Value-Based Insurance Design: Sense and Sensibility

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A look at value-based insurance design, and how it provides a way to reduce financial barriers to care for people with chronic conditions.
This article was written by Jon Christianson, PhD, Medica Research Institute senior fellow, and James A. Hamilton chair in health policy and management at the School of Public Health at the University of Minnesota.
Theresa May is the new prime minister of the United Kingdom. She has type 1 diabetes, according to LA Times columnist David Lazarus, who has the same condition.1 Lazarus points out that people in the UK with type 1 diabetes have access to the drugs and care they need at minimal cost. In contrast, many US citizens with similar health conditions face significant and growing deductibles and coinsurance rates in their insurance plans.
Payers expect that consumers confronted with these growing costs will reduce their demand for services. Research suggests that consumers do behave this way, but with little regard for which services are critical to their health and which are less so.2 Payers also hope that when consumers bear a greater share of healthcare costs they will become more engaged in managing their health.
For people with significant chronic illnesses, this reasoning is questionable. For example, people with diabetes often need access to regular care and critical medications to effectively manage their health. But higher deductibles can discourage this. The result can be poorer health outcomes that are ultimately more expensive to treat.

An Alternative Approach: VBID

Lazarus implies that healthcare costs are lower in the UK in part because people with chronic conditions face few financial barriers to accessing the care they require. Whatever you consider the merits of the UK’s healthcare system, moving toward a centralized system in the United States would entail a considerable slog through health policy thickets populated by strong interest groups and entrenched stakeholders. The prospect that this would happen anytime soon does not seem promising. So it’s reasonable to ask: Are there other ways to reduce financial barriers to care for people with chronic conditions?
University of Michigan professor A. Mark Fendrick, MD, and colleagues likely would say “yes” to that question. For 15 years they have advocated for a more “clinically nuanced” approach to health insurance coverage in the private and public sectors. Their ideas are embodied in the term value-based insurance design (VBID).

What Is “Value-based Insurance Design?”

It’s relatively easy to explain VBID, because it makes common sense. The basic idea is that health insurance should provide comprehensive coverage (eg, excluding them from insurance deductible and coinsurance requirements) for services that are of high value, while providing less attractive coverage for services that are of dubious value.3 That’s it in a nutshell. Rather than a “one-size-fits-all” approach, clinical nuance would dictate the setting of deductibles and coinsurance rates.
Under VBID, patients with type 1 diabetes and those with other serious chronic conditions would have financial access to the services they need. This access would improve their health and possibly even save costs in comparison to cost-control strategies that erect financial barriers to care for these patients. But what about services that are not supported by clinical evidence and are excluded from widely accepted practice guidelines? They would be covered much less generously, if at all, in a fully developed VBID model. It’s the classic “carrot and stick” approach.
It is important to point out that VBID is not necessarily the same as multi-tiered drug benefit designs (where patients pay more to purchase the brand version of a drug than the generic). The purpose of tiered drug coverage typically is to save money for the payer under the assumption that the medications are equivalent in content or therapeutic value. Drug coverage can be designed based on VBID principles,4 but more often “clinical nuance” is not the operative consideration.
Despite the intuitive appeal of VBID, there has been less uptake of its principles than one might expect.5 Why is this? Looking forward, are conditions now ripe for healthcare payers to more aggressively implement VBID principles?

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