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Value-Based Insurance Design: Perspectives, Extending the Evidence, and Implications for the Future
John J. Mahoney, MD, MPH; Karlene Lucas, MBA; Teresa B. Gibson, PhD; Emily D. Ehrlich, MPH; Justin Gatwood, MPH; Brian J. Moore, PhD; and Kim A. Heithoff, ScD

Value-Based Insurance Design: Perspectives, Extending the Evidence, and Implications for the Future

John J. Mahoney, MD, MPH; Karlene Lucas, MBA; Teresa B. Gibson, PhD; Emily D. Ehrlich, MPH; Justin Gatwood, MPH; Brian J. Moore, PhD; and Kim A. Heithoff, ScD
Value-based insurance design (VBID) has been used by employers to encourage use of and increase access to evidence-based health services. The core mechanisms of VBID align patient cost-sharing amounts with the value of care. Value-based principles have also been written into the Affordable Care Act (ACA) by requiring coverage of certain preventive services without a copayment. Findings from studies of VBID programs have demonstrated the impact that value-based programs can have on particular patient populations and conditions. This paper highlights the findings from a series of related investigations examining the impact of an employer-sponsored VBID program in patients with diabetes and asthma. Moreover, we review evidence from value-based diabetes and asthma programs and provide guidance for the design of future programs.
This supplement was coordinated by the Florida Health Care Coalition and supported by Merck.

In 2002, the health strategy team at Pitney Bowes created and launched the company’s value-based design initiative.1 Pitney Bowes became the first company in the United States to fully implement this approach, in which the employer sets the amount of cost-sharing for a medical service or treatment according to the value of the intervention rather than its cost. Concurrently, Fendrick and colleagues introduced the value-based insurance concept in the peer-reviewed research literature.2 In the ensuing years, value-based design has been adopted by many employers, health plans, and payers.3 With healthcare reform, it is expected that more employers will implement value-based insurance design (VBID), and those with existing value-based designs may consider new approaches that extend beyond their current interventions.

On the surface, the value-based approach is straightforward; however, controversy has emerged as value-based programs highlight a need within our healthcare system to define high-value and low-value services and “make … decisions about not paying for things that don’t produce health.”4 Uncertainty has also emerged regarding the investment required by payers when lowering cost-sharing and whether the advantages resulting from increased adherence or improved outcomes are large enough to counterbalance the increase in benefit provision.

In this paper, we review the current literature on value-based design and expand the research base with results from 2 new investigations. Specifically, we provide (1) a historical perspective on VBID; (2) evidence from VBID for diabetes care; (3) evidence from VBID for asthma care; and (4) a discussion of implications for the future.

Value-Based Insurance Design: A Perspective

VBID, also known as value-based benefit design, is a medical benefit plan design that typically covers evidence-based services (such as antidiabetic medications for patients with diabetes or statins for patients with high cholesterol) through lower or eliminated patient cost-sharing (ie, copayments, coinsurance, and deductibles). In some cases, VBID decreases or eliminates coverage (ie, raises patient cost-sharing) for services that are identified as low value. In contrast to traditional benefit plan design in which cost-sharing is typically based on the cost of providing a specific service or product, the primary mechanism of action of VBID is to align cost-sharing and the clinical value of the service—providing a lower price that patients would pay out of pocket for high-value services and a higher price that patients would pay out of pocket for lower-value services.

VBID is conceptually rooted in primary and secondary prevention by mechanisms designed to avoid complications and slow the progression of disease. VBID also draws on health economic principles, which have shown that patients respond to the level of cost-sharing for medical services.5-7 VBID has caught the interest of employers because of the focus on overall quality, cost, and utilization, as well as improving clinical care that is most beneficial to patients. In a recent survey of 1300 large employers, more than 81% indicated that they plan to implement a VBID in the future.8

Healthcare Reform

The principles of VBID have been adopted into the Affordable Care Act (ACA). Specifically, Section 2713 of the ACA requires that all health plans include certain preventive services without a copayment for the patient, such as screenings for blood pressure, colorectal cancer, and sexually transmitted infection.9 Section 2713 of the ACA also allows the US Secretary of Health and Human Services to establish guidelines to permit a health insurance plan to use a VBID.10

In reports to the US Congress, the Medicare Payment Advisory Commission highlighted VBID as a tool for lowering costs and improving quality of care in Medicare and proposed a provision to allow implementation of VBID innovations, such as varied copayments for treatments based on evidence of their value.11,12 Finally, the Institute of Medicine’s report to the Secretary of Health and Human Services on essential health benefits also references the premise of VBID, and a section of the report is devoted to examining evidence for its approach.13

