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Value-Based Benefit Design Introduction

This chapter provides an overview of Value-Based Benefit Design (VBBD) strategies, which focus on different facets of the health care continuum such as health behaviors, chronic condition management, medications, and provider choice.

VBBD comprehensively addresses the way health benefits are structured and utilized by employees. Its focus is broader than just the insurance design and includes other types of incentives. Altering the design of your insurance benefits based on value-based insurance design (VBID) is just one of the value-based strategies being utilized by employers today. Oftentimes, VBID is paired with other programs—such as wellness programs--to maximize the likelihood that consumers make positive behavioral changes, which lead to better health and curbed health care costs for employers and employees alike.

Each model is coupled with inducements to encourage appropriate health-seeking behavior. Although there are incentives such as copay reductions or waivers, premium reductions, and health saving contributions, not all incentives are financial.

No one approach is above another. In fact, the first step employers take in the VBBD planning phase is to collect and assess data about their company’s health care utilization and compare it with other benchmarks in their industry or region. This step will very much inform what type of design best meets employees’ needs. Furthermore, each design will present advantages and challenges along the way. It is important to carefully deliberate the implications of each design choice to ensure you have the tools and resources necessary to fully implement the design best suited to your needs. It is also important that your design elements fit within the construct and culture of your organization.

This chapter addresses:

• evolution of VBBD
• how VBBD fits within Value-Based Purchasing (VBP);
• VBBD considerations in light of health care reform implementation;
• an overview of relevant research and reference tools;
• case studies showcasing employer and coalition experience with VBBD;
• how to implement VBBD in your company;
• which VBBD strategies work best for your company and employees;
• legal considerations when implementing VBBD strategies; and
• the importance of effectively communicating the new VBBD benefit to employees.

Evolution of VBBD

The evolution of thought and practice first came to a few forward-thinking pragmatists who had the will to challenge conventional thinking with respect to health benefits. Amazingly, they worked separately and independently of one another, but reached the same conclusions.

In the mid-1990s, Dr. Jack Mahoney and David Hom put Pitney Bowes on a new track to propel health forward in their workforce by removing access barriers to mental health services and establishing on-site services and education programs. Five years would pass before the company began reducing drug copays as a means to reducing the cost barrier that is often found with medications to treat chronic conditions.[1] (see case study section to learn more).

In 1996, Asheville, North Carolina, began a community-based medication management program for self-insured employers to address diabetes in their workforce. The initiative elevated the role of the pharmacists and reimbursed them for the time they spent educating and counseling diabetic patients. This service required no out-of-pocket cost from the health care consumer. The success of the program has been measured in better health outcomes as well as direct and indirect cost savings (see case study section to learn more).

At the University of Michigan, A. Mark Fendrick, M.D. and Michael Chernew, Ph.D., were developing and testing their own theories with respect to access to pharmaceutical products and insurance design. They believed “value” should be assessed by the benefit a patient would receive from the medication or service. Compare that benefit to the potential total cost of treatment. Then, establish lower copayments for patients who have clinical attributes similar to people for whom the drug has proven beneficial.[2] Cost sharing becomes a “clinically-sensitive” tool to mitigate the adverse health consequences of high out-of-pocket costs. A “value-based” approach can address contradictions in our health care system by aligning incentives and establishing synergistic tools that produce desired behaviors and outcomes.[3] Fendrick and Chernew called their approach “value-based insurance design (VBID).”

Although they used different descriptors, all of these individuals and organizations were pushing forward VBBD strategies to change behaviors by aligning incentives that lead to:

• appropriate use of high-value services including preventive care;
• adherence to treatment regimens;
• utilization of high performance providers (doctors, nurse practitioners, pharmacists, hospitals, retail health clinics) who adhere to evidence-based treatment guidelines; and
• the adoption of healthy behaviors.

You may hear VBBD called “value-based incentive design,” or “value-based insurance design,” or “evidence-based benefit design.” No matter what it is called, the purpose is the same: to encourage the consumer to utilize high-value services that produce better health.

VBBD comprehensively addresses the way health benefits are structured and utilized by employees. However its focus is broader than just the insurance design and includes other types of incentives. Altering the design of insurance benefits based on VBID is just one of the value-based strategies being utilized by employers today. Oftentimes, VBID is paired with other strategies—such as wellness programs--to maximize the likelihood that consumers make positive behavioral changes, leading to better health and curbed health care costs for employers and employees alike. Andrew Webber refers to VBBD as “a large tent of individual strategies”[4] that, when tailored to fit the needs of employees can achieve greater value from the health care investment and greater productivity from the workforce.

Although many of the early adopters of VBBD have been large companies, the last few years have seen a flurry of smaller organizations also adopting value-based strategies with great success. The opportunity to utilize new and unique benefit designs is no longer limited to large national companies. The foundational elements remain the same regardless of the size of the organization.

How VBBD Fits Within Value-Based Purchasing

Because NBCH has played a leadership role in propelling VBP with its membership, it is important to understand how it relates to VBBD.

