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Value-Based Insurance Plan Design

By February 4, 2010Commentary

One of the recent trends in private health care coverage benefit design has been to examine use of copayments and other cost-sharing mechanisms to determine if they may deter receipt of high-value health services, that is those services that promote good health and likely lead to lower costs in the long run.  An article in Health Affairs describes the results of one such effort. (Health Affairs Article) Interest in this value-based insurance design arose partly as a reaction to the greatly increased cost-sharing to which most privately insured persons have been subjected over the past decade, a cost-sharing which is driven by the overall rapid increase in health costs.

The Health Affairs article discusses a number of background issues regarding value-based design, including how to identify if the program is cost effective or cost saving, from the employer, employee or combined perspective.  From an employer perspective, the benefits may extend beyond health cost reductions to greater productivity.  The particular program looked at in this article was one in which a large employer reduced copayments for five classes of drugs used to treat serious chronic conditions.  For generics in these classes, there were no copayments and for preferred and non-preferred brand drugs the copays were cut in half.  Following the reduction, adherence to drug therapy regimens increased.   An analysis of the economic effects concluded that there were cost savings to the employee and probably to the employer as well.

A related article was published recently in the New England Journal of Medicine.  (NEJM Article) In this study researchers compared rates of hospitalizations among Medicare beneficiaries between a population for which ambulatory copayments were raised and one in which they were not.  Prior research has shown that in general people will use fewer health services if they have to pay more for them.  This may or may not be a problem depending on whether it causes poorer health outcomes.  People with lower incomes, which the elderly often are, may be more sensitive to increases in what they have to pay.  The beneficiaries in this study were enrolled in Medicare managed care plans and those in the control group had their office visit copays raised at some point, while those in the control group were in plans which did not raise copays.  Office visits do not grow as rapidly in the study population as in the control group, but hospitalizations, measured by admissions and number of days, grew faster.

Overall, the study indicates that for every 100 beneficiaries who had increased cost-sharing, there would be 20 fewer outpatient visits, but two more hospitalizations with 13 additional inpatient days.  These effects appear to be greater for low-income beneficiaries, some minorities and those with chronic disease.  Taken together, these two studies provide further evidence that caution should be used in implementing patient cost-sharing mechanisms.  While they may appear to reduce health care costs, if they deter needed health services, costs may go up in the longer run and patients health status likely declines.

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