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October 5, 2013

Metal Levels Explained – Why Actuaries Don’t Have Friends

Filed under: ACA - Affordable Care Act,Obamacare — Jeff @ 11:40 am

The Affordable Care Act introduced metal levels of coverage (bronze, silver, gold, and platinum) to hopefully “level the playing field” and make shopping for insurance so much easier. I am not sure why people cannot tell the difference between a $1000 deductible and a $5000 deductible without an additional label on it. I am only sure that the metal plans added an additional level of complexity to an already confusing situation. Because, as brokers, we needed to go through a fair amount of training to be certified to sell insurance through the exchanges. When in training in Maryland, the consultant explained the bronze level plans as covering “60% of the consumer’s bills.” And, that is not how it works. I, of course, tried to explain it to the consultant, and that did not work either. So, if I can explain this to you, then you will know more than the “experts.”

First, before I make your head hurt, let me explain how you can use the metal levels to actually help you. Ultimately there really is one good use, and that is to simply categorize the health plans for budgeting purposes. If you live in Maryland, DC or Northern Virginia, you can go directly to and get rates (Please make sure to use that link when you apply. You can also go to our health insurance quote page and we will email them to you).

You will note that the lowest cost rates tend to be the bronze, followed by the silver, gold, and then platinum. If you are budget conscious, then you can find your home quickly. However, if money is no object, then you DO NOT automatically go to the gold and platinum plans. You should do the math to see if they make sense. Bottom line is that their usefulness is basically to group the plans. You will notice tight ranges of deductibles in each category, so if you compare CareFirst to United Healthcare (which we can help you with), it should make an extremely daunting number of options just a daunting number of options.

Now on to the more difficult part. You will see many metal plans labeled “Bronze 60%,” “Silver 70%,” “Gold 80%,” and “Platinum 90%.” Your best bet is to ignore the percentages, because they have ABSOLUTELY NOTHING to do with how the plan actually works FOR YOU. It ONLY has to do with how the plan works, 1) relative to the other metal plans (but not in accordance with any percentage), and 2) how the plan works ACTUARIALLY speaking.

Actuaries develop plans by knowing that out of a group of people, some people will not use the coverage at all, some will have moderate use, and the smallest percentage will have excessive use of the plans. An actuary’s job is to determine how much that is. You can read this 21 page document on actuarial values to really break it down. Or, to be super nerdy, like me, you can download the actual Excel actuarial value calculator that the insurance companies used to develop the plans.

But, if you want to know a hip shot example that explains it in general terms, just understand what follows. Let us assume you take a group of 100,000 individuals and then assume that group collectively uses $100 million of medical services. With a bronze plan, you would assume that the insurance company would cover around $60 million of those costs (the 60% which is generated by the premiums paid by the policy holders); the other $40 million (40%) would be paid by the policy holders of that plan through deductibles, copays and co-insurance. Just keep in mind that the $40 million is not split equally among the policy holders, because half of them never stepped foot in a doctor’s office, and therefore never paid anything towards their deductible or ever paid a copay.

Why was the consultant wrong when she said “Bronze plans will cover 60% of a consumer’s costs?” If you have a $3,000 deductible and only have $2,500 of medical bills for the year, then you will pay 100% of your costs and the plan will cover ZERO percent of your costs. Going back to what I said earlier, the 60% (or 70%, 80%, 90%) does not have anything to do with you…just you and nearly 40 million of your closest friends…actuarially speaking.