Encouraging Value-Based Insurance Designs in State Health Insurance Exchanges
Published Online: July 22, 2013
Christine Buttorff, BS, BA; Sean R. Tunis, MD, MSc; and Jonathan P. Weiner, DrPH
Objectives: One of the main goals of the Affordable Care Act (ACA) is to control the costs of US healthcare. Channeling patients toward more effective services is one of many approaches being used to control costs while improving health outcomes. This paper reviews value-based insurance design (VBID) concepts and discusses options for states to encourage these designs in the new health insurance exchanges (HIEs).
Methods: We reviewed the literature on VBID as well as the text of the ACA for descriptions of how VBID might be encouraged through the new state health insurance exchanges.
Results: States, under healthcare reform, are allowed to promote the use of VBID designs in their exchanges. There are 4 broad approaches a state HIE could pursue with regard to VBID, ranging from establishing a process for recommending high- or low-value services and requiring plans to adhere to the recommendations, to offering no guidance to plans. The evidence surrounding how well VBID designs work is growing, but it is still limited. To date there is no evidence that reducing or eliminating copays for preventive services cuts costs in the long term. However, modeling does suggest the potential for such long-term savings,so states should proceed with caution.
Conclusions: Modifying copays, even in small amounts, can send signals to patients about the relative value of drugs and services. However, long-term savings will likely result from higher copays on low-value services. The leadership of each exchange has a unique opportunity to reshape the insurance benefit landscape in its state to improve value and invest in prevention.
Am J Manag Care. 2013;19(7):593-600
Value-based insurance designs (VBIDs) alter copay structures to promote high-value medical services and treatments while discouraging the use of low-value services. Over time, it is possible that VBID will become an important method for changing incentives within the healthcare system in an effort to control growth in healthcare costs. States have several options for promoting these designs within the new health insurance exchanges.
Bending the cost curve in American healthcare is a key goal of the Patient Protection and Affordable Care Act (ACA, 2011).1 Projections on the actual dollar amounts saved vary across sources, but the ACA’s emphasis on reducing fraud and abuse in public programs, uniform insurer standards to reduce paperwork, and taxes on generous health insurance benefits are all sources of cost savings.2 Payment reforms on both the insurer and the delivery side are also key drivers of expected savings.
In implementing exchanges and certifying which plans can participate, states and their health insurance exchanges have the potential to change the landscape of insurance benefit design. The major reforms to the individual health insurance market involve changing the underwriting practices and establishing state-based health insurance exchanges. Exchanges will function as individual and small group marketplaces for a menu of plans within 4 tiers of coverage with increasing benefits. States may set up their exchanges as extensions of existing government agencies, as nonprofits, or as independent government agencies.3
Over 24 million new enrollees are expected to join the exchanges by 2021, so controlling costs will become ever more important.4 Improvements in healthcare costs mostly come from the use of effective services, while some authors note that increasing costs come from services with little value, or value for only some patients.5 Providing incentives to encourage consumers to use high-value services and discourage lowvalue services has been promoted as one way of controlling costs. This strategy is otherwise known as value-based insurance design (VBID). While there is a growing national policy push to adopt VBID designs,6-9 there has been little attention to date regarding how state health insurance exchanges (HIEs) could or should be involved in promoting VBID for those it will be covering, and whether major cost savings will be achieved.
The ACA: Exchanges and VBID
The exchanges will function as marketplaces for individual and small group health insurance policies. In a central location, consumers will be able to compare the prices of plans and benefits.10 States have the option of creating separate pools for the individual and small group markets, or combining them. States can also choose to enter into regional exchanges. If states choose not to establish an exchange, they can partner with the federal government or let the federal government run the exchange altogether. In all, 27 states have decided to let the federal government operate their exchanges.11
Within the exchanges, 4 tiers of plans will be offered. The tiers are based on actuarial value, which is the amount the plan expects to pay out in medical costs while the other percentage is usually covered by the enrollee. The exchanges will then offer 4 tiers of plans: bronze, silver, gold, and platinum. The tiers increase in actuarial value from 60% to 90%. Categorizing the plans according to actuarial value is designed to make the relative value of the plans more transparent.12 Exchanges can allow any plan wishing to participate, or can select certain plans based on predetermined criteria.
The ACA’s largest boost to VBID is the recommendation of an array of preventive services that must be offered with no cost sharing for all new plans beginning in 2010. The mandated list comprises all of the US Preventive Service Task Force’s A and B recommendations, as well as additional women’s and children’s health services.13 This is an example of VBID helping to signal the relative value of services and treatments to consumers.
