Value-Based Insurance Design
Published September 2011; material added February 2014
"Value-based insurance design" aims to increase health care quality and decrease costs by using financial incentives to promote cost efficient health care services and consumer choices. Health benefit plans can be designed to reduce barriers to maintaining and improving health. By covering preventive care, wellness visits and treatments such as medications to control blood pressure or diabetes at low to no cost, health plans may save money by reducing future expensive medical procedures. Benefit plans may create disincentives as well, such as high cost-sharing, for health choices that may be unnecessary or repetitive, or when the same outcome can be achieved at a lower cost. To decide what procedures are the most effective and cost efficient, insurance companies may use evidence-based data to design their plans. Good data about the effectiveness of value-based insurance design are limited, but early results have been promising.
This webpage is designed to provide information about value-based insurance design, its role in the Affordable Care Act, examples of its use, and information about complementary and related cost containment strategies.
Value-Based Insurance Design in the Affordable Care Act
The Affordable Care Act (ACA) of 2010 emphasizes increasing quality and efficiency in health care through access to preventive services and providing appropriate treatment, when needed. In an effort to prevent expensive illness and medical procedures, Section 2713 of the Act requires that all health plans include certain preventive services without a copayment for the patient. The required preventive services for adults include blood pressure screening, colorectal cancer screening, and screening for sexually transmitted infections. A list of required preventive services for various populations can be found at Healthcare.gov.
Section 2713 of the Affordable Care Act also allows the secretary of the U.S. Department of Health and Human Services (HHS) to establish guidelines to permit a health insurance plan to use value-based insurance design. In December 2010, HHS published in the Federal Register a request for public comments related to implementing value-based insurance design and coverage of required preventive services in health plans. The U.S. Department of Labor website displays public comments received in response to the request, including statements from insurance companies, business groups, medical associations, and leaders in the field. Federal guidance regarding the implementation of value-based insurance design in health plans will be issued in the coming months.
State and Local Examples of Value-Based Insurance Design
As health care costs continue to rise, public entities strive to contain the costs of employee health plans. Many state and local governments face steep budget cuts, reinforcing the need to keep costs low and help maintain healthy and productive public employees. Below are examples of a few public entities that have implemented aspects of value-based insurance design in public employee health plans.
Oregon has embraced value-based insurance design by implementing it in its public employee health plans. The Oregon Educators Benefit Board (OEBB) and Public Employees Benefit Board (PEBB), with a combined total enrollment of approximately 235,000 people, have both incorporated value-based insurance design in their plans. The goal of the Oregon plan is to remove the barriers to proven effective and preventive care. According to the Oregon Health Leadership Council, cost-sharing was implemented on a tiered basis with low cost-sharing for preventive care, medication for treating chronic disease, and emergency services. Cost-sharing is higher for health services that are nationally recognized as overused and driven by provider preference or supply rather than evidence-based need, such as back surgery for pain that could be treated by physical therapy or emergency room visits for minor illnesses. A November 2010 Health Affairs article describes the process used by the PEBB to solicit employee support and to tailor the health plan to employee needs.
The Public Employees Benefit Board adopted changes to its health plan for 2012, as reported in the Salem, Oregon Statesman-Journal. The changes in the plan continue to follow a value-based insurance design model by promoting effective health choices and creating financial disincentives for poor health choices, but out-of-pocket costs increased for employees. The plan will contain a monthly $25 surcharge for smokers and will no longer cover some procedures such as wart removal, breast reduction, and varicose-vein surgery. The changes will also eliminate the copayment for doctor visits for chronic conditions, create a deductible for some prescriptions but not for so-called "value" drugs that provide solid medical benefits at low cost, and give spouses free access to Weight Watchers. You can find more information about the changes, as well as details about the health plan, here.
Colorado Springs School District 11 reformed its employee coverage with two goals in mind when changing surgery cost-sharing to reflect aspects of value-based insurance design. One was to keep as many dollars in the classroom as possible, and the other was to keep teachers in the classroom to save money on substitute teachers. The school district requires higher co-payments for open surgeries (such as removing an appendix by a laparotomy, with a large incision) and requires lower cost-sharing for similar minimally invasive procedures (such as removing an appendix laparoscopically, with a few very small incisions). Minimally invasive procedures generally achieve higher quality results with lower costs and less recovery time. The school district saves money when employees spend fewer days in the hospital and out of the classroom. According to the Center for Health Value Innovation, the school district has seen a significant reduction in lost workdays, including 21.7 fewer missed days for gall bladder surgery, 18.9 days for colectomy, 21.9 days for hernia, 3.2 days for appendectomy, and 7 to 18 days for hysterectomy.
