Published on : February 03, 2011

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New Avatar of Value Based Benefit Design

New Avatar of Value Based Benefit Design

Introduction:

Patient Protection and Affordable Care Act (PPACA) stresses on increasing the coverage, providing preventive care and value based insurance design, there-by curbing the health care costs in the long run. It has also brought number of regulations which restricts the insurance companies from denying coverage to individuals based on their pre-existing conditions. The insurance companies are now prohibited from charging co-payments or deductibles for preventive care along with complying with medical loss ratio of 85%. With all these changes, it will be challenging for insurers to retain existing members and to attract new members while remaining compliant with regulations.

PPACA thus puts intense pressure on payers to reduce costs and improve efficiency. At the same time it also provides a big opportunity for insurers to attract new members eligible for coverage. To leverage this opportunity, payers need to develop value based insurance plans supported by strong data analytics and also increase their focus on disease prevention strategies.

Value Based Benefit Design (VBBD) is emerging as an approach to promote services and behaviors proved to be effective in improving health of the members. The central focus of VBBD is increasing value for patients — the health outcomes achieved per dollar spent

VBBD is based on the concept of providing additional incentives to the members with chronic disease conditions to be compliant towards prevention and care management strategies. The strategies include preventive medications, regular checkups, diagnostics, disease and care management etc. Incentives can be in the form of providing financial benefits, in terms of lower co-pay, coinsurance, lowering tiers of certain branded drugs, starting prevention and wellness programs etc. Thus, for Members VBBD program aims to improve the overall health while for payers, it aims to reduce long term health care costs.

VBBD Programs – Today:

Today, a very limited number of employers and insurers have implemented VBBD programs for their members.

One of the existing VBBD program is designed to offer $20 discount on certain prescription drug co-payments for plan participants who refill their medications on a timely basis, while another is designed to offer lowered co-pays for asthma and diabetes medications. There is also a program which creates a personal health profile of the members and benefits are designed considering the suitability and effectiveness of the program for the particular member.

To be effective in the post-reform world, VBBD concepts need to be altered considering the other non-compliance reasons which include lack of awareness on the VBBD concepts, lack of motivation, perceived health behavior, among others.

VBBD Programs- Suggested implementation considerations:

Insurers will need to think of innovative strategies to reduce healthcare cost, maximize ROI and improve member retention. VBBD programs will also be appealing to employers who will need to focus on increased productivity encouraged by healthy lifestyle choices.

Cost Benefit Ratio

VBBD program is usually implemented by employers, with a large member base, having substantial number of members suffering from chronic diseases. The group with high non-compliance will be benefited the most from VBBD programs. The cost benefit analysis should be done in the planning phase for deciding the minimum participation number and the target compliance level, for justifying the ROI.

Redesigning the Benefits

Benefits should be designed considering the non-compliance factors. Carefully designed benefits are likely to provide rich dividends towards the success of VBBD program. Benefits can be in the form of financial incentives, educational seminars, counseling, prevention programs, disease and care management programs etc., Designing benefits should be dependent on factors such as economic cost, targeted increase in compliance, presence of prevention, disease and care management programs etc. For example, in case of economic constraints, the incentives requiring low investment but having maximum impact on compliance should be first implemented. Remaining benefits can be subsequently extended to members as the program evolves.

Tracking Program Effectiveness

It is also very important to track the effectiveness of program at predetermined intervals to ensure the success of the program. Necessary changes should be made to benefits from time to time depending upon the prevalent non-compliance factor. The non-compliance benchmarks set up for program should be reviewed periodically for continuous improvement.

The success of VBBD program will depend upon end to end analytics starting from VBBD conceptualization stage to tracking the success of VBBD program post-implementation.

Active Member Participation

The success of VBBD programs is heavily dependent on active participation of members. The members should be provided with all possible tools such as self-health monitors, dedicated customer service etc. encouraging them to take increased ownership towards their health.

Payer-Provider Collaboration

With increased focus in pay for performance, it is imperative for providers to participate in disease management and quality initiatives. Payer-provider collaboration will further enhance the success of VBBD programs.

The collaboration can be achieved with:

  • Insurers providing financial incentives to members for visiting recommended providers.
  • Insurers providing financial incentives to providers based on quality compliance.
  • Episode Treatment Group (ETG) /Bundle payment system for providers to promote quality care which will help providers comply with ACO (Accountable Care Organization) mandate.
  • Tiering: One approach to steering consumers and patients towards the use of high valued health care services and health providers is “tiering.” Broadly defined, tiering refers to the classification of healthcare providers (e.g., hospitals and physicians), pharmaceuticals, or treatments/therapies, based on objective or subjective criteria such as cost, quality and value. The members leveraging high value services from the tiered providers are incentivized by the insurance companies

Insurers adopting VBBD framework are likely to be insurer of choice post health care reform Such insurers will also be better placed to comply with the regulations and contain health care costs in the long run.

