac{\sum_{i=1}^{N} P_i}{\sum_{i=1}^{N} X_i} = 1 - \frac{\sum_{i=1}^{N} S_i}{\sum_{i=1}^{N} X_i}$$

where $AV$ is the actuarial value, $N$ is the number of people in the reference (standard) population, $X_i$ is the allowed cost of covered care used by person $i$ during the year, $P_i$ is the amount the plan pays for that care, and $S_i$ is the cost sharing paid by person $i$, so that $X_i$ is the sum of $P_i$ and $S_i$. The result is usually stated as a percentage.

Two features of this definition matter for interpretation. It is a ratio of totals, and the population is fixed by the regulator or analyst rather than taken from the plan's actual members. US federal regulation defines the percentage in much the same way, as anticipated plan spending on the benefits in the Affordable Care Act's required benefit package (known as EHB), computed for a standard population under the plan's cost-sharing rules.

How deductibles, coinsurance, copayments and out-of-pocket maximums move the figure

Each element of cost sharing changes the amount a member pays at a different point along the spending distribution, so each has a different effect on actuarial value. A deductible bites at low spending, coinsurance applies across the middle of the distribution, and the out-of-pocket maximum caps exposure for the heaviest users. A simple plan with a deductible, a single coinsurance rate and an annual limit gives the member's payment as a function of allowed cost, as follows.

$$S(X) = \min\{M,\ \min(X, D) + c \cdot \max(0,\ X - D)\}$$

where $S(X)$ is the member's cost sharing for an annual allowed cost $X$, $D$ is the deductible, $c$ is the coinsurance rate paid by the member once the deductible has been met, and $M$ is the out-of-pocket maximum. The plan pays the remainder, $X - S(X)$.

The member reaches the out-of-pocket maximum at the allowed cost where the deductible plus coinsurance on the excess equals the limit, as given below.

$$X^{*} = D + \frac{M - D}{c}$$

where $X^{*}$ is the allowed cost at which the cap starts to apply and the other terms are as defined above. Above that point every extra unit of spending is paid in full by the plan.

Copayments, fixed charges per visit or prescription, add further steps to this function, and real plans vary cost sharing by service type. Raising the deductible, the coinsurance rate or the copayments lowers actuarial value, and lowering the out-of-pocket maximum raises it. Many different designs can reach the same percentage, which is why two plans in the same US tier can feel very different to the person paying the bills.

Metal tiers and the federal AV Calculator under the US Affordable Care Act

Section 1302(d) of the Affordable Care Act (42 U.S.C. 18022(d)) defines four levels of coverage by actuarial value, and the federal regulations in 45 CFR Part 156 set out how it is calculated.

The statute requires the level of coverage to be determined as if the benefits in the required EHB package were provided to a standard population, regardless of the people the plan actually covers. Under 45 CFR 156.135, issuers must calculate actuarial value with the AV Calculator that the Department of Health and Human Services (HHS) issues for each benefit year, with an actuary's certification allowed where a plan design does not fit the calculator. HHS updates the calculator annually. The 2027 version draws its standard population from masked person-level claims data for 2021 to 2023, collected through the risk adjustment data system from individual and small group market issuers. The calculator estimates in-network spending, and Centers for Medicare & Medicaid Services (CMS) describes it as a comparison tool that was not developed for pricing.

The calculator also allows for more generous cover changing behaviour. CMS builds separate continuance tables, which describe the distribution of claims spending in the standard population, for bronze, silver, gold and platinum designs, because spending is affected by plan design through induced demand. A plan's metal level therefore selects the utilisation pattern against which its cost sharing is applied. This is the insurance form of moral hazard, and it means the denominator of the ratio is not identical across tiers.

The statute also requires a de minimis variation around each target to allow for differences in actuarial estimates, and the size of that band has changed several times. The Marketplace Integrity and Affordability final rule of June 2025 widened it, and the eCFR still prints the widened text of 45 CFR 156.140(c). In City of Columbus v. Kennedy, however, the federal district court in Maryland stayed that change in August 2025 and vacated it on 12 June 2026, and the government's appeal to the Fourth Circuit was calendared for oral argument on 30 October 2026. While the stay was in force, the CMS 2027 methodology applied plan year 2027 ranges at plus or minus 2 percentage points for the four tiers, plus 5 to minus 2 points for expanded bronze plans (bronze plans that pay for at least one major service other than preventive services before the deductible, or that qualify as high deductible health plans), plus 2 to 0 points for individual market silver qualified health plans, and plus 1 to 0 points for income-based silver cost-sharing reduction variations. The band that applies in later plan years depends on the outcome of the appeal.

