Value-Based Insurance Design
"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.
President Obama Signs 2017 Defense Bill Authorizing TRICARE V-BID Pilot
On Dec. 27, 2016, President Obama signed a $619 billion defense bill that calls for a pilot program to demonstrate and test the feasibility of incorporating Value-Based Insurance Design into the TRICARE program. The pilot aims to improve health outcomes and enhance the experience of care for U.S. Armed Forces military personnel, military retirees, and their dependents.
Section 701: (1) IN GENERAL -- Not later than January 1, 2018, the Secretary of Defense shall carry out a pilot program to demonstrate and assess the feasibility of incorporating value-based health care methodology in the purchased care component of the TRICARE program by reducing copayments or cost shares for targeted populations of covered beneficiaries in the receipt of high-value medications and services and the use of high-value providers under such purchased care component, including by exempting certain services from deductible requirements.
The pilot includes an evaluation of how reducing or eliminating the cost-sharing for specified high-value medications and services impacts: (I) adherence to medication regimens; (II) quality measures; (III) health outcomes; and (IV) beneficiary experience. This major policy milestone builds on growing bipartisan support and the expanded role of V-BID in public and private payers, including the Medicare Advantage V-BID demonstration and H.R. 5652 "Access to Better Care Act of 2016," a bipartisan bill that provides high-deductible health plans the flexibility to provide coverage for services that manage chronic disease prior to meeting the plan deductible. -Descrption by VBID-Center, 12/27/2016
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.
- Blues Plans Will Continue to Invest In Value-Based Payment Models. Blue Cross and Blue Shield plans will continue to invest in value-based care programs in 2017, as results start to show the initiatives' potential to slow cost increases and improve quality. That's despite vows from President-elect Donald Trump and the newly elected Republican Congress to repeal and replace the Affordable Care Act, which helped spur these initiatives.... Read Full Story. Reprinted from The AIS Report on BLUE CROSS AND BLUE SHIELD PLANS* 12/26/2016.
- State Insurance Exchanges (Vermont and Oregon) Face Challenges In Offering Standardized Choices Alongside Innovative Value-Based Insurance -
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.
Smaller Hospitals and Health Systems Struggle to Deliver Value-Driven Care; Financial Future at Risk. Competing priorities and regulatory uncertainty are making it difficult for health care organizations to transition from fee-for-service to fee-for-value, according to a new report released in mid-2017. The report details insights from a national survey EY conducted with 700 qualified health care professionals. Published by the Ernst & Young LLP Advisory Health practice, July 12, 2017
The American College of Physicians (ACP), in a new position paper, "Addressing the Increasing Burden of Health Insurance Cost-Sharing," recommends the implementation of value-based insurance design (V-BID) as a potential solution to make patient cost-sharing more equitable. Currently, "consumer cost-sharing, particularly deductibles, may cause patients to forgo or delay care, including medically necessary services." July 2016.
The ACP's endorsement of V-BID builds on multi-stakeholder and bipartisan support, including the incorporation of V-BID principles in Section 2713 of the Patient Protection and Affordable Care Act requiring the elimination of consumer cost-sharing for specified preventive care services, the CMS MA-VBID demonstration project set to begin in seven states in January 2017, and the recent introduction of H.R. 5652, "Access to Better Care Act of 2016," that allows high deductible health plans the flexibility to provide coverage for services that manage chronic disease prior to meeting the plan deductible.
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.
Prescription Drugs and Value-Based Purchasing or Contracting.
In 2017, a newer version of value-based purchasing emerged, with strong support from individual brand-name pharmaceutical manufactuers and individual mjaor insurance comnpanies. These arrangements have attracted attention from health academics, journalists and analysts. These are some initial descriptions and resources:
> BIOTECHNOLOGY AND STATE ROLES - NCSL live session at Legislative Summit in Boston - August 8, 2017. Biotech research is growing fast. In Massachusetts, more than 63,000 biopharma employees are working on more than 1,600 potential new medicines. Learn how new models for pricing and research are hoping to bring down the cost.