VBID discussions in the literature may not always distinguish between designs using different cost-sharing levels as a mechanism to motivate the use of specific services, from other designs using incentives to promote health-related behavioral change. The Affordable Care Act gives employers and insurers more leeway to expand the use of this second type of incentive-based structure to encourage healthier behavior. Under the bill, employers and insurers may offer up to 30 percent of the value of the premium to a consumer as an incentive for meeting certain health goals such as smoking cessation, up from 20 percent currently (§ 2705).1 The bill also allows Medicaid programs to experiment with behavioral incentive programs (§ 4108).1
Both types of interventions may use financial incentives to influence patient decisions, but incentives for changes such as weight loss or smoking cessation are not focused on individual types or classes of medical services, and are there fore not considered part of the definition of VBID.14 Although of interest and worthy of future study, we cite these ACA initiatives to distinguish them from the discussion of the VBID incentives below.
Experience to Date With VBID
Value-based designs alter incentives for patients to curtail or increase use of specific types of medical services. They are rooted in the health economics literature, which has shown consumers to be consistently responsive to the level of cost sharing for medical services. The best known study of the impact of cost sharing on utilization is the RAND Health Insurance Experiment.15 Although this federally funded study occurred several decades ago, its original intent was to provide input into the design of benefit levels for a national health program such as the ACA. Results showed that higher cost sharing was associated with reduced use of healthcare services, but that patients were just as likely to reduce the use of necessary as unnecessary services.
More recent literature on cost sharing details how these same conclusions from the RAND experiment can be used to encourage prevention of downstream complications in chronic disease.16 Most of the recent VBID initiatives have focused on reducing cost sharing for chronic disease maintenance medications. These policies have usually focused on specific patient subgroups to increase the efficiency of the design.17 For example, Chernew et al, examined copay reductions for the management of chronic diseases in 6 classes of drugs. The employer plan reduced copays on statins, inhaled corticosteroids, angiotensin-converting enzyme inhibitors, angiotensin receptor blockers, beta-blockers, and diabetes medications. The authors found a 7% to 14% reduction in nonadherence to drugs in these classes when copays were reduced 50% for preferred and nonpreferred tiers and to zero for generic drugs.18 In a separate study, a large Blue Cross Blue Shield plan eliminated or lowered copays for drugs in 8 classes of medications and adherence rates improved by 2 to 4 percent in the first year of the program.19 Additionally, Choudhry et al found that dropping the copays on prescription drugs for clopidogrel and statins led to 4% and 2.8% increasesin adherence.20
While these copay changes to incentivize the use of certain technologies show improvement in some process indicators, they have not yet achieved cost savings.21 For example, the same Blue Cross Blue Shield study found no cost savings.19 Another recent article by Choudhry et al (2011) found no significant difference in costs between a group with no copay for cardiovascular drugs and a group with regular cost sharing. 22 The lack of significant cost savings may be due to the short follow-up times in these studies —usually 1 year. More research is needed in the area of cost savings of incentivizing the use of certain services. This will become especially important as the ACA has also required that insurers provide all the USPSTF recommendations free of charge.
In lieu of long-term follow-up, modeling suggests some long-term savings, but these analyses have often focused on raising copays for “low-value” services. For example, the 3 main treatments for prostate cancer vary greatly in their average costs with no evidence that the more expensive treatments result in better outcomes.23 A radical prostatectomy costs $7300, brachytherapy costs $19,000, and radiation therapy costs $46,000 on average. Newer forms of radiation treatment can cost close to $100,000 per case, and have not been shown to have any clinical advantages over any of these less expensive options, including watchful waiting. A simple VBID policy would be to modestly increase the cost sharing for these services to encourage more use of the cheapest and equally effective prostatectomy. The authors of the same prostate treatment study estimate $1.7 to $3 billion could be saved directing patients toward the lower-cost treatments.
What Role Should the Exchanges Play?
To date, there has been little policy work offering guidance on whether or how states should encourage VBID in their HIEs. The Robert Wood Johnson Foundation published a brief on the possible actions HIEs could take and identifies VBID as part of a state’s possible role in active purchasing.24,25 In selecting plans for participation, an HIE could give special priority to contracting plans applying VBID strategies. While Section 2713 promoted VBID, the preliminary HIE regulations promulgated by the Department of Health and Human Services in July 2011 did not offer substantial guidance for states on implementing value-based designs.26
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