Define “actuarial value” in health insurance.

Actuarial value refers to the percentage of total average costs for covered benefits that a health insurance plan will pay. This concept is central to understanding how much financial protection a health plan provides to its enrollees. For instance, if a plan has an actuarial value of 70%, this means that, on average, the plan covers 70% of the healthcare costs for a standard population, while the insured individual is responsible for the remaining 30% through their out-of-pocket expenses like deductibles and copayments.

This measurement helps consumers evaluate and compare different insurance plans. Plans with higher actuarial values typically result in lower out-of-pocket costs for individuals, while those with lower actuarial values will generally involve more substantial direct costs to insured persons.

Understanding actuarial value is crucial for making informed decisions about health insurance options, as it reflects the overall cost-sharing structure of different plans and aids in gauging the financial protection available to policyholders against healthcare expenses.