Mechanism of Action

VBID focuses on building cooperation between patients and their providers. As evidence of its impact has emerged, there has been increasing support for VBID based on the effects it may have on practitioners and patients. When well executed, value-based design aligns the interests of patients and providers, resulting in improved health outcomes and fewer downstream events such as complications.14

VBID also focuses on prices that patients pay out of pocket as a mechanism to encourage patients to use medications or treatments that are tied to improved health. With improved adherence to treatment regimens, the aim of VBID is to improve current functioning and clinical outcomes, reduce the occurrence of downstream adverse events, and potentially slow the progression of disease. In the case of prescription drugs, evidence has shown that patients who do not follow their prescribed medication regimens to manage their chronic conditions have higher healthcare costs.15,16

An Opportunity for Employers

According to the Centers for Disease Control and Prevention, nearly half of all adults in the United States have a chronic condition and these conditions account for more than 75% of healthcare costs.17 For employers, this translates to an estimated 45 million sick days and $7.4 billion in lost productivity each year.18 A primary objective for an employer-sponsored benefit design is to stabilize direct and indirect medical costs through chronic disease prevention and disease management (DM).19 In addition, benefit plans can make use of evidence-based guidelines and medication adherence programs to control the costs of chronic conditions.

A variety of methods exist for employers implementing value-based programs, the diversity of which must be taken into consideration when evaluating the effects of the program. Options may include altering the amount of or eliminating copayments, changing the tiered structure tied to these payments, or adjusting the out-of-pocket exposure required of the patient through coinsurance percentages. Figure 1 depicts coinsurance, in which the consumer has more direct exposure to the cost of the service than a flat copayment where the price does not vary. For example, if a VBID program lowers all diabetes medications to 10% of the allowed charges (generic and brand name), the actual out-of-pocket cost is $10 if the medication is $100 and $25 if the medication is $250. Unlike a flat copayment amount, this type of coinsurance design—which is a focus of this paper—exposes the patient to a range of prices, while still allowing some variation to correspond with the variation in allowed charges.

Key Implementations of VBID

Various implementations of VBID have existed since the mid-1990s. Each program was designed to engage patients, providers, and payers to improve clinical outcomes while enhancing overall healthcare value. Key examples include the following:

  • 1996: the City of Asheville, North Carolina, offered free medications and testing equipment only for patients with diabetes who attended educational seminars20
  • 2002: Pitney Bowes reduced copayments for drugs that treat asthma, diabetes, and hypertension1
  • 2005: a large firm offered tier 1 medications for free, to treat value-based conditions; tier 2 and 3 drugs were subsidized at 50%21
  • 2006: a large firm implemented a VBID program for patients with diabetes within a single company; 1 group participated in a disease management program, whereas the other did not22
  • 2007: Pitney Bowes reduced copayments for statins and clopidogrel for the treatment of cardiovascular disease23
  • 2008: the Cincinnati Pharmacy Coaching Program provided tailored, pharmacist-based educational services and financial incentives to participants24
  • 2010: the State of Oregon Public Employee Benefit Boards increased copayments for overused or preference-sensitive services of low relative value, and covered preventive and high-value services at low or no cost25
  • 2011: a large commercial insurer in the United States provided full prescription coverage for cardiovascular medications following myocardial infarction26
  • 2012: the Health Alliance Medical Plan altered its formulary tiers and copayments for statins for enrollees covered by employersponsored plans27

Although the examples above highlight VBID as a trend in health benefit design, evaluations are needed to understand the impact of these programs on utilization, quality, and spending. Research evidence regarding the effectiveness of VBIDs that focus on diabetes and asthma is presented in the next sections.

Effectiveness of VBID for Diabetes Care

More than 25 million Americans have diabetes; of these, 7 million are undiagnosed. The total cost of diagnosed diabetes in the United States in 2007 was $174 billion.28 Studies have repeatedly suggested that the rates at which diabetes guidelines are incorporated into clinical practice are suboptimal.29-33 Over the past several years, several employers have implemented various interventions that were developed to influence patient behavior and improve clinical outcomes, while attempting to control costs. For optimal impact, multiple interventions are being used together to initiate such changes.

Evaluations of VBID programs for patients with diabetes are showing that changes in cost-sharing can lead to positive behavioral changes in both patients and providers.22,26,34-39 Such an effect builds a strong case for the continuation of these VBID programs over time.

To demonstrate the effectiveness of VBID for patients with diabetes, we summarize 2 recent studies by Gibson, Mahoney, and colleagues22,34 and describe results of a new, related investigation herein. The 3 studies isolate different aspects of VBID using similar patient groups and methodology.

VBID and Disease Management: Effects on Medication Use and Cost Savings

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