Value Based Insurance DesignValue Based Insurance Design

Michael ChernewMichael Chernew

Feb 22, 2008Feb 22, 2008

Portions of this research were funded by Pfizer and GSK.

Two ConcernsTwo Concerns

High (and rising)

Costs

Poor Quality

Premiums rose 87% since 2000*

Response:

• Raise Copays

• Up 70% 2000 to 2005

About 50% of time appropriate care is not delivered**

Response:

• Disease Management

• P4P*Kaiser Family Foundation/HRET: www.kff.org/insurance/ehbs092606nr.cfm

**McGlynn et al The quality of health care delivered to adults in the United States. N Engl J Med 2003;348(26):2635-45

*** www.kaiserfamilyfoundation.org/insurance/7315/sections/upload/ehbs2005slides.pdf

Cost sharing reduces useCost sharing reduces use

Ellis JJ. J Gen Intern Med 2004;19:639-646.

$0 to <$10

$10 to <%20

>%20

Consumers do not respond to cost Consumers do not respond to cost sharing as economists would likesharing as economists would like

Reductions in appropriate use same as Reductions in appropriate use same as for inappropriate use (Sui et al. 1986)for inappropriate use (Sui et al. 1986)– Lack of coverage is associated with worse Lack of coverage is associated with worse

outcomesoutcomes• Effects concentrated on poor and chronically illEffects concentrated on poor and chronically ill

– Copays reduce use of preventive servicesCopays reduce use of preventive services– Copays reduce use of ‘valuable’ Copays reduce use of ‘valuable’

pharmaceuticalspharmaceuticals

Value Based Insurance DesignValue Based Insurance Design

Reduce (or keep low) copays for high Reduce (or keep low) copays for high value servicesvalue services

– For high value patientsFor high value patients

Sources:

Fendrick, et. al Fendrick, et. al American Journal of Managed Care,American Journal of Managed Care, 2001 2001

Chernew. et al. Chernew. et al. Health AffairsHealth Affairs. 2007. 2007

Chernew. et al. Chernew. et al. Health AffairsHealth Affairs. 2008 . 2008

Copays Within and Outside of Disease Management

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0 <5 5 or 7 10 >10

copay amount (preferred branded)

per

cent of en

rolle

es

Not DM

DM

Source: Chernew, M.E., Rosen, A.B., Fendrick, A.M. “Rising out-of-pocket Costs in Disease Management Programs”. American Journal of Managed Care. 2006. 12: 150-155.

VBID MeritsVBID Merits

Increase benefit per dollar spent in the Increase benefit per dollar spent in the health care sectorhealth care sector

Use insurance design to make Use insurance design to make consumers behave as if they were consumers behave as if they were better informed better informed

Allows more efficient subsidization of Allows more efficient subsidization of low income patients low income patients – Not all care is subsidized, only valued careNot all care is subsidized, only valued care

Types of VBIDTypes of VBID

TargetingTargeting– By serviceBy service

Pitney BowesPitney Bowes

– Targeted service AND patient groupTargeted service AND patient groupUniversity of MichiganUniversity of Michigan

ScopeScope– Lower copays onlyLower copays only– Lower high value, raise low valueLower high value, raise low value

Financial Costs of VBIDFinancial Costs of VBID

Greater use of high value servicesGreater use of high value services

Greater employer share of spending for Greater employer share of spending for high value serviceshigh value services– Including the services that would have been Including the services that would have been

used anywayused anyway

Administrative costsAdministrative costs– Depends on designDepends on design

Financing VBIDFinancing VBIDTarget betterTarget better– high risk patientshigh risk patients– highly effective services with low baseline usehighly effective services with low baseline use– price responsive servicesprice responsive services

OffsetsOffsets– Lower costs due to fewer adverse eventsLower costs due to fewer adverse events– Productivity gainsProductivity gains

Increase costs for other servicesIncrease costs for other services– Low valueLow value– All othersAll others

Pass costs to employees in other waysPass costs to employees in other ways

Saving money is not main objectiveSaving money is not main objective

How do we finance health?How do we finance health?

