ValueBased Insurance Design

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Value-Based Insurance Design

• Michael Chernew
• April 29, 2008

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Two Concerns
High (and Rising) Costs
Poor Quality of care
Premiums rose 8.6 per year, 19962005
About 50 of time appropriate care is not
delivered
http//www.kff.org/insurance/7031/print-sec3.cfm
McGlynn et al. The quality of health care
delivered to adults in the United States. N Engl
J Med 2003348(26)2635-45
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Fundamental Health Policy Question

• How do we organize and finance the health care
  system to achieve maximum value for what we
  spend?
• Not How do we save money?
• Moreover, distributional issues are important
  including efficient subsidization of low-income
  individuals.

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Several Approaches

• Cost-oriented strategies
• Higher cost sharing
• Copays for branded drugs up 69 from 2000 to 2005
• Quality-oriented strategies
• Pay for performance
• Disease management
• ? These may conflict

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Consumers Do Not Respond to Cost Sharing as
Economists Would Like

• Percent reduction in appropriate use is same as
  for percent reduction in inappropriate use (Sui
  et al. 1986)
• Lack of coverage is associated with worse
  outcomes, with effects concentrated on poor and
  chronically ill
• Copays reduce use of high-value prescription
  drugs and preventive services

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Source Chernew, M.E., Rosen, A.B., Fendrick,
A.M. Rising out-of-pocket Costs in Disease
Management Programs. Am. J. of Managed Care.
2006. 12 150-155.
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Value-Based Insurance Design

• Goal Reduce (or keep low) copays for highly
  valued services
• -For high-value patients

• Sources
• Fendrick et. Al. Am. J. Managed Care, 2001.
• Chernew et. al. Health Affairs, 2007.
• Chernew et. al. Health Affairs, 2008.

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Dimensions of VBID

• Targeting
• By service, e.g., Pitney Bowes
• By service and patient group, e.g., Univ. of
  Mich.
• Scope
• Lower copays only
• Lower high value raise low value

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Evaluating VBID

• Adherence

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Evaluating VBID

• Costs and Financing

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Costs

• Greater use of high-value services
• Greater employer spending for high-value services
  that would have been used anyway
• Greater administrative costs, depending upon
  design

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Financing

• Offsets
• Lower costs due to fewer adverse events
• Productivity gains
• Increase costs for other services
• Specifically low-value services

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Evidence

• Medical savings do not fully offset employer
  spending
• They may offset societal costs
• Including productivity costs will improve return
  on investment
• Targeting will improve return on investment
• Increasing copays on low-value services can
  finance greater access to high-value services

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VBID Summary

• Higher copays lead to lower spending
• Therefore, copays will rise
• VBID allows firms to mitigate deleterious
  consequences of higher cost sharing
• Allows firms to achieve a cost target in a more
  efficient manner
• Can be part of any strategy to improve quality or
  decrease costs
• VBID cannot be perfect, but imperfect may be
  better than non-existent

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END