Actuarial Value and Employer-Sponsored Insurance. Adjustments to the National Compensation Survey Distributions


The NCS distributions of actuarial values were adjusted in order to take into account induced demand, trends to 2010 and the inclusion of mini-med coverage.

Induction: The original NCS estimates had used a static expenditure distribution, without adjusting for induction impacts.  If the standard medical expense distribution associated with the standard population is defined to be consistent with a particular underlying average plan richness, then an adjustment can be made to increase the spending if the plan being modeled has richer-than-average benefits, or decrease the spending if the plan being modeled is poorer-than-average.  This effect was imposed on the NCS distribution by looking at the previously modeled KFF/HRET estimates from 2006 to 2010, where we had tabulations both with induction and without.  The adjustment had the greatest effect on very low actuarial values, but even there an un-inducted actuarial value of 0.71 declined only to 0.70.

Projecting to 2010: The induction-adjusted NCS 2005 data was then projected to 2010 based on the observed change in the KFF/HRET distributions of actuarial values between 2006 and 2010.  The small observed decline in richness (greater at the lower percentiles) was smoothed, and then applied to the NCS distribution.  Here too the effect of the adjustment was at its greatest at the lowest actuarial values, but was still modest — at the 10th percentile of actuarial value, the annual decline in value was only about one percentage point per year.

Mini-med coverage: The final adjustment was for so-called mini-med coverage: to deal with the lack of detailed information on benefit maximums.  The lowest percentiles of the distribution were replaced, assuming a prevalence of such plans within employer sponsored coverage of 1.5 million out of 150 million covered lives, and a uniform distribution of actuarial values for these plans below 70 percent.6

The Department granted waivers to plans covering approximately 3 million lives, which included the estimated 1.5 million individuals enrolled in mini-med plans and an additional 1.5 million individuals enrolled in plans with annual dollar limits below regulatory requirements (e.g., individuals enrolled in plans with an annual dollar limit of $500,000 instead of $750,000).

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