Chippewa County, Wisconsin
According to a report from the Center for Health Value Innovation, Chippewa County achieved measurable success by implementing value-based incentives in its public employee health plan. The county waives out-of-pocket expenses for certain services including diabetes education, nutrition coaches, medication for chronic conditions, and colonoscopies. It also provides incentives for weight management. In 2008, after implementing the incentive program, the county spent $1,593 per person compared to $2,317 per person in the state employee health insurance program, resulting in a savings of more than $1.7 million.
Value-Based Insurance Design can drive innovation in Health Insurance Exchanges. A fact sheet for states considering the role of VBID in health exchanges; published by the Center for Value-Based Insurance Design (V-BID), University of Michigan School of Public Health. January 2012.
Examples of Value-Based Insurance Design in Industry
As health care costs continue to rise, many large companies look for ways to control their employee health care spending. Instead of increasing cost-sharing, which can lead to immediate savings but higher costs down the road if employees discontinue preventive care, some corporations have implemented forms of value-based insurance design. According to the American Journal of Managed Care, a 2008 study determined that 20 percent to 30 percent of large employers use some form of value-based insurance design strategy.
- [NEW] CVS Caremark Pharmaceutical Benefit Management- [Health Affairs article ] Positive Results For Value-Based Insurance Design Plans
Existing VBID plans have been structured in a variety of ways, and these variations could influence their effectiveness. A February 12, 2014 Health Affairs Web First study evaluated seventy-six VBID plans introduced by a large pharmacy benefit manager (CVS Caremark) during 2007-2010. Niteesh Choudhry of Brigham and Women's Hospital and coauthors found that after adjusting for the other features and baseline trends, VBID plans that were more generous, targeted high-risk patients, offered wellness programs, did not offer disease management programs, and made the benefit available only for the medication ordered by mail had a significantly greater impact on adherence than plans without these features.
The study sample consisted of 274,554 patients provided by thirty-three unique plan sponsors. The majority of VBID plans did not have generous benefits, used copay tiers, and had a disease management program for the condition that the plan targeted. The authors noted that the positive association between wellness programs, patient targeting, and mail-order prescriptions was significant, considering that all these interventions are very low cost and easily implemented."Our study provides high-quality empirical data on the VBID plan features that appear to be most effective in stimulating greater medication adherence," concluded the authors. "These results can influence how future copay reduction plans are structured. The method employed in our analysis could be used to evaluate other benefit design and quality improvement activities that also have large variations in their design features." The study, which was funded by the Robert Wood Johnson Foundation, also appears in the March 2014 issue of Health Affairs.
Pitney Bowes, a Fortune 500 shipping services company and early innovator with value-based insurance design, dramatically reduced the copayments for some chronic disease medications, such as asthma and diabetes drugs, from as much as half the total cost of prescriptions down to as low as 10 percent. Since the company changed the plan, it has seen reductions in medical costs for employees with those diseases, as reported by the Wall Street Journal. A November 2010 study of the Pitney Bowes model, published in Health Affairs, found implementing value-based insurance design to be an effective alternative to increasing cost-sharing by employees.
Caterpillar, a Fortune 100 construction machinery company, developed a Health Risk Appraisal (HRA) system and a disease management program within the provider network for employees who were found to have health risks during the HRA. The company reduced the monthly premiums for employees who participated in the HRA and disease management program. According to the Center for Health Value Innovation, 90 percent of employees participated in the HRA, and Caterpillar attained a 50 percent reduction in disability days after implementing the program.
Marriott International is also viewed as a leader in implementing value-based insurance design. Marriott was facing yearly costs of more than $400 million to cover 160,000 people, with costs rising about 7 percent a year. In order to reduce the cost barrier to taking prescribed medications, Marriott reduced medication copayments for treatment of common chronic diseases such as asthma, cardiovascular disease, and diabetes. According to a study by the Care Continuum Alliance, Marriott reported that the extra employer spending for medication was outweighed by the savings realized by reducing adverse events.
An Evaluation of Value-Based Insurance Design: Quality Improvement But No Cost Savings - Health Affairs Abstract.
