As health care costs rise, so do copayments and coinsurance as a way to keep these costs in check. As a result, more individuals are skipping treatment, medications and preventive care measures. In response, some employers have adopted a value-based insurance design (VBID) in which copayments and costs are based on the value of the therapy to the individual, as opposed to the same price for all employees.

This relatively new design is based on the assumption that individuals do not understand the potential value of treatment, medications and preventive care for their health, and therefore do not comply with recommendations from their health care providers in order to save money. However, by lowering costs to the individual, it is assumed that compliance will increase, generally leading to overall healthier employees and lower health care costs in the long run.

What is a VBID plan?

Unlike charging every employee the same amount for blood pressure screenings or diabetes medications, for instance, prices are established by the employer and the insurance plan with the intention of helping employees avoid paying excessive amounts of money for necessary health care. This design attempts to curtail medical non-compliance and avoid potentially devastating outcomes later, such as a heart attack that could have been prevented from taking blood pressure medication.

Essentially, patients who would benefit most from the treatment, medication or care pay less or nothing at all for services. Conversely, costs would be higher for those who seek services that are not necessarily of great benefit to them. This concept can be particularly effective for employees with chronic conditions such as diabetes and hypertension; adhering to their medication and treatment plans now makes costly complications in the future less likely.

VBID plans also strive generally to encourage the use of high-value services for all employees, and discourage the overutilization of low-value or unproven services. In addition, the plan may be constructed in a way that favors and encourages use of high-quality, lower-cost providers and facilities.

Though many studies focus on the effectiveness of a VBID arrangement in increasing medication compliance, some experts stress that the plan design will work best if it is applied to other treatments, surgical procedures, medical devices and tests as well. VBID strategies to incentivize the use of higher value treatments and treatment program adherence include variable copays and deductibles, lowering the employee’s premium and cash or gift incentives. There are many potential ways to structure a VBID program.

Advantages of a VBID

• Decreasing cost should increase compliance.
• By getting the treatment they need for medical problems, especially chronic conditions, employees will avoid more expensive treatment in the future, thereby decreasing medical costs for the employer.
• It makes a company more attractive to potential employees looking for affordable, solid health care.
• Advocates argue that it makes more sense to address health care costs based on individual patient situations and needs, rather than a “one size fits all” approach.

Disadvantages of a VBID

• There is an initial (generally short-term) increase in plan costs for employers as a result of increased medication utilization, preventive care and doctor visits.
• There is a risk of violating the privacy of employees who have specific medical conditions that make them eligible for individualized copayments and benefits.
• Calculating the cost for services based on value/benefit is very complex and the program will only be effective if these calculations and cost-sharing decisions are accurate.
• Employees may object to paying more for the same treatment for which a fellow employee paid significantly less.
• Administering the plan may cost more because the expenses to employees are individualized, making the plan more complex.
  Some insurers are claiming to have a VBID program when in fact their program doesn’t meet its definition; this is due to the growing popularity of VBID plans. Be sure to get the specifics when talking to a carrier about implementing a VBID program.
• There is a potential for fraud, or for attracting more employees with chronic diseases.

Considerations

If a VBID sounds like a possible solution to rising costs, consider the following:

• How do your compliance rates compare with benchmarks?
• Are your copayments structured to provide lower-cost options? If so, are your employees taking advantage of those options?
• Are your employees using generics?
• Are copayments aligned with your employees’ incomes?
• If lowering copayments is the right strategy, which therapy classes should you target?
• How would you structure a VBID program – which services/treatments would you incentivize and what strategies would you use?
• Will you target one or more specific diseases, such as diabetes, or a broader range of diseases/services/treatments?
• How will adopting a VBID program affect the company financially?
• What type of process will you have in place for resolving disputes about the cost/benefit of a particular treatment or medication?
• How will you communicate this plan to employees to emphasize the benefits for them?

Implications of the Affordable Care Act

The Affordable Care Act (ACA) requires all nongrandfathered plans to cover preventive care services without imposing cost-sharing requirements. A list of required preventive care services for various populations is available through www.healthcare.gov.

In addition, the ACA grants authority to the Departments of Labor, Treasury, and Health and Human Services to develop guidelines for insurers and group health plans regarding VBIDs. These final regulations have not yet been released. Once they are, the implications that the health care reform law will have on VBID plans will become clearer.