Two further US rules use the same measure. For lower-income people enrolled in silver plans, 45 CFR 156.420 requires silver plan variations with actuarial values of 73%, 87% and 94%, each plus or minus a de minimis variation, by household income band. Employer-sponsored plans are judged against a separate minimum value standard in 45 CFR 156.145, which is met when the plan covers at least 60% of the total allowed costs of benefits and includes substantial coverage of inpatient hospital and physician services.

Worked example of one plan design applied to five spending groups

The figures in this example are illustrative and do not come from any real plan or claims data. A small standard population of 100 people is divided into five spending groups, and one plan design is applied to all of them. It has a deductible of $2,000, member coinsurance of 20% after the deductible, and an out-of-pocket maximum of $6,000. The cap is reached at the allowed cost shown below.

$$X^{*} = 2{,}000 + \frac{6{,}000 - 2{,}000}{0.2} = 22{,}000$$

where 2,000 is the deductible, 6,000 is the out-of-pocket maximum and 0.2 is the coinsurance rate, all in dollars except the rate. A member with allowed costs of $2,500, for example, pays the deductible plus 20% of the excess, as follows.

$$S = 2{,}000 + 0.2 \times (2{,}500 - 2{,}000) = 2{,}100$$

where $S$ is that member's cost sharing in dollars, leaving the plan to pay $400. Applying the same rule to every group gives the following results.

Summing over the whole population gives the totals needed for the ratio. Total allowed cost is $795,000 (40 people at $500, 30 at $2,500, 20 at $8,000, 8 at $30,000 and 2 at $150,000). The plan pays the following total.

$$\sum P = 0 + 12{,}000 + 96{,}000 + 192{,}000 + 288{,}000 = 588{,}000$$

where $\sum P$ is the plan's total payment in dollars, each term being the number of people in a group multiplied by the plan payment per person. Members pay the remaining $207,000. The actuarial value is then as follows.

$$AV = \frac{588{,}000}{795{,}000} = 0.740$$

where $AV$ is the share of total allowed cost paid by the plan, here 74.0%.

The design sits between the silver and gold targets and outside the plus or minus 2 point band around either, so an issuer would have to change the cost sharing to place it in a tier. Cutting the deductible to $1,000 while keeping the other terms raises what the plan pays for the moderate and higher groups and lifts the plan's total payment to $628,000 and gives the revised actuarial value as follows.

$$AV' = \frac{628{,}000}{795{,}000} = 0.790$$

where $AV'$ is the actuarial value of the revised design, 79.0%, which would fall within the plus or minus 2 point plan year 2027 gold band (78% to 82%). The example holds spending fixed when the design changes. The federal calculator would instead apply gold-level continuance tables, which reflect the higher use expected under more generous cover, so the real figure would differ.

The same table shows why the percentage cannot be read as each person's share. Averaging the plan share across individuals, rather than dividing the totals, gives a very different number, as shown below.

$$\bar{s} = \frac{40 \times 0 + 30 \times 0.16 + 20 \times 0.60 + 8 \times 0.80 + 2 \times 0.96}{100} = 0.251$$

where $\bar{s}$ is the unweighted mean of the plan's share of each person's allowed cost. Ninety of the 100 people have less than 74% of their own costs paid by the plan, and 40 have nothing paid at all, yet the plan's actuarial value is 74.0% because the ten heaviest users account for most of the spending.

What the percentage tells a health economist, and what it leaves out

Actuarial value is a standardised index of the generosity of cost sharing, useful for comparing benefit designs and describing reforms that shift costs between insurers and patients. Its standardisation is also its main limitation, because the result describes a reference population and not any real group of members.

The figure is a population average and does not predict individual out-of-pocket costs. The American Academy of Actuaries makes this point in suggested consumer guidance to the National Association of Insurance Commissioners, noting that some people in a silver plan will have more than 70% of their spending paid and others less. Because health spending is highly skewed, most people have a smaller share of their own costs paid than the actuarial value. In a simulation of Marketplace plans, Polyakova, Hua and Bundorf found that for most consumers the share of covered spending paid by the plan was likely to be well below its actuarial value, and that a silver plan reached its 70% share only once annual spending exceeded $19,500.

