Value Based Insurance DesignValue Based Insurance Design

Michael ChernewMichael Chernew

Oct 10, 2008Oct 10, 2008

Portions of this research were funded by Pfizer and GSK.

IssueIssueProblem: Health care costs are high and Problem: Health care costs are high and rising fastrising fast– We cannot afford projected expenditure We cannot afford projected expenditure

growthgrowth– We are not getting enough value for the We are not getting enough value for the

money we spendmoney we spend

Solution: Solution: – Supply side reformsSupply side reforms

payment reform, IT, etc.payment reform, IT, etc.

– Demand side reforms Demand side reforms Develop more sophisticated benefit packagesDevelop more sophisticated benefit packages

Saving money is not main objectiveSaving money is not main objective

How do we finance health?How do we finance health?– The best way to save money is to provide no The best way to save money is to provide no

carecare– How much health can we afford?How much health can we afford?

Who decides?Who decides?

– How do we meet that budget targetHow do we meet that budget targetWho pays for that health?Who pays for that health?

What role do patient preferences play?What role do patient preferences play?

Value Based Insurance Design (1) Value Based Insurance Design (1)

Focus on the demand sideFocus on the demand side– What we charge patientsWhat we charge patients

Basic premise:Basic premise:– Patient demand and preferences should pay a role in Patient demand and preferences should pay a role in

the care that is deliveredthe care that is delivered– Patients should share some of the financing burden Patients should share some of the financing burden

because it can encourage efficient carebecause it can encourage efficient care– Patients who opt for more conservative treatments Patients who opt for more conservative treatments

should share in the savingsshould share in the savings– However, standard demand theory should not be However, standard demand theory should not be

blindly appliedblindly applied

Consumers do not respond to cost Consumers do not respond to cost sharing as economists would likesharing as economists would like

Reductions in appropriate use same as Reductions in appropriate use same as for inappropriate use (Sui et al. 1986)for inappropriate use (Sui et al. 1986)– Lack of coverage is associated with worse Lack of coverage is associated with worse

outcomesoutcomes• Effects concentrated on poor and chronically illEffects concentrated on poor and chronically ill

– Copays reduce use of preventive servicesCopays reduce use of preventive services– Copays reduce use of ‘valuable’ Copays reduce use of ‘valuable’

pharmaceuticalspharmaceuticals

Value Based Insurance Design (2)Value Based Insurance Design (2)

Reduce (or keep low) copays for high Reduce (or keep low) copays for high value servicesvalue services

– For high value patientsFor high value patients

Different from: Value Based PurchasingDifferent from: Value Based Purchasing– Focus on contracting with providers, Focus on contracting with providers,

payments and provider incentivespayments and provider incentives

Areas of overlap: incentives for Areas of overlap: incentives for beneficiaries to select high value plans beneficiaries to select high value plans or providers (tiering)or providers (tiering)

Sources:

Fendrick, et. al Fendrick, et. al American Journal of Managed Care,American Journal of Managed Care, 2001 2001

Chernew. et al. Chernew. et al. Health AffairsHealth Affairs. 2007; Chernew. et al. . 2007; Chernew. et al. Health AffairsHealth Affairs. 2008. 2008

Defining ValueDefining Value

Value reflects costs AND qualityValue reflects costs AND quality– Similar to the concept of cost effectivenessSimilar to the concept of cost effectiveness

Existing research identifies high value Existing research identifies high value services and low value servicesservices and low value services

– High value services are promoted in disease High value services are promoted in disease management, quality measurement and pay management, quality measurement and pay for performance programs.for performance programs.

More health services research is neededMore health services research is needed– Comparative effectivenessComparative effectiveness– Systems researchSystems research

0%

2%

4%

6%

8%

10%

12%

14%

Decrease in Non-

Adherence

Ace/ ARBS BetaBlockers

Diabetes Statins Steroids

Drug Class

Impact of VBID

Will VBID save moneyWill VBID save money

Better health reduces adverse eventsBetter health reduces adverse events

This may fully offset costs of extra This may fully offset costs of extra utilization if targeted well enough.utilization if targeted well enough.– Don’t bet on it generallyDon’t bet on it generally– More hope in MedicareMore hope in Medicare

Generally not enough savings to offset Generally not enough savings to offset costs of extra payment for services that costs of extra payment for services that would have been used anywaywould have been used anyway

How do we finance net costsHow do we finance net costs

Spread increased costs across all other servicesSpread increased costs across all other services

Charge more for targeted clinical servicesCharge more for targeted clinical services– Imaging?Imaging?– Selected, high variance procedures?Selected, high variance procedures?– Selected, low incremental value drugs?Selected, low incremental value drugs?

Better research will support better benefit designBetter research will support better benefit design

Federal VBID RoleFederal VBID Role

Benefit design for public programsBenefit design for public programs

Health savings account rulesHealth savings account rules

Support researchSupport research

Support ITSupport IT

SummarySummary

Increasing patient cost sharing saves moneyIncreasing patient cost sharing saves money

Consumers often do not respond as we would Consumers often do not respond as we would likelike

ImplicationImplication– Charge more in some situations (when you want to Charge more in some situations (when you want to

change behavior)change behavior)This saves moneyThis saves money

– Lower financial barriers for high values servicesLower financial barriers for high values servicesThis mitigates adverse health effectsThis mitigates adverse health effects

Combine with smarter provider payment Combine with smarter provider payment

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