How value-based insurance design drives cost savings and better care

What payers and providers need to know about this transformative approach to health care coordination and delivery

In brief

• Value-based insurance design (VBID) is an approach to health plan benefit design that helps to reduce or eliminate barriers to essential, high-quality care.
• VBID models leverage impactful services, such as transportation vouchers, to help drive patient access, improved outcomes and significant cost savings.
• Payers that seek to explore the benefits of creating a VBID health plan should begin by performing a strategic assessment of current operations. 

Value in health care is top of mind for industry leaders, patients, caregivers and providers, especially amid rising costs and inflation, ongoing health disparities among underserved populations, evolving regulatory expectations and other challenges. While most understand the social and economic need to reduce financial barriers and access gaps to high-quality health care, few recognize the enormous opportunity in leveraging value-based insurance design (VBID) to address these long-standing issues. From better management of chronic conditions, to improved profitability, shared accountability and more, VBID initiatives have the power to transform care delivery and outcomes.

Value-based insurance design

VBID is founded on the principle of lowering or removing financial and social barriers to essential high-value health care services. VBID plans aim to increase patient utilization of these high-value services through plan designs that reduce financial barriers to care and provide other incentives. Examples of impactful services include free or reduced cost sharing for specific preventive health services and pharmaceuticals, as well as access to other incentives, such as transportation vouchers, that can help improve health outcomes and reduce disparities.

These incentives enable more high-value, preventive care for patients who face significant health challenges around chronic conditions such as heart disease and diabetes, which have a disproportionate impact on underserved populations and cost the US economy untold billions each year. Providing true “last-mile” benefits to these consumers by reducing or eliminating first-dollar, out-of-pocket costs for high-value services empowers them to be more proactive about their health through earlier engagement and more robust participation — both essential for chronic disease prevention and management.

Many health plans are already leveraging VBID principles as part of their benefit designs for members. To continue to grow product offerings for members and amplify their presence in the market, health plans will need to determine whether VBID models align with the organizational strategy and competitive landscape for targeted patient populations (e.g., those with diabetes, asthma, heart conditions) and transition to a VBID-based product accordingly. Plans that already have VBID will need to continue to assess and evolve their VBID programs based on lessons learned from initial plan designs (e.g., benefit structures, pricing) to achieve both optimal patient outcomes and improved profitability.

VBID and social inequities

Studies have shown that social inequities around housing, education, food and many other areas have a significant impact on the pervasive health and health care disparities seen in the US.¹ According to one estimate from 2018, these disparities cost the US economy more than $100 billion each year in the form of excess medical costs, lost productivity and premature deaths.² However, in light of more recent drivers, including the global pandemic and soaring inflation, the financial toll around these disparities has likely risen significantly since 2018. Some forward-thinking health plans with a focus on health equity have already made changes across their commercial, Medicare and Medicaid lines of business to broaden access to care (e.g., through reduced out-of-pocket patient costs). Many of these plans also incentivize improved outcomes (e.g., reduced hospitalization rate) for underserved beneficiaries and those with social risk factors.

The Centers for Medicare & Medicaid Services (CMS) has started to propose rules that will impact health equity and value-based care for payers across data collection and reporting, star ratings and compliance.³ CMS has also launched the VBID Health Equity Incubation Program to increase Medicare Advantage Organization (MAO) adoption of VBID model components and scale leading practices around health equity, thereby improving member satisfaction and star ratings.⁴ Additionally, the National Committee for Quality Assurance has established a health equity accreditation, with at least 10 state agencies requiring its adoption as of 2022. While these measures are a positive step toward advancing health equity for underserved patients who are insured, the Department of Health & Human Services estimated that over 25 million people in the US remained uninsured as of the first quarter of 2022.⁵ To address this gap and drive better outcomes and cost savings across the health ecosystem, payers should consider exploring solutions that provide better plan affordability and patient access for these uninsured groups, whether through Medicaid or other means.

Benefits of VBID for stakeholders across the health care ecosystem

Leveraging VBID principles can help drive overall industry transformation by enabling a meaningful pivot toward value in health care, which has been an elusive proposition over the last decade. And while the impact of VBID on patients is top of mind, payers and providers also derive remarkable benefits from this value-based approach (see Figures 1 and 2).

For patients, access to more high-value care means better engagement and experience, improved health literacy, greater involvement in care coordination and planning, and a more long-term approach that enables positive health outcomes. This enhanced patient participation also rewards payers through new enrollment and improved retention, with reduced barriers and access gaps yielding long-term cost savings.

By designing programs that manage care more effectively and directing members to high-quality providers, payer organizations can attain savings and reduce the incidence of preventable or complex medical events, leading to a positive impact on health plans’ star ratings. A rising number of commercial self-insured health plans are incorporating VBID principles and providing financial incentives to their employees to improve health outcomes and attain long-term savings. For example, one large, multinational health care and insurance company created a diabetes health plan that eliminated payments for diabetes-related supplies and drugs for employees with the condition who participated in routine disease maintenance exams. After just a year, this approach resulted in estimated savings of $2.9 million.⁶

For the Medicare population, CMS launched the Medicare Advantage (MA) VBID Model in 2017 and has continued to evolve it to test a broad array of MA service delivery and/or payment approaches to lower costs, enhance the quality of care, and improve the coordination and efficiency of care delivery. CMS reported that for plan year 2023, the MA VBID Model has 52 participating MAOs with a total of 9.3 million projected enrollees. Over 6.0 million of these enrollees are projected to receive additional model benefits and/or rewards and incentives as part of the model test in 2023.⁷

For providers, VBID models enable both better coordination with payers and shared accountability with patients around managing chronic conditions. Since VBID plans are designed to align incentives across payers, patients and providers, providers may well achieve their quality metrics more effectively by directing patients to high-value care. For example, a VBID plan that offers reduced cost sharing for diabetic patients who enroll in a diabetes prevention program would benefit from leveraging a quality metric designed for physicians around helping patients achieve a blood glucose level within acceptable ranges.

A strategic approach to VBID development and implementation

From the outset, health plans that seek to drive more value through VBID transformation should begin with an outside-in and inside-out assessment of current operations (see Figure 3). After evaluating their findings to determine a path forward, some organizations may conclude that the value proposition around VBID is not yet clear. In this case, leadership should consider revisiting the assessment questions in 6 to 12 months.

For payer organizations that determine they are ready to commence the VBID lifecycle after performing this assessment, developing a strategic roadmap that contemplates execution and governance for the two-year period from planning through member readiness and eventual transition to a VBID model will be key (see Figure 4). Some challenges that may compel leadership to delay implementing VBID include navigating competing organizational priorities, gaining buy-in from members and providers around VBID, facilitating up-front investments and staying the course until the company is able to realize savings and achieve profit. As such, it is important for payers to continue evaluating the model frequently and make iterative changes as needed. In addition, appropriate and comprehensive reporting around VBID benefit realization is needed to fully monitor the impact of VBID and understand the various impacts on company metrics.