Value-Based Insurance Design is Driving Change in Healthcare

As healthcare costs continue to rise, payers are turning to innovative strategies, like value-based insurance design (VBID), to improve quality, maximize healthcare dollars for care that is most needed by plan participants, and improve costs in the long run. VBID is intended to save employees, and their self-funded employers, money by directing employees to high-value healthcare.

The goal of VBID is to increase the effectiveness of healthcare services. Self-funded employers can use determined values of healthcare services to increase benefits for – and thereby incentivize – those services found most valuable.

According to the CDC, “The National Pharmaceutical Council and the University of Michigan Center for Value-Based Insurance Design highlighted four fundamental approaches in their 2009 Value-Based Insurance Design Landscape Digest:

1. Design by serviceEliminating or lowering co-payments for certain health care services or medications (e.g., cholesterol tests, asthma drugs), regardless of who uses them.
2. Design by conditionEliminating or lowering co-payments for patients with specific clinical diagnoses (e.g., hypertension, prediabetes) for related services or medications.
3. Design by condition severityEliminating or lowering co-payments for patients who are at high risk of disease (or costly complications) and could benefit from participating in disease management programs.
4. Design by disease management conditionEliminating or lowering co-payments for high-risk patients who actively participate in disease management programs. VBIDs will be most successful for employers if they consider the needs, demographics, and perspectives of their employees when designing the appropriate VBID approach for their employee population.”

By designing their benefit plans to lower or remove out-of-pocket costs for high-value healthcare services, employers incentivize their employees to seek care from low-cost, high-quality providers. When employees utilize high-value healthcare services, their employers can then afford to provide access to high-value care at low – or even no cost – to their employees, further encouraging them to seek high-value care.

Get More Health for the Money

Employers need to think not only about how much they spend on healthcare but also how well they spend it. There are several changes that can help employers who want to apply value-based insurance design to improve their health plan design and get more health for their money – not just less sick.

First, employers should think about how they want to allocate their healthcare dollars. For example, a self-funded company may want to spend more on disease prevention and care for people with chronic conditions to prevent high healthcare expenditures down the line. By thinking strategically, they can replace a “one size fits all” approach with a plan that addresses the top chronic conditions in their workforce. 

Employers can also combine incentives and deterrents in their health benefit plans. They can consider changing what they charge employees for certain diagnostic visits and some types of medication. Dr. Fendrick, founding partner of VBID Health and co-founder and director of the University of Michigan Center for Value-Based Insurance Design, suggests charging less for things employers want enrollees to do more of. In other words, align the benefit design to make it easy for patients to access high-value treatments and services, but require patients to put more effort into getting low-value treatments and services. The Alliance is seeing more employers do this with Direct Primary Care, offering free primary care to employees to focus more on prevention than treatment.

Specialty Medications

Employers should also use a value-based insurance design lens when examining their specialty medication approach. Specialty medications are used to treat rare conditions, and some of these drugs are life-saving breakthroughs. Many employers are currently asking employees to pay a bigger share of the cost for the most expensive specialty medications. Without VBID, “they are charging [the enrollee] the same amount for a drug that cures cancer 90 percent of the time as one that never clears a case,” Fendrick said at a previous event by The Alliance.

Employers should build clinical nuance into their plan design and transition from thinking about how much they spend to how well they spend. If employers recognize that different medical services provide differing benefits, they can develop their plan accordingly. Fendrick noted, “just because some services are expensive doesn’t mean they’re bad and just because others are inexpensive doesn’t mean you should do more of them.” He stated employers need to identify the health conditions in their workforce that place them at risk for higher long-term expenditures and then use a clinically nuanced benefit design to address them. Employers should focus on encouraging employees to seek care where quality is good, and the price is low through their benefit plan design.

Long-term Cost Savings

Employers are likely to see significant savings from value-based insurance design in the years after implementing the plan as employees avoid complications and disease escalation. McKinsey estimates savings from value-based care models range from 3% to 20%. And some studies have shown a reduction of more than 10% in total claim spend after adopting value-based practices.

Improved Patient Outcomes

With commercial healthcare spending at more than $1 trillion annually and rising, conversations about health outcomes are gaining traction. In addition to reducing healthcare spend over time, value-based insurance design can improve morale, increase retention and reduce the number of employees with short-term and long-term disabilities. A 2022 Humana and MGMA study notes 67% of the surveyed primary care practice leaders said that value-based principles improved the quality of care their patients received.

Emerging technologies and practices can be used to strengthen providers’ approaches to value-based care and improve health outcomes, including:

• Embracing virtual healthcare delivery to help reduce the cost of care and increase access to and interaction with high-risk patients.
• Clinically integrating supply chains to allow health systems to decrease costs by optimizing medical supply and equipment purchase decisions based on cost and efficacy.
• Leveraging AI to match patient data from disparate medical records, predict diagnoses and outcomes, and reduce waste and fraud.

Creating a VBID-driven health plan is only part of the challenge of reducing costs and improving the quality of care. Employers who take a value-based approach must also be willing to explain it to their employees and other audiences. Fortunately, value-based insurance design is easy to explain: It removes financial barriers to services that will make people healthier.

If you’d like to learn more about value-based insurance design, contact us.