VBBD Implementation: Challenges

Though the concept of value based benefit design seems to be well accepted by the industry, there are certain operational challenges in its implementation:

Challenge Description Suggestions to address the challenge
Cost of implementation

VBBD program implementation requires upfront investment in setting up the IT framework, providing incentives to members while redesigning benefits, starting and maintaining prevention and wellness programs, administrative costs to run the program, provider incentive programs and clinical research.

 With accurately predicting the ROI using advanced analytics, necessary investment can be justified for implementing the VBBD program. Also implementation of the program can be done in a phased manner starting from simpler to complex there-by reducing the initial implementation cost.
Quantifying Dollars Saved ROI realized from the VBBD program is very difficult to measure quantitatively. . Advanced analytical capabilities can prove useful in quantifying the financial impact of VBBD program and can also provide exact ROI realized from the program.
Increased utilization of high value services VBBD provides incentives such as co-pay / coinsurance reductions to encourage members to use the high value services. This will result in increased utilization of high value services, ultimately increasing the healthcare cost. Value realized from various initiatives of the program can be evident only after few years of implementation. Long term savings achieved through reduction in high cost claims and member wellbeing will justify the investment made for VBBD programs.
Adverse selection and Continuity in VBBD programs: If an insurer offers VBBD to small groups, it is likely to attract more people having that disease thus increasing the overall risk of the group. This leads to adverse selection and challenges the basic principle of insurance. Also in order for insurers to realize benefits from VBBD program, it’s necessary that the group / individuals continue to be enrolled with them for long term. Pre PPACA, small groups and individuals were not the ideal candidates for VBBD programs. The risk of adverse selection is for real while implementing VBBD for small groups or individual market. With PPACA prohibiting insurers from denying coverage to members with pre-existing conditions, insurers need re-think of innovative ways to balance the risk of adverse selection. Even if insurers decide against implementing a full-fledged VBBD program for small groups / individuals, they can implement specific VBBD components to minimize the risk of covering individuals with pre-existing conditions.

One way to address these challenges is to implement the VBBD program on pilot basis.

  • Target a single chronic disease
  • Implement VBBD program for a small plan sponsor
  • Redesign few benefits to start with
  • Implement the program from simpler to complex

The learning can then be used for implementing it to a larger population. Apart from this, there also needs to be a trade-off between the cost and the return on investment. Higher the complexity of VBBD, higher the returns it is likely to provide in the long run. Hence, the success of VBBD also depends on long term goals of payers and their investment capabilities.

Conclusion:

With PPACA there is a renewed importance for VBBD programs, which provides a structured way to help healthcare stakeholders comply with the mandates as well as to contain healthcare costs in the long term. Considering the challenges while implementing VBBD programs, it must be well understood that the benefits realized over a long term will help justify the investments in this program. Payers / Employers will have to decide upon the strategy that suits best for them.

Use of analytical capabilities by payers, right from identifying the target population to tracking the program post implementation is one of the most important factors contributing to the success of these programs. VBBD program is also incomplete without active member participation as well as involvement of provider in terms of financial incentives, bundle payments, ETGs etc. Thus, benefit design strategies are likely to be most effective when they are paired with other policies, such as provider incentives, incentives to members based on visits to high value providers, payment and delivery system reform etc.

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[1]Health Care Benefits–Creating the Optimal Design by Sharon B. Arnold & J. Austin

References:

About The Author

Bhushan Deopujari is a Consultant with Healthcare Consulting Practice of Infosys Technologies Limited.

Bhushan has more than 6 years of Healthcare industry experience. He has primarily worked in Payer industry. He has extensive experience in Healthcare Data Warehousing, Claims, Rebates invoicing and Allocation (sub components of PBM). He is a certified AHIP.

Bhushan is currently working on conceptualizing and designing IT solutions for Payer industry

Dr. Vandana Rahadwa is a Senior Associate Consultantin Healthcare Consulting Practice of Infosys Technologies Limited.

Dr. Vandana comes with extensive experience over 7 years in healthcare sector.She has worked inProvider andPayer industries. She specializes in Hospital Planning, Designing, Operations Management, Healthcare Quality management, Disease Management and Healthcare IT solutions.Currently Dr. Vandana is focused on conceptualizing and designing IT solutions for addressing business challenges posed by healthcare reform.