VBBD is a way for purchasers to enable consumers to make the best health care decisions for their chronic disease, while VBP is the broader concept of assessing how purchasers can impact the overall demand for health care services. “VBP is focused on the manner in which a purchaser uses its buying power to maximize the value that it receives from its contracted insurers or third-party administrators for its entire health benefit program. Employing VBBD might be one strategy a purchaser uses in pursuing VBP.”[5]

VBP examines traditional areas of employer focus such as employee contributions, plan choices, prescription drug coverage and tiering, inpatient and outpatient coverage, Cost sharing and provider networks. VBBD adds to VBP by examining care coordination, support services, risk reduction, health promotion, and consumer decision support tools.[6]

NBCH has led its coalition members and their employer members to adopt VBP pillars as a way to hold providers of health care accountable for both the cost and quality of care. Those pillars are:

• standardize measurement and collection of data on performance—including areas such as consumer behavior, and health plan, hospital and Physician Performance;
• report the results of performance measurements publicly to ensure transparency and build the purchaser and consumer knowledge base;
• reform the payment system by replacing the fee for service system with strategies that reward providers who deliver for the best clinical outcomes and who adhere to clinical guidelines most closely; and
• foster engagement and informed choices for consumers.

The assessment of all four of the pillars in determining how health plans are implementing these steps is also key to the success of VBBD for both employers and their respective workforces.

VBBD Considerations and Health Care Reform

Employers need to appreciate that the health care reform law only provides a framework for the U.S. health care system in the future. Change has already begun; health care reform has just expedited the process. Several areas have been and continue to be the focus of change. Tackling the heavy burden of chronic disease in the U.S. provides opportunities for employers to drive solutions through public/private partnerships in local communities. There is a lot of room for experimentation in payment reform, which may ultimately direct health care delivery reform. Health information technology could propel greater administrative efficiencies, fewer medical errors, more timely decision-making and improved health outcomes.

In addition to the above changes, there are many existing laws predating the passage of health care reform that now intersect with the new law. Because the regulations for those laws have yet to be finalized, the playing field for VBBD programs is still being defined.

Because the employer-based market tends to offer much more generous benefits compared to the benefits offered in the individual market, many of the immediate coverage rules implemented in 2010 should have little impact on employee coverage. Key changes that do impact employers include the following:

1) As of September 23, 2010, all health plans must provide benefits which:

• have no lifetime limits on coverage,
• have no recissions of coverage, and
• allow parental coverage of young adults under 26 years of age.

2) Furthermore, all insurance provided through an employer must offer coverage to children with pre-existing conditions. Insurance companies’ use of annual dollar limits on the amount of insurance coverage a patient may receive will be restricted for new plans in the individual market and all group plans. In 2014, the use of annual dollar limits on essential benefits like hospital stays will be banned for new plans in the individual market and all group plans.[7]

This is not to say that the new law is not already bringing about change. Some coverage mandates have already gone into effect; further details continue to unfold as different aspects of the law are implemented. Your health care vendors should be fully abreast of changes in existing law and should keep you apprised of new regulations that impact your company’s health benefits and how you can proceed with value-based approaches in the future.

One hundred seventy-six million Americans get health coverage through their jobs. Health care reform attempted to keep that segment stable, applying the employer mandate to companies with 50 or more employees. Those who choose not to comply will face penalties calculated by the size of their workforce.

Nevertheless, the Obama administration promised those who have insurance that, “if you like your insurance, you can keep your insurance.” To honor this pledge, the law allows businesses and health plans in place on March 23, 2010, to continue if they do not make significant cuts or increase out-of-pocket costs for their employees. Compared to their policies in effect on March 23, 2010, grandfathered plans:

• cannot significantly cut or reduce benefits;
• cannot raise coinsurance charges;
• cannot significantly raise co-payments charges;
• cannot significantly raise deductibles;
• cannot significantly lower employer contributions;
• cannot add or tighten an annual limit on what the insurer pays; and
• cannot change insurance companies.[8]

Looking Ahead

The law does allow insurance companies to offer VBBD plans in the state exchanges. These exchanges are being established for individuals and small businesses for whom health insurance coverage is mandated as of January 1, 2014.

In keeping with the value-based philosophy, the law also mandates that preventive screenings and annual wellness visits are provided free of charge to Medicare beneficiaries. In the private sector, health plans beginning on or after September 23, 2010 must offer preventive care without copays or coinsurance.[9] In the summer of 2010, VBBD advocates expressed concerns that the proposed regulation (not finalized) on Cost sharing and preventive care may undermine VBBD design innovation. The Departments of Health and Human Services, Treasury and Labor have pledged to write additional guidance on value-based designs and preventive care, but the timing of that guidance is uncertain.

The law also amended the Health Insurance Portability and Accountability Act (HIPAA), allowing employers to expand discounts on premiums, copays or deductibles from 20 percent (current law) to 30 percent in 2014 as a reward for employees participating in wellness programs.

The Genetic Information Nondiscrimination Act of 2008 (GINA) prohibits employers from discriminating in the terms or conditions of employment based on genetic information. Proposed GINA regulation put forth in 2009 would dramatically impact how employers establish wellness programs—particularly with respect to the information garnered in health risk appraisals (HRA) and what kind of incentives can be used to reward participation. However, the proposed regulation conflicts with the Congressional intent of deepening the HIPAA discounts. Although final GINA regulation was expected by mid-2010, the Equal Employment Opportunity Commission has yet to issue a clarifying opinion, which would help employers navigate the new terrain. (The HIPAA and GINA provisions will be discussed in greater detail later in “Legal Requirements.”)