The Good Stuff

December 11, 2019

Photo by Leslie Walker

Two friends—a doctor and an economist—have spent more than 20 years trying to redesign insurance around one simple but elusive goal: make the good stuff more accessible than the bad stuff. 

Listen to the full episode below, read the transcript or scroll down for more information.

The Basics: Out-of-Pocket Spending

Insured Americans are paying much more out of their own pockets for health care than they did even a decade ago. A key driver of that increased out-of-pocket spending is the growth of deductibles. A deductible is the amount of money an individual or family is required to pay out of pocket each year before insurance kicks in.

The Basics: High-Deductible Health Plans (HDHPs)

More and more Americans are enrolled in high-deductible health plans. As of 2020, the IRS defines an HDHP as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family, although many plans’ deductibles are even higher.

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people in the U.S. with an HDHP
$ 0
avg. deductible for individual with HDHP
$ 0
avg. deductible for family with HDHP

The Tradeoffs: Out-of-Pocket Spending and HDHPs

By sharing more costs with patients (sometimes known as skin in the game), insurers hope patients will make more cost-effective health care choices. The plans also tend to have lower premiums

…but research shows increased out-of-pocket costs make people less likely to stick with medication, and people with HDHPs are more likely to report delaying or forgoing care because of cost.

A Solution: V-BID

V-BID or value-based insurance design aims to more closely align the cost of medical services with their value. In other words, V-BID makes care that has a big impact on health (high-value care) cheaper than care that has little or no impact on health (low-value care).

The V-BID approach was pioneered by Mark Fendrick, MD (right) and Mike Chernew, PhD (left), who are profiled in our full episode. (Disclosure: University of Michigan’s V-BID Center has received funding from Arnold Ventures, which also supports Tradeoffs.)

How does it work?

Insurers or employers make services widely agreed to improve people’s health — things like insulin, inhalers, and blood pressure monitors — free or low cost.

Increasing access to high-value services can result in higher costs for insurers. One way to offset those increased costs is for insurers to simultaneously raise the cost of certain low-value services, such as vitamin D testing and high-cost imaging for basic lower back pain. Fendrick and Chernew have dubbed this approach V-BID X.

V-BID in Action

Multiple corporations have incorporated V-BID principles into their health plans. Facing rising health care costs for 160,000 employees in the early 2000s, Marriott International cut the cost of their brand name medications for diabetes, heart disease and several other chronic conditions in half and made the generics free. This led to a 7-14% jump in employees filling certain prescriptions. 

Several states and localities have also experimented with V-BID. Looking at a projected budget gap of $3.8 billion in fiscal year 2012, Connecticut incorporated V-BID into its health plan for state employees. The state reduced or eliminated copays for medication and doctors’ visits related to chronic conditions, and it required enrollees to get preventive screenings and annual check-ups. The state reports that under the new plan, primary care visits, preventive screenings and adherence to heart disease, blood pressure, cholesterol and diabetes medication have all increased, while emergency department visits and out-of-pocket spending decreased. 

ACA: V-BID principles inspired Section 2713 of the Affordable Care Act, which requires all health plans to cover around 100 high-value services — including screenings, preventative services and counseling — for free. This now applies to more than 137 million people. 

IRS: In July 2019, the IRS changed a rule that could make 14 high-value services more affordable for tens of millions more Americans with a popular kind of HDHP that is linked to a health savings account (HSA), also known as an HDHP/HSA.

The new rule categorizes 14 services for individuals with chronic diseases, including diabetes and asthma, as preventive care, which means insurers and employers can cover them before someone’s deductible has been met.  

Several employers have already adopted this voluntary rule change for 2020, and experts expect more to follow suit in 2021.

Other: Some aspects of V-BID have also been implemented in the U.S. military’s TRICARE and in some Medicare Advantage plans.

V-BID X, a new kind of V-BID plan that aims to completely offset the cost of increasing access to high-value services by not covering or raising out-of-pocket costs for low-value services, has not yet been adopted by any insurers or employers. However, Fendrick and Chernew expect to see some V-BID X plans on the insurance market by 2022.

The Tradeoffs: V-BID

Value is personal: A service, such as an eye exam or cancer screening, that’s high value for one person may be lower value for another, depending on their health and other factors. These clinical nuances can make V-BID plans hard to implement and optimize, especially compared to the very blunt design of traditional plans (e.g. $40 copays for all medicines for all members).

Improving access, increasing costs: Although increasing access to high-value care can improve health, those benefits do not always translate into cost savings. The cost of the increased use of high-value care can be greater than the savings produced by that care. Insurers and employers can offset those cost increases by simultaneously raising costs for certain low-value services. However, some may opt to simply increase premiums instead.

But what about the cost curve? V-BID is certainly responsible for lowering consumers’ out-of-pocket costs for many essential services. However, it is unlikely to have a significant effect on reducing our country’s total spending on health care, which just rose again.

Episode Credits

Original music composed by Ty Citerman; additional music by Andrew Bacon

This episode was reported and produced by Leslie Walker and Dan Gorenstein. It was mixed by Andrew Parrella. It was produced for the web by Ryan Levi.

Additional thanks to:
Katherine Baicker, Jody Becker, Graham Ball, Gray Milkowski, Hunter Mitchel, Kara Gavin, Heather Klusaritz, Amitabh Chandra, Jill Horwitz, the Tradeoffs Advisory Board…

…and our stellar staff!