> Drug Effectiveness and SMART-D Alternative Payments in Medicaid
> Tackling Low-Value Care: A "Top Five": List for Action. A "Top Five" list of low-value services that purchasers and providers should target for reduction was featured in a Health Affairs Blog post. Read the Health Affairs article on the $billions spent on commonly used low cost, low-value services identified from the Virginia All-Payer Claims Database. - February, 2018. *NEW*
Examples of Value-Based Insurance Design in Industry & Employers
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.
- One Third of Large Firms Offer Financial Incentives for Participating in Wellness Programs - September 2015
Many large employers offering health benefits offer health screening programs including health risk assessments (50%), which are questionnaires asking employees about lifestyle, stress or physical health; and biometric screenings (50%), which are in-person health examinations conducted by a medical professional. The survey finds that 31 percent of large employers offering health benefits have a financial incentive for employees to complete health-risk assessments, and 28 percent have an incentive for employees to complete biometric screening.
The majority of large employers continue to offer wellness programs, such as smoking cessation, weight loss, or other lifestyle coaching. Thirty-eight percent of those offering one of these wellness programs provide a financial incentive for employees to participate or complete the program. Among these firms, 15 percent offer a maximum incentive greater than $1,000 for all of a firm’s health and wellness programs, including any incentives for health screening. [Read the KFF/HRET Survey] Sept. 22, 2015.
- Horizon Health in New Jersey - see description in an upcoming NCSL report -- August 2016.
How to Learn to Stop Worrying and Love Value-Based Healthcare - HealthLeaders Media , August 21, 2015 The value of participating in risk-based reimbursements is not only in the (short-term) gainsharing achieved, but in redirecting processes and protocols to achieve (long-term) lower costs and higher quality healthcare. [Read full editorial]
- Challenges to Value Based Reimbursement. (Added July 2016)
Sustainability of savings is the greatest challenge facing value-based reimbursement models, according to the 2015 Healthcare Benchmarks: Value-Based Reimbursement. The survey also examined six other challenges that value-based reimbursement models need to overcome. For access to dozens of metrics and benchmarks on value-based reimbursement, there is a commercial publication priced at $117 2015 Healthcare Benchmarks: Value-Based Reimbursement. (NCSL does not endorse or market third-party publications)
- The Value-Based Reimbursement Answer Book: 97 FAQs on Healthcare Models, Measures and Methodology provides a framework for healthcare's new value proposition, with advice from thought leaders in the delivery and reimbursement of value-based care. In this 60-page resource, industry early adaptors weigh in on the structure, data tools and processes at work in delivery models supporting pay-for-value: the patient-centered medical home (PCMH), accountable care organization (ACO), medical neighborhood, and others, as well as emerging incentives and payment structures being piloted in healthcare systems nationwide: bundled payments, shared savings, pay for performance, and hybrid reward structures. It draws from initiatives at WellPoint, Advocate Physician Partners, BCBS Michigan, Capital District Physicians' Health Plan (CDPHP) and other organizations, using an an easy-to-follow Q&A format. A commercial publication by HIN, April 2015 - the list price is $107, with discount order arrangements available.
- 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
This 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
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.
Federal CDER and Counter-Arguments
Infographic: How Should We Assess Value? NPC illustrates what value frameworks are, who uses them, the challenges associated with them, and our Guiding Practices for Patient-Centered Value Assessment in this easy-to-read infographic. August, 2016 by National Pharmaceutical Council.
Beyond the Affordable Care Act: A Physicians’ Proposal for Single-Payer Health Care Reform.
