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Value-based insurance reduces fee-for-service’s negative effects (3 of 3)

In a 2008 interview about ways to reform the U. S. health care system, Hillary Clinton commented that “we have insurance policies that won’t pay for a diabetic having a foot or eye exam but will pay for having a foot amputated.” Her remark gained attention, even though the underlying idea was already widely understood — poorly designed health coverage discourages some people from using the most valuable services.

The problem isn’t that health insurance pays for foot amputations or other expensive yet necessary procedures. The problem is that its benefit structure often discourages people from getting the services that would avert costly treatments. Some high-deductible policies, for example, won’t cover preventive services until the deductible has been met. That gives policyholders a financial incentive to delay their preventive tests and screenings until they’ve satisfied the deductible, but most of them don’t spend enough to get there.

In 2001 Dr. Mark Fendrick and his co-authors proposed in an article in the American Journal of Managed Care that co-payments for prescription drugs be linked to the benefit of those drugs and not to the drugs’ cost. People would have very low or no co-payments for the drugs that were expected to help them the most, based on clinical studies. And they would have higher co-payments for drugs expected to have less significant benefits.

Since the size of a co-payment sometimes determines whether an individual will get his or her prescriptions filled, the authors said their idea would help to assure that people would take the drugs that would help them the most.

When an insurance policy gives you the most important health services free and charges you higher co-payments for services that it considers less important, it is using a value-based insurance design (VBID). It was first tried in 2004 by the Mayo Clinic’s health plan for its employees, which removed cost-sharing for primary care and preventive services.

The plan also raised cost-sharing for specialist visits, imaging, and a few other outpatient procedures. The result was a substantial decline in the number of imaging tests and specialist visits over a four-year period. The authors of a study on the Mayo Clinic plan concluded that there was “a sustained impact of benefit changes without adversely affecting needed services.”

As VBID spreads to more plans, some analysts believe it will chip away at the excesses of unfettered fee-for-service medicine. As one example of VBID’s expansion, Mercer Consulting has found in its annual employer surveys that more companies are using elements of VBID in their health insurance, which they do to cut costs by reducing unneeded care.

Dr. Fendrick and his colleagues have said that if “everyone is required to pay the same out-of-pocket amount for health care services whose benefits depend on patient characteristics, there is enormous potential for both under- and overuse.” The value of a particular drug or treatment, perhaps aside from preventive benefits, is not the same for everyone, and an effective VBID approach can target specific high-risk groups and keep their costs low for the services that will help them the most.

As an example, in 2007 Pitney Bowes, a Fortune 500 company, eliminated co-payments for statins, a class of drugs shown to lower cholesterol. But it did so only for employees and their beneficiaries who had diabetes or vascular disease. The company also reduced co-payments for people taking clopidogrel, a clot-inhibiting drug.

Among these selected employees, adherence for statins and clopidogrel increased by 5.9% and 7.1% the following year, and it was accompanied by reduced rates of hospitalization, emergency department admissions, and doctors office visits. Thus Pitney Bowes’ health costs did not increase even though many people were now receiving their prescriptions free or almost free.

So far, most VBID experiments have been for prescription drugs. The University of Michigan’s Center for Value-Based Insurance Design summarized eight successful VBID trials in a 2012 issue brief, six of which focused on prescription drugs. And while critics have raised legitimate questions about the methodologies used in some of the studies, the evidence has been persuasive enough that last year the Congressional Budget Office revised the way it estimates future health care spending

The CBO’s new formula for making projections is that a one percent increase in the number of prescriptions filled by beneficiaries will “cause Medicare’s spending on medical services to fall by roughly one-fifth of one percent.” The new formula acknowledges that raising co-payment amounts for medications will mean that some people quit taking their drugs, and that the extra revenue from the higher co-payments will be partly offset by a greater use of medical services from people who are not refilling their prescriptions.

At least one employer is using the assertive tactic of requiring much higher payments for overused services. Some 155,000 employees of Oregon state colleges and universities must pay $500 out-of-pocket for “preference sensitive” services. Among those services are hip and knee replacements and arthroscopy. Advanced imaging tests and sleep studies require a $100 payment. But other health care services are free.

There’s no cost-sharing for 17 preventive services, for example, or for classes in weight management and smoking cessation. To date, the Oregon state education employees have had a 4-5% reduction in obesity rates among those insured by the plan, a 6% reduction in the use of tobacco, and 15%-30% decreases in high-tech imaging and sleep studies, according to the University of Michigan issue brief.

VBID principles are slowly being introduced into Medicare’s benefit design. Free recommended preventive benefits and annual wellness exams have been available for Medicare beneficiaries since 2011. Some 34 million Medicare beneficiaries used at least one free preventive benefit 2011-2012. Still, it’s not clear if this represented a spike, since the government had not closely tracked seniors’ use of preventive tests prior to 2011.

Another VBID-related benefit for seniors is the gradual closing of the Part D donut hole, which the government says saved Part D enrollees more than $4 billion in 2011-2012. Without the donut hole coverage, some people would have stopped taking their medications rather than pay full price.

Aside from the better donut hole coverage, VBID does not much help seniors with comprehensive supplemental plans, whether they be Medigap policies or employer supplements. For those individuals, there’s never been any cost-sharing for preventive services or for overused services. The most comprehensive plans actually take an anti-VBID approach because they make all Medicare-covered services free or nearly so, regardless of their value. Examples of the cover-every-service policies are the four most comprehensive Medigap plans (C, D, F, and G).

A cost-effective solution for many seniors is to enroll in a high-quality Medicare Advantage HMO plan or, if it is available, an employer managed care plan. The highly rated managed care plans have used a VBID-like approach for years. They make it easy to get basic services but more difficult to get an often-overused procedure. Another solution is to choose a less comprehensive supplemental plan, either employer or Medigap. One good Medigap option is Plan L, which has the added benefit of a low out-of-pocket limit for covered services.

The long-term answer to the overuse of certain procedures that fee-for-service encourages is to reform Medicare’s nearly 50-year-old benefit design. Weight-loss surgery costs between $25,000 and $30,000 yet has been largely ineffective in reducing the costs or improving the health of the patients who undergo it.

Is the value of weight-loss surgery really 100 times greater than the value of a physical exam? Maybe for a select few it is, and the challenge of VBID’s sponsors is to identify those people, based on research and peer-reviewed clinical studies, who will benefit. Others should pay a larger percentage of the operation’s cost.

In many cases the data isn’t yet available to support that kind of re-design, although in 2009 Congress authorized $1.1 billion for the comparative effectiveness research needed to make those determinations. The Affordable Care Act then added more funding while levying fees to help pay for this research in the coming years. ◊◊

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