Value-based Insurance Design

Value-based insurance design (VBID), in which cost sharing varies with the value of the health services, is (I hope) the wave of the future. It represents an insurance innovation that links evidence-based practice, cost containment, good ethics, and smart politics.

A commentary in the July issue of the American Journal of Managed Care, by Michael Chernew, the guru of VBID, and Joseph Newhouse, one of the leaders of the RAND Health Insurance Experiment, is worth reading.

Cost sharing is a blunt instrument. It reduces inappropriate and unnecessary care - a good thing from the perspective of cost containment and health, since every intervention carries potential risks. Unneeded treatments offer risk without benefit - not a configuration that shared funds should pay for. If I want an intervention of that kind, it is fair - and good for my health - to make me pay for it. Just as higher gas prices may lead me to walk to the store (good for my health and for the environment), higher cost sharing for inappropriate care may do the same.

But higher cost sharing reduces high value care as well. Increased cost can lead to decreased diabetes control, heightened blood pressure, and worsening of other treatable chronic conditions. The VBID concept has led to smarter cost sharing, as by reducing or eliminating copayments for diabetes medications and visits.

The ethical and political challenge will be - who decides what is "high value"? This isn't a problem when costs are being reduced. But if your diabetes medication is now free and my me-too branded medication has high cost sharing, I will want to know how the decision was made, who made it, and how I can appeal if I'm not convinced.

Debate about high value and lesser value is just the kind of debate we need more of in health care. Thus far VBID is associated with reduced cost for selected areas. This hasn't aroused much controversy. What I picture happening next is emergence of benefit packages with across the board cost sharing of significant proportions, high overall deductible limits, combined with a commitment to minimal or no cost sharing for high value interventions. If the low cost services are broad enough to constitute what fair-minded people would regard as a robust basic benefit package, the cost barrier to low value services would be ethically acceptable.

VBID won't eliminate argument. But, done properly, it would be the right kind of argument. What's the evidence? What counts as a valuable outcome?

Higher cost for gas is also a blunt instrument. Decreasing the sale of gas guzzlers is a good thing. Increasing the cost of operating ambulances or school buses isn't. But VBID has the potential for more discerning impacts. More power to VBID!