"The insured and the unsure"
Emerging models for payment reform, Part 1

Value-Based Insurance Design

Value-Based Insurance Design relies on “the idea that consumers' out-of-pocket medical costs should be based on the value of a service to their health rather than its price” (Washington Post, November 2010). This can be approached in two different ways: (1) reducing consumer costs for high-value services such as preventive tests and medications for chronic diseases and (2) increasing consumer costs for medical services that lack evidence of effectiveness.

The landmark paper on the topic is “Value-Based Insurance Design” by Chernew et al, published in Health Affairs in January 2007, which advocates for an approach that “acknowledges and responds to patient heterogeneity,” i.e., the fact that the benefits of many healthcare services depend on patient characteristics. It distinguishes between two implementations of VBID: (a) those that lower copayments of valuable clinical services without attempting to identify the patients who will most benefit from them, (b) those that target patients with specific clinical diagnoses.

The paper also lists the following barriers to VBID implementation (as of January 2007): concern over costs of increased use, cost of implementation, data issues, insufficient research, human resource concerns, fraud, legal barriers, privacy concerns, unintended incentives, adverse selection; however, if these issues can be addressed, VBID has the potential to significantly encourage patients to stick with high-value medical services, for instance taking drugs for chronic conditions that are now provided at lower costs. The paper further describes the case of the University of Michigan, which has tested VBID concepts for its employees with diabetes. Incidentally, the advent of VBID has motivated the creation of a research center dedicated to its study at the University of Michigan. Chernew further discusses new payment models in this YouTube video.

Managed Care Magazine, in its cover story of the October 2011 issue, makes 5 important points about VBID: (1) it shouldn’t be limited to being a “drug giveaway”, (2) “successful incentive programs… start with a careful analysis of the population you are targeting” and aren’t simply giving things for free, because people must take responsibility for their own health, (3) encouraging employers to modify their benefit structure isn’t easy, (4) value needs to be defined in some cases where precise guidelines don’t exist or for palliative treatment with serious side effects (is it delay of disability? Not being hospitalized?), (5) the advent of state-driven health exchanges doesn’t bode well for adoption of VBID since state employees aren’t familiar with implementing such concepts. 

Other Health Affairs papers investigating VBID (all published in the November 2010 issue) include:

The concept of VBID has also received attention in recent years in the mainstream press, in no small part thanks to that November 2010 issue of Health Affairs. I've already mentioned earlier the Washington Post article, which quotes many numbers gleaned from HA and summarizes the results from the real-life implementation at Pitney Bowes and in Oregon. For instance, “[Oregon healthcare plan] members are now being charged an extra $500 if they get services that the state Educators Benefit Board has determined are overused or "preference-sensitive" to patient choice, including spinal surgery, knee and shoulder arthroscopy, hip and knee replacement and upper endoscopy exams. Patients will pay an extra $100 for advanced imaging tests and sleep studies.”

In contrast with car insurance, personalized health premiums remain far in the future, but VBID offers an intriguing step toward a system that builds upon patient characteristics and encourages positive behavior. Defining and assessing value will, of course, make all the difference between an idea that profoundly impacts the healthcare field and one that fades from memory after a few years.

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