Value-Based Insurance Design: Restoring Value to Health Care

Abstract

Value-based insurance design (V-BID) is an alternate payment model for health insurance that targets utilization and unnecessary costs by aligning financial incentives with clinical benefits. It functions by lowering cost-sharing for high-value services—services that have an established clinical benefit to a consumer demographic—while raising cost-sharing for low-value services—those without demonstrated efficacy—and cost payers a disproportionate amount of money compared to the benefit provided to the patient.

Two approaches for V-BID exist to target cost-sharing, either on a group level by chronic condition or health status or on a general population level. The first approach has the advantage of customizing value by using a refined approach that can have more specific cost-savings per beneficiary. The second approach has the advantage of costing less, financially and administratively, for insurers by identifying commonly-used, low-value services present in the entire population to recommend detailed high- and low-value services.

Health care reforms and implemented programs have made useful strides forward in addressing problems of utilization and cost. This thesis hypothesizes that because of this progress, V-BID faces less of a practical barrier to nationwide implementation in the Marketplace and more of an abstract one regarding how care is valued, and this makes V-BID both politically feasible and cost-effective. The literature review explores how V-BID has been introduced as a payment model at the federal level in the Medicare Advantage (MA) program, the state level with employee health plans in Oregon, and the local level with a Colorado school district. After characterizing current V-BID programs, this thesis employs a mixed-methods approach to analyze the Medicare Advantage (MA) market where a federal initiative for V-BID is being piloted and incorporate stakeholder perspectives on the state of health care and how V-BID can ameliorate cost and utilization issues if executed properly.

The results of the quantitative analysis reveal that most MA beneficiaries have low or minimum cost-sharing for selected benefits in line with V-BID’s focus on high-value services and that the MA V-BID model has reported success in the first three years with increased utilization. The qualitative review supplies stakeholder insight to contextualize the MA program in a greater nationwide system and concludes that stakeholders want change, though they differ on what would be most effective.

Because V-BID can adequately address problems reported by stakeholders and requires few structural changes, this thesis concludes that V-BID can be implemented on a nationwide scale in the Marketplace to ensure that consumers utilize higher-value care and there is less unnecessary spending in the system.