Value based insurance design still under construction

The US healthcare system is in crisis, with documented gaps in quality, safety, access, and affordability. Years of escalating costs— which will be pushed even higher by new medical advances1 —have not always paid off in terms of better quality or outcomes.2 In short, we pay more than any other country for healthcare, but get less.3 We need to somehow contain costs, yet improve quality.

Across-the-Board Cost-Sharing and What Went Wrong

Many believe the solution to our cost crisis is increased patient cost-sharing at the point of medical service. The rationale4-6: with more “skin in the game,” patients would use only essential care, thereby eliminating wasteful overuse and reducing costs, with no effect on outcomes. Thus, higher copays, coinsurance rates, tiered pharmacy benefits, and high-deductible health plans have appeared across the board.

Although the “one size fits all” cost-sharing solution has produced the intended effect (by dampening consumption), the underlying rationale has proved short-sighted.5,8 Ample evidence shows that increased, untargeted cost-sharing, even in modest amounts:

  • Decreases use of essential care, including potentially life-saving medications and services (such as immunizations and cancer screening)
  • Adversely affects compliance, adherence,6,12-14 and outcomes,5 and ultimately leads to worse overall population health.

From an overall cost perspective, reduced consumption of essential care may yield short-term savings but may also lead to worse health outcomes and markedly higher costs down the road—in complications, hospitalizations, and increased utilization. These adverse consequences flow from 2 major shortfalls in the “one size fits all” approach. First, it disregards heterogeneity—medical interventions have different clinical benefits for different people.8 Second, giving patients expanded cost and decision-making responsibility in isolation simply does not correlate with optimal clinical outcomes, especially for patients who are not adequately informed.1,4 Research reflects that patients, even when paying more, do not (some might argue cannot) distinguish between high- and low-value therapies.5 The latter shortfall bears emphasis. Shifting the information and decision-making burden to the patients:

  • Ignores variations in intelligence, methods of learning, and education (the average US reading level is 10th grade)
  • Ignores susceptibility to marketing messages, and consumer cultures and values
  • Unjustifiably assumes that consumers have adequate information to evaluate benefits and costs.

Therefore, even if the premise of equating patient responsibility to responsible choices was watertight, a pronounced gap in both information and knowledge impairs informed decisions.2,5 This gap is particularly problematic among vulnerable populations (eg, the poor, ethnic minorities, the uninsured).

Enter Value-Based Insurance Design

Value-based insurance design (VBID) can help plug the inherent shortfalls in across-the-board patient cost-sharing. Instead of focusing on cost or even quality, VBID focuses on value,  aligning the financial and nonfinancial incentives of the various stakeholders and complementing other current initiatives to improve quality and subdue costs, such as highdeductible consumer-directed health plans (CDHPs), payfor-performance (P4P), and disease management (DM).2 The overarching goal of VBID is better population health rather than saving money.

We and our colleagues first introduced VBID (then called benefit-based copayment) in 2001.1,16 VBID has since evolved and been successfully deployed. More recently, VBID and VBID concepts have been incorporated into proposed healthcare reform bills in both the US House of Representatives and the Senate, with the latter expressly calling for a VBID demonstration program for Medicare.

VBID Defined – Approach and Scope

VBID is system-oriented and population health-centered, yet more targeted than across-the-board solutions.1 Similar to those solutions, VBID recognizes that greater patient involvement and cost-sharing remain important to help solve the current systemic problems.1 But VBID takes a “clinically sensitive, fiscally responsible” path to align incentives2 and mitigate the negative clinical effects associated with increased cost-sharing by:

  • Decreasing cost-sharing for interventions that are known to be effective and increasing cost-sharing for those that are not. Cost-sharing amounts are set in relation to the clinical value, not the cost, of a specific intervention to a targeted patient group.2,9 Targeting accounts for heterogeneity.
  • More explicitly guiding patients to use high-value, and avoid low-value, interventions—addressing the information gap.

VBID’s targeted, “clinically sensitive” approach can therefore yield efficiencies not previously achieved and, ultimately, generate better health outcomes for the dollars spent. Thus, VBID—originally associated with cost-sharing for pharmaceuticals—is now recognized as translatable to other healthcare services, including diagnostics, surgical procedures, and physician selection.

Moreover, VBID principles have been deemed key elements in national healthcare reform. This signifies a credible consensus on the merit of VBID. For example, in its May 2009 letter to the Senate Finance Committee, the American Academy of Actuaries stated: “There is inherent value in the implementation of value-based insurance designs.”23 Although limited data preclude VBID programs for all conditions, undisputed data on what works best are available for some, including the “Big 5”: cancer, cardiovascular disease, diabetes, obesity, and respiratory conditions. For those conditions, more refined cost-sharing would likely produce higher-value care.