How do we enhance value?How do we enhance value?

Results from literatureResults from literature

Pitney BowesPitney Bowes– 6% decrease in overall diabetes costs6% decrease in overall diabetes costs– Savings exceeded $1 million Savings exceeded $1 million

AshevilleAsheville– Reduced annual, per participant, total cost for Reduced annual, per participant, total cost for

diabetes by $1,200 to $1,872diabetes by $1,200 to $1,872

Retired public employees in CARetired public employees in CA– 20% offset overall20% offset overall– 50% in highest spenders50% in highest spenders

Source: Mahoney AJMC 2005; Cranor et al 2003; Gruber and Chandra, 2007

Evaluating a VBID ProgramEvaluating a VBID Program

InterventionIntervention

A large employer lowered copays for selected A large employer lowered copays for selected medications in January 2005:medications in January 2005:– Ace/ARBsAce/ARBs– Beta BlockersBeta Blockers– Glucose controlGlucose control– StatinsStatins– SteroidsSteroids

Copay reductions:Copay reductions:– Generic: $ 5.00 Generic: $ 5.00 $0 $0– Preferred Brand: $25.00 Preferred Brand: $25.00 $12.50 $12.50– Non-Preferred Brand: $45.00 Non-Preferred Brand: $45.00 $22.50 $22.50

ImplementationImplementation

Implemented by an integrated care Implemented by an integrated care management firm Activehealth management firm Activehealth Management (AHM)Management (AHM)– Identify consumers that would benefit but Identify consumers that would benefit but

were not using meds and inform themwere not using meds and inform them– Exclude individuals with contra-indicationsExclude individuals with contra-indications

AdherenceAdherence

Effects size for MPR analysis

Effect size(% points) Base MPR % increase* Take-up %**

Ace/Arb 2.59 68.37 3.79% 8.2%

Beta Blockers 3.02 68.30 4.43% 9.5%

Diabetes 4.02 69.46 5.79% 13.2%

statins 3.39 52.99 6.28% 7.1%

steroids 1.86 31.56 5.88% 2.7%

ExpendituresExpenditures

Perspective is keyPerspective is key

SocietalSocietal– Treat greater employer share for inframarginal Treat greater employer share for inframarginal

prescriptions as a transfer (zero cost)prescriptions as a transfer (zero cost)– Appropriate for cost effectiveness analysisAppropriate for cost effectiveness analysis– Distributional issues dealt with separatelyDistributional issues dealt with separately

FirmFirm– Treat greater employer share for inframarginal Treat greater employer share for inframarginal

prescriptions as a costprescriptions as a cost

Financial impactFinancial impact

How much must compliance reduce non-How much must compliance reduce non-RX costs to completely offset extra RX RX costs to completely offset extra RX spendingspending– Aggregate perspective: 17%Aggregate perspective: 17%– Employer perspective: 48%Employer perspective: 48%

Could break even with less effectiveness Could break even with less effectiveness if:if:– Add in productivity gainsAdd in productivity gains– Add in disability savingsAdd in disability savings– Target more effectivelyTarget more effectively

VBID SummaryVBID Summary

Higher copays lead to lower spending (even with Higher copays lead to lower spending (even with offsets)offsets)– Because of this copays will riseBecause of this copays will rise

VBID allows firms to mitigate deleterious VBID allows firms to mitigate deleterious consequencesconsequences– Allow firms to hit a cost target in a more efficient Allow firms to hit a cost target in a more efficient

mannermanner– Part of any strategy to improve quality or decrease Part of any strategy to improve quality or decrease

costscosts

Targeted copay reductions will generate offsetsTargeted copay reductions will generate offsets– May offset some or all of increased drug useMay offset some or all of increased drug use

VBID cannot be perfect, but imperfect may be VBID cannot be perfect, but imperfect may be better than non-existentbetter than non-existent

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