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Value Based Insurance Design

Value Based Insurance Design. Michael Chernew Feb 22, 2008. Portions of this research were funded by Pfizer and GSK. Two Concerns. High (and rising) Costs. Poor Quality. Premiums rose 87% since 2000* Response: Raise Copays Up 70% 2000 to 2005.

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Value Based Insurance Design

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  1. Value Based Insurance Design Michael Chernew Feb 22, 2008 Portions of this research were funded by Pfizer and GSK.

  2. Two 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

  3. Cost sharing reduces use $0 to <$10 $10 to <%20 >%20 Ellis JJ. J Gen Intern Med 2004;19:639-646.

  4. Consumers do not respond to cost sharing as economists would like • Reductions in appropriate use same as for inappropriate use (Sui et al. 1986) • Lack of coverage is associated with worse outcomes • Effects concentrated on poor and chronically ill • Copays reduce use of preventive services • Copays reduce use of ‘valuable’ pharmaceuticals

  5. Value Based Insurance Design • Reduce (or keep low) copays for high value services • For high value patients • Sources: • Fendrick, et. al American Journal of Managed Care, 2001 • Chernew. et al. Health Affairs. 2007 • Chernew. et al. Health Affairs. 2008

  6. 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.

  7. VBID Merits • Increase benefit per dollar spent in the health care sector • Use insurance design to make consumers behave as if they were better informed • Allows more efficient subsidization of low income patients • Not all care is subsidized, only valued care

  8. Types of VBID • Targeting • By service • Pitney Bowes • Targeted service AND patient group • University of Michigan • Scope • Lower copays only • Lower high value, raise low value

  9. Financial Costs of VBID • Greater use of high value services • Greater employer share of spending for high value services • Including the services that would have been used anyway • Administrative costs • Depends on design

  10. Financing VBID • Target better • high risk patients • highly effective services with low baseline use • price responsive services • Offsets • Lower costs due to fewer adverse events • Productivity gains • Increase costs for other services • Low value • All others • Pass costs to employees in other ways

  11. Saving money is not main objective • How do we finance health? • How do we enhance value?

  12. Results from literature • Pitney Bowes • 6% decrease in overall diabetes costs • Savings exceeded $1 million • Asheville • Reduced annual, per participant, total cost for diabetes by $1,200 to $1,872 • Retired public employees in CA • 20% offset overall • 50% in highest spenders Source: Mahoney AJMC 2005; Cranor et al 2003; Gruber and Chandra, 2007

  13. Evaluating a VBID Program

  14. Intervention • A large employer lowered copays for selected medications in January 2005: • Ace/ARBs • Beta Blockers • Glucose control • Statins • Steroids • Copay reductions: • Generic: $ 5.00  $0 • Preferred Brand: $25.00  $12.50 • Non-Preferred Brand: $45.00  $22.50

  15. Implementation • Implemented by an integrated care management firm Activehealth Management (AHM) • Identify consumers that would benefit but were not using meds and inform them • Exclude individuals with contra-indications

  16. Adherence

  17. Effects size for MPR analysis

  18. Expenditures

  19. Perspective is key • Societal • Treat greater employer share for inframarginal prescriptions as a transfer (zero cost) • Appropriate for cost effectiveness analysis • Distributional issues dealt with separately • Firm • Treat greater employer share for inframarginal prescriptions as a cost

  20. Financial impact • How much must compliance reduce non-RX costs to completely offset extra RX spending • Aggregate perspective: 17% • Employer perspective: 48% • Could break even with less effectiveness if: • Add in productivity gains • Add in disability savings • Target more effectively

  21. VBID Summary • Higher copays lead to lower spending (even with offsets) • Because of this copays will rise • VBID allows firms to mitigate deleterious consequences • Allow firms to hit a cost target in a more efficient manner • Part of any strategy to improve quality or decrease costs • Targeted copay reductions will generate offsets • May offset some or all of increased drug use • VBID cannot be perfect, but imperfect may be better than non-existent

  22. END

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