Value-Based Benefit Design

Recently, we have seen a new feature in healthcare benefits known as value-based benefits design (VBBD). Like other features discussed previously, value-based design is aimed at managing the growth in healthcare costs. Providing value-based services, as opposed to regular services, does this.
The VBBD program provides certain incentives to employees to avail of services provided by high-performing healthcare providers. These incentives can include rewards, reduced premium costs, adjustments to deductible and copay levels, and contributions to certain tax-favored funding plans, such as an HSA (health savings account).
Value-based benefit design is guided by several principles:

  • Value provided in healthcare is measured by the medical value gained by the prescribed treatment.
  • The use of high-performance providers who adhere to evidence-based treatment guidelines.
  • The use of high-value services, including certain prescription drugs and preventative services.
  • Healthcare services should be differentiated by the quality of medical intervention from provided services.
  • The individual healthcare consumer also determines the value received; this is achieved through healthy lifestyle choices, such as increased physical activity or electing to quit smoking.
    The outcomes of a VBBD program are as follows:
  • The medical evidence of a treatment’s effectiveness
  • The treatment’s cost
  • The resulting benefit of the treatment
    As the value of these services varies depending on the individual, VBBD advocates enrollee cost sharing being based on the net value of the service to each employee; costs should not be the same for all employees or be based on a static price for the service.4 Basic health insurance design should be based on tiered costs for services provided, while prescription drugs are based on efficacy. Another service based on efficacy should be office visit copays. This tier-based system is built to direct employees toward choices, which will result in a superior benefits package.
    4 Chernew, M., and Frederick, A. M. Editorial. “Value and Increased Cost Sharing in the American Health Care System.” Health Services Research and Education Trust 43, no. 2 (2008).pp. 451-457.
    It has been demonstrated that financial incentives can influence health-related behavior5 and that the cost of services and prescribed drugs impacts the use of those services.6 Therefore, by the removal of barriers to valuable services, or else by providing positive incentives, VBBD initiatives aim to increase the likelihood of employees complying with recommended treatment plans, in addition to engaging in healthy behaviors. Note here that healthier people tend to have lower overall healthcare costs; there is also evidence that patients with certain chronic conditions, who nonetheless maintain their treatment regimens, have lower overall costs as well.7
    5 See for example, Johnson L, Study: Paying smokers to quit boosts success rate. The Boston Globe, February 12, 2009. Accessed at on February 12, 2009
    6 Wells, D., Ross, J., and Detsky, A. “What Is Different about the Market for Health Care?” JAMA 298, no. 23. Decmber 2007. pp. 2885–2887
    7 In a presentation at the Pacific Business Group on Health’s Pharmacy Symposium, April 2008, Jane Barlow, MD reported study results documenting the reduced costs of diabetics who are compliant with drug regimens.

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