Value-based insurance design (VBID) is a clinically nuanced approach to benefit design. The goal is to reduce or remove financial barriers facing consumers for procedures or medications where there is strong evidence that doing so will improve the quality of care and promoting better health outcomes (the “carrot”). Conversely, this benefit design approach could raise financial barriers for services or medications which appear to have no benefit (the “stick”).
Incentives are not new in the insurance world. Insurers have historically used differential cost-sharing to incentivize patient behavior, for example, by placing generic drugs in a lower cost-sharing tier or assigning a higher than average copay to emergency room visits that don’t result in a hospital admission.
What’s different about VBID is more clinically nuanced. It promotes the use of services when the clinical benefits exceed the cost and discourages the use of services when the benefits do not justify the cost. The classic VBID example is lowering—even eliminating—the cost of treatment-related medications for diabetes patients.
While VBID has the potential to improve health outcomes, it may not lower spending. If only “carrots” are used, the act of lowering copayments for certain services could increase utilization of those services - the intended goal - but whether overall spending is reduced will depend on a host of factors. The use of “sticks” is more likely to lower costs but also more controversial.
VBID approaches have many flavors and care must be taken to ensure consumers realize the intended benefits and not any unintended consequences. Specifically:
Ensure that VBID programs are based on rigorous evidence of improved outcomes
Ensure that the benefit is great enough to warrant the additional health plan complexity, typically making it difficult for consumers to navigate plan designs.
Monitor and avoid risk selection, if such designs are not uniformly offered in the market (plans offering these designs could be attractive to a less healthy population)
Ensure that these programs provide equal access to enrollees and do not have a discriminatory impact
While they sounds similar, VBID is different from Value-Based Purchasing. Value-based purchasing links provider payments to improved performance. It's a form of payment that seeks to hold healthcare providers accountable for both the cost and quality of care they provide.
More information can be found in Easy Explainer No. 5, Value-Based Insurance Design: Potential Strategy for Lower Costs, Increased Quality (July 2016)
For more on VBID consumer considerations, please see our VBID Resources Page