-Excerpted from Physicians for a National Health Program reposted 1/2/2018
"In recent years, “value” – essentially the ratio of desired outcomes to cost – has become the preeminent health policy buzzword. Many argue that rewarding providers on the basis of the value they create for patients, rather than the volume of care they deliver, will improve outcomes, contain costs, and foster innovation.36-38
Unfortunately, empiric support for this approach is lacking, and it rests on dubious assumptions about measurement and motivation. In assessing outcomes, isolating the “signal” of medical quality amidst the “noise” of genetic, social and behavioral factors that influence health is almost impossible. No current or foreseeable risk-adjustment algorithm reliably accounts for the many patient factors that are beyond clinicians’ control. Despite decades of effort to develop inpatient risk adjustment, four widely used algorithms yield strikingly divergent rankings of hospital mortality performance.39 Hospitals that appear first-rate according to one algorithm can appear hazardous according to another. Similarly, even excellent doctors who care for disadvantaged patients often score poorly on quality metrics.40 The largest hospital P4P demonstrations found initial gains, but no lasting improvement in outcomes.41-43 Systematic reviews on P4P have concluded that high-quality evidence of benefit is lacking.44
NOTES FOR Beyond the Affordable Care Act
36. Curfman GD, Morrissey S, Drazen JM. High-Value Health Care -- A Sustainable Proposition. N Engl J Med. 2013.
37. Lee TH. Putting the value framework to work. N Engl J Med. 2010;363(26):2481-2483.
38. Porter ME. What is value in health care? N Engl J Med. 2010;363(26):2477-2481.
39. Shahian DM, Wolf RE, Iezzoni LI, Kirle L, Normand SL. Variability in the measurement of hospital-wide mortality rates. N Engl J Med. 2010;363(26):2530-2539.
40. Hong CS, Atlas SJ, Chang Y, et al. Relationship between patient panel characteristics and primary care physician clinical performance rankings. JAMA. 2010;304(10):1107-1113.
41. Lindenauer PK, Remus D, Roman S, et al. Public reporting and pay for performance in hospital quality improvement. N Engl J Med. 2007;356(5):486-496.
42. Kristensen SW, Meacock R, Turner AJ, Boaden R, McDonald R, Roland M, Sutton M. Long-Term Effect of Hospital Pay for Performance on Mortality in England. N Engl J Med. 2014; 371:540-548.
43. Jha AK, Joynt KE, Orav EJ, Epstein AM. The long-term effect of premier pay for performance on patient outcomes. N Engl J Med. 2012;366(17):1606-1615.
44. Eijkenaar F, Emmert M, Scheppach M, Schoffski O. Effects of pay for performance in health care: a systematic review of systematic reviews. Health Policy. 2013;110(2-3):115-130.
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
High-Needs,High-CostS Patients: Challenges and Solutions
It is widely known and accepted that five percent of the population consumes about 50 percent of the health dollar in the Unitd States. The top one percent of costly patients ahve an even larger impact of health budgets. States, federal, commercial and academic experts have tackled this ongoing math puzzle with innovative expeiments, attempts at cost constraints and othe approaches. This toolkit list describes both resources and live programs.
- Financing and Payment Strategies to Support High-Quality Care for People with Serious Illness: Proceedings of a Workshop.
"Millions of people in the United States live with serious illnesses such as cancer, heart disease, chronic obstructive pulmonary disorder (COPD), amyotrophic lateral sclerosis, Parkinson’s disease, and dementia—often for many years. Those facing serious illness have a range of interconnected medical and non-medical needs, and the way their care is financed has a large impact on the care they receive. Medicare is the predominant payer, but both Medicaid and private payers also play significant roles in financing care for serious illness. In an effort to address the complex needs of people with serious illness, public and private health care payers are testing innovative financing strategies and alternative payment models. These innovative approaches signal a gradual transition from the traditional-fee-for-service system that pays providers based on the quantity of services to a system based on the value of care provided and a heightened focus on improved quality of care at lower cost.
To explore this evolving financing and payment landscape for serious illness care within public- and private-sector programs, the Roundtable on Quality Care for People with Serious Illness developed a workshop, Financing and Payment Strategies to Support High-Quality Care for People with Serious Illness. The workshop convened clinicians, researchers, policy analysts, and patient advocates, as well as representatives from academia, government and private health care plans, and insurers to discuss challenges and opportunities in financing high-quality care for people with serious illness. This publication summarizes the presentations and discussions from the workshop.
♦ Published by the Natonal Academies of Science, (Full text free download, 74 pp) July 2018
Visit this web-based report online at http://www.ncsl.org/issues-research/health/value-based-insurance-design