Value-based insurance design (VBID) is an approach that attempts to improve thequality of care by selectively encouraging or discouraging the use of specific health care services, based on their potential benefit to patients' health, relative to their cost. Lowering beneficiary cost sharing or out-of-pocket spending to increase medication adherence is one common element of value-based insurance design. We conducted a systematic review of the peer-reviewed literature to evaluate the evidence of the effects of VBID policies on medication adherence and medical expenditures. We identified thirteen studies assessing the effects of VBID programs and found that the programs were consistently associated with improved adherence (average change of 3.0 percent over one year), as well as with lower out-of-pocket spending for drugs. Health Affairs, July 2013. [NEW]
Value-Based Purchasing and Other Cost Containment Strategies
Health plans have implemented numerous cost saving strategies, including value-based insurance design. With health care costs continuing to rise and a renewed emphasis on controlling costs and increasing quality through provisions in the Affordable Care Act, other cost containment models are being tested in conjunction with, and outside of, value-based insurance design.
Below are a few of the more prominent cost containment strategies gaining attention. Additional information, as well as other cost containment strategies, can be found on NCSL's Cost Containment Briefs webpage.
Value-Based Purchasing and Performance-Based Health Care Provider Payments
Value-based purchasing is a strategy by which the health insurance purchaser, such as an employer, uses its power in the market to hold providers accountable to both the cost and quality of health care. The purchaser gathers information on the costs and health outcomes of various health providers. Purchasers can then negotiate prices and set employee contributions for the various plans based on the cost and quality of care. The system gives incentives to health providers to improve their care and hold down costs. Incentives include cash bonuses, higher fee reimbursements, or directing more enrollees to high-performing providers and health plans. On April 29, 2011, the U.S. Department of Health and Human Services announced it will implement the Hospital Value-Based Purchasing Program in Medicare Payments, as authorized by the Affordable Care Act.
Employer-Sponsored Health Promotion Programs
Employer-sponsored Health Promotion Programs are often used as part of value-based insurance design health plans. They encourage employees to become healthier through incentives in health care plans. These programs aim to change behaviors associated with chronic disease and disability, known as modifiable risk factors, such as weight loss, smoking cessation or stress management. Employers benefit from offering health promotion programs because a large proportion of their annual health payments go toward treating conditions that stem from modifiable risk factors. Rewards may include cash, extra vacation days, or lower health care premiums. An example of these programs can be found in the Chippewa County, Wisconsin health plan discussed above, which provides cash incentives to enroll in smoking cessation and weight management programs.
Accountable Care Organizations
Accountable Care Organizations (ACOs) are local, provider-led, entities comprised of a wide range of collaborating providers. ACOs aim to reduce medical costs by monitoring care across multiple care settings (e.g., physician practices, clinics and hospitals) and holding providers accountable for the quality and overall cost of the care they provide. Providers are given spending targets and share the savings if costs come in under the target, giving them incentive to choose the most effective and efficient care for their patients.
Episode of Care Payments are aimed at increasing the quality of care by paying providers a set amount over the course of treatment for a specific illness or procedure, instead of payment for each service in the course of treatment. Additional payments are not made for complications that may arise during treatment. Providers share any savings if the cost of treatment was below what it would have been for a fee-for-service payment, giving them an incentive to reduce unnecessary tests, reduce complications related to care, and shorten a patient's hospital stay. For example, a Minnesota provision in comprehensive 2008 health care legislation called for development of uniform definitions of at least seven "baskets of care" (e.g., asthma, low-back pain, obstetric care, and total knee replacement) that will form the basis for episode-based payments.
Global Payments to Health Providers
Global Payments to Health Providers are fixed prepayments made to a group of providers or a health care system that covers most or all of a patient's care during a specified time period. Payments are usually made monthly over a specified period of time. Instead of each provider getting paid in isolation, they are paid as a group, creating an atmosphere of cooperation and accountability among providers. This type of payment is much like episode-of-care payments, where the payment is bundled for a group of providers who have incentives to work together to contain costs. The difference is global payments are made for a group of patients (e.g., enrollees in a health plan) and cover all care that is covered by the health plan, instead of a single episode-of-illness or medical condition.
- University of Michigan Center for Value-Based Insurance Design
- Center for Health Value Innovation
- Health Affairs, January 2011
- Health Affairs, November 2010 issue, dedicated to Value-Based Insurance Design
- The Washington Post, "Value-Based Insurance Design's Pros and Cons", November 29, 2010
- Oregon Health Leadership Council
- Care Continuum Alliance
Visit this we-based report online at http://www.ncsl.org/issues-research/health/value-based-insurance-design