Understanding Obamacare Health Plan Tiers

184964326Tomasz-Sowinski-Getty-Images.jpg
Do you really understand what your health plan is worth and how its value compares to other health plans?. Image © Tomasz Sowinski/Getty Images

If you’re trying to choose your own health plan or compare health insurance plans in the United States, you need to understand the metal-tier system. The Affordable Care Act standardizes how health plans are valued. Ever since 2014, all new individual and small group health plans have had to fit into one of four categories: bronze, silver, gold or platinum (there's an exception for catastrophic plans sold in the individual market).

The metal tier tells you the actuarial value of the health plan. It's a simple way of comparing the value of one health plan to another so you can tell which plan gives you the most bang for your buck. All health plans on the same metal tier have roughly the same actuarial value, although they can vary by a few percentage points.

What Does Actuarial Value Mean?

The actuarial value of a plan tells you what percentage of health care costs that health insurance plan is expected to pay for its beneficiaries. A plan with an actuarial value of 60 percent is expected to pay approximately 60 percent of the health care costs of its beneficiaries. The plan’s beneficiaries will pay the other 40 percent of their health care costs in the form of deductibles, coinsurance, and copayments.

Actuarial value is calculated for the health plan as a whole (based on a projected "standard population") not for individual members.

So, on average across all of a health plan’s subscribers, the actuarial value describes the percentage of health care expenses that will be paid by the plan. However, the percentage of your health care expenses the plan pays will vary depending on how you use your health insurance.

Examples

For example, let’s say your health plan has an actuarial value of 80 percent, which means it's a gold plan.

If you only use your health insurance once all year long, perhaps to visit an urgent care clinic for a case of the flu, you may find that your health plan doesn’t pay anything at all toward your health care expenses that year. If you hadn’t met your deductible that year, you’d likely end up paying the urgent care bill yourself. The money you paid would be credited toward your deductible. In this case, your health plan certainly didn’t pay for 80 percent of your health care expenses. You paid for 100 percent of your own health care expenses.

However, across the entire plan membership, individual cases like the example above would be balanced by cases in which the health plan paid the vast majority of a member's total bills. For example, a person who is diagnosed with cancer and ends up with $400,000 in medical bills for the year will only pay at most $7,350 for in-network care in 2018. The health insurance plan will pay the rest, which will amount to more than 98 percent of the bill. 

And some members who don't get sick at all during the year will benefit from the fact that ACA-compliant plans pay 100 percent of the bill for preventive care services like yearly physical exams and birth control.

Those people didn’t pay anything toward their own health care expenses that year. 

When the expenses of all of the plan’s subscribers are totaled at the end of the year, a plan with an actuarial value of 80 percent will have paid roughly 80 percent of the health care expenses of all of its beneficiaries together.

Actuarial value calculations don’t include health insurance premiums or things the health plan doesn’t cover. For example, if your health insurance doesn’t cover weight loss surgery, the cost of weight loss surgery wouldn’t be included when coming up with the value of the health plan.

How Do Metal Tiers Relate to Value?

  • Silver-tier health plans have a value of approximately 70 percent
  • Gold-tier health plans have a value of approximately 80 percent
  • Platinum-tier health plans have a value of approximately 90 percent

By using the metal-tier system, people who don’t understand exactly how actuarial value works still understand intuitively that a gold-tier plan provides more benefits than a bronze-tier plan (but as described below, people with modest income who select a silver plan could end up getting gold or platinum level benefits, as a result of an ACA subsidy that reduces out-of-pocket costs).

Should I Choose Bronze, Silver, Gold or Platinum?

Base your choice of metal tier on a balance of how much you’re willing to pay in premiums with how much coverage you need. Higher value plans have higher premiums, but they pay a higher percentage of your health care expenses than lower-cost, lower value plans.

Each of the articles below includes sections on who should consider and who should avoid that particular metal tier. If you’re choosing a health plan, once you’ve determined the plan’s metal tier, make sure you’re not on the list of people who should avoid that tier.

Your eligibility for government subsidies may influence your choice of metal tiers. If you’re eligible for a government cost-sharing subsidy (aka, cost-sharing reduction, or CSR) to help you pay for your deductibles, copays, and coinsurance, you won’t get the subsidy if you don't buy a silver-tier health plan using your state’s health insurance exchange. To learn more about subsidies, read, “Can I Get Help Paying for Health Insurance?

If you're eligible for a cost-sharing subsidy and you buy a silver plan, you could end up getting coverage that's equivalent to a gold or platinum plan, for the price of a silver plan. So it's important to pay attention to the details of each plan that's available, instead of just assuming that one metal level will be a better option than the others.

And in another counter-intuitive twist, premiums for gold plans in some areas, for some enrollees, are actually lower than premiums for silver plans, as of 2018. This is because the Trump Administration stopped reimbursing insurance companies for the cost of CSR in late 2017, and insurers in most states added the cost of CSR to silver plan premiums. That resulted in much larger premium subsidies in some areas, and metal-level pricing that doesn't follow the expected patterns (ie, better covering being more expensive). You can read more about how this works here, but the takeaway point is that if you get a premium subsidy, you might find that a gold plan is less expensive than a silver plan, and you might find that a bronze plan is extremely inexpensive.

If All Plans on a Given Tier Are the Same Value, Why Not Just Pick the Cheapest?

Although all plans on a given tier will have the same actuarial value, they'll differ in other ways. Take those differences into account when choosing a plan; pick a plan that works well for your situation.

For example, one gold plan might have a deductible of $1,500 and coinsurance of 15 percent. Another gold plan might have a low deductible paired with higher coinsurance and prescription copays. If you can’t afford to pay the larger deductible before your health insurance kicks in, you might choose the plan with the lower deductible even if it has slightly higher premiums. You know the actuarial value of all gold plans is roughly the same, so your choice is being made based on how you’d like to use the insurance rather than on how much it's worth.

Other comparison points include the health plan’s network. Is your doctor in-network with the all of the health plans you’re comparing? Is each plan’s network of providers large enough to give you a choice of providers if you decide you don’t like a particular physician or hospital and want to switch to another?

Prescription drug formularies (covered drug lists) will also vary from one insurer to another. So you may be looking at three different silver plans, but only one of them covers a particular drug that you're taking.

Does one plan offer you more freedom of choice than another? HMOs generally won’t pay for care you get out-of-network. However, PPOs will pay for out-of-network care, but at a lower rate than if you had stayed in-network. PPOs aren't available in all areas, but when they are available, they tend to be among the more expensive options. Are you willing to pay higher premiums for a plan that allows you to get care out-of-network if you wish? Or would you rather give up that freedom of choice, but pay lower premiums? 

Are the quality scores for one plan much better than for a competing plan? Are the premiums for one plan significantly lower than for competing plans with similar quality scores?

If you plan to use your health insurance a lot, compare the out-of-pocket maximums of the plans. If one plan has a significantly lower out-of-pocket maximum than the other plans on the same tier, you might save money choosing the plan with the lower out-of-pocket maximum. You’ll find more information about how this technique works in “How To Save on Health Insurance if You Reach the Out-Of-Pocket Maximum.”

Was this page helpful?