Enhancing Benefit Design Through Value-Based Insurance Design

Both private and public healthcare plans have traditionally used patient cost sharing to keep costs down. However, implementing value-based insurance design may be able to promote efficiency while increasing the use of high-quality care, according to a recent article in JAMA.

The current model of cost sharing is a one-size-fits-all approach, explained authors Michael E. Chernew, PhD, and A. Mark Fendrick, MD, who are the co-editors-in-chief of The American Journal of Managed Care and coined the term value-based insurance design (VBID). Benefit packages that implement cost sharing may not cover some important services and can lead to patients paying more while making poorer decisions at the point of service. In particular, “increased cost sharing burdens patients with chronic diseases,” Chernew said.

That could be changed by switching to a value-based plan that reduces cost sharing for high-value services. This design would “support efforts to direct patients to high-quality lower priced providers,” according to Chernew. The article in JAMA outlines several potential strategies that would further this goal.

Foremost, insurance should be designed around value, thus promoting efficiency by encouraging the use of services that have higher clinical value to that patient. VBID “calls for lower cost sharing for high-value services and higher cost sharing for low-value services.” Early research has confirmed that “reductions in cost sharing moderately increase the use of targeted high-value services and can reduce use of targeted low-value services.”

Another strategy is the implementation of reference pricing, in which an employer or an insurer limits its coverage for a particular service to a set amount. A patient who selects a provider that charges more for that service will have to pay the difference. Studies cited in the article suggest that patients respond well to the concept of reference pricing.

Lastly, Chernew and Fendrick explain the appeal of tiered and narrow network plans, which aim to limit spending on healthcare providers instead of specific services. A narrow network plan would reduce the amount of in-network choices available, while a tiered plan would put “some in-network centers and practitioners in non-preferred tiers that require higher patient cost sharing.” The authors caution that these plans might be confusing for patients not accustomed to shopping around for a healthcare provider.

They described various ways in which changes to Internal Revenue Service rules, health exchange policies, and Medicare benefit packages would help promote value-based care. New tax policies, the authors wrote, could also encourage efficiency. These solutions would require both payment reform and greater patient engagement.

“Financial incentives are not the most important part of the healthcare system transformation, but they are important,” Chernew said. “Traditional benefit designs are woefully inadequate at addressing current challenges. We can clearly do better.”