The ratio covers only allowed costs of covered, and in the US calculator in-network, services. It says nothing about premiums, provider networks, service quality, excluded services or out-of-network charges. Two plans with the same actuarial value can therefore leave very different amounts of out-of-pocket cost for the same person, depending on which services that person uses.

In applied work the measure interacts with plan choice. People who expect high spending gain most from generous tiers, so the population in a platinum plan will not resemble the population in a bronze plan, which is a form of adverse selection that the standard population deliberately ignores. In economic evaluation, a cost-effectiveness analysis that takes a patient or household perspective needs the cost sharing attached to the specific services in the pathway being modelled, and a plan's actuarial value cannot stand in for that.

Applying the concept outside the United States

Nothing in the ratio is specific to US law. Any health system or insurer that charges deductibles, flat fees per item or percentage charges at the point of use can compute the share of covered spending paid by the third party for a defined reference population, and use it to compare scheme designs or to describe the effect of a reform on benefit design. The analyst then has to make the choices that US regulation fixes in advance, namely which claims data form the standard population, which services count as covered, and whether behavioural responses to cost sharing are modelled. Reporting the distribution of individual shares alongside the ratio of totals avoids the misreading described below.

The measure answers a different question from the indicators of financial protection used in global health. Actuarial value describes how generous a set of rules is on average, whereas catastrophic health expenditure describes how many households end up paying more than a given share of their resources. A scheme with a high actuarial value can still expose a minority of heavy users to large payments if it has no annual limit on cost sharing.

Common misreadings of actuarial value

The most frequent error is to read the figure as the share of an individual's bills the plan will pay; a plan described as covering 70% may pay little or nothing towards the non-preventive care of a member who never meets the deductible. A second error is to compare actuarial values calculated on different standard populations or calculator versions, since a change in the reference data changes the result for an unchanged design.

Treating actuarial value as a measure of value for money is a third mistake, since a higher percentage means more generous cost sharing and says nothing about whether the plan pays for effective care.

Sources

• American Academy of Actuaries, Health Practice Council. Letter to the National Association of Insurance Commissioners on actuarial value for health insurance consumers. American Academy of Actuaries; 1 April 2013. https://www.actuary.org/wp-content/uploads/2017/11/Actuarial_value_basics_for_NAIC_040113.pdf
• Centers for Medicare & Medicaid Services, Center for Consumer Information and Insurance Oversight. Final 2027 Actuarial Value (AV) Calculator Methodology. Washington, DC: CMS; 25 February 2026. https://www.cms.gov/files/document/final-2027-av-calculator-methodology.pdf
• Code of Federal Regulations. Title 45, Part 156, sections 156.20 (definitions), 156.135 (AV calculation), 156.140 (levels of coverage), 156.145 (minimum value) and 156.420 (plan variations). Electronic Code of Federal Regulations, text current to 29 September 2026. https://www.ecfr.gov/current/title-45/part-156
• City of Columbus v. Kennedy, No. 1:25-cv-02114-BAH (D. Md.). Order of 12 June 2026 (ECF 74), as amended 16 June 2026 (ECF 76); and docket of the appeal, No. 26-1938 (4th Cir.), entry of 27 August 2026 calendaring oral argument for 30 October 2026. https://www.courtlistener.com/docket/70684987/city-of-columbus-v-kennedy/
• Centers for Medicare & Medicaid Services, Center for Consumer Information and Insurance Oversight. City of Columbus Stay: QHP Certification Updates. Washington, DC: CMS; 5 September 2025. https://www.cms.gov/files/document/qhp-certification-updates.pdf-0
• Department of Health and Human Services, Centers for Medicare & Medicaid Services. Patient Protection and Affordable Care Act; Marketplace Integrity and Affordability. Final rule. Federal Register. 2025;90:27074 (25 June 2025). https://www.federalregister.gov/documents/2025/06/25/2025-11606/patient-protection-and-affordable-care-act-marketplace-integrity-and-affordability
• Polyakova M, Hua LM, Bundorf MK. Marketplace plans provide risk protection, but actuarial values overstate realized coverage for most enrollees. Health Affairs. 2017;36(12):2078-2084. https://doi.org/10.1377/hlthaff.2017.0660
• United States Code. Title 42, section 18022 (Patient Protection and Affordable Care Act, section 1302), Essential health benefits requirements, subsection (d) Levels of coverage. 2010. https://www.law.cornell.edu/uscode/text/42/18022