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CCH® BENEFITS — 02/04/10

Value-Based Health Insurance Design Will Balance Costs For Drugs And Other Medical Services

from Spencer’s Benefits Reports: A value-based health insurance design program that promotes proven effective drugs for chronic medical conditions will, at the very least, keep costs balanced through reduced use of medical services, according to the results of a study published in the February 2010 Health Affairs. The study, Evidence that Value-Based Insurance can be Effective, was prepared by nine researchers, including Michael E. Chernew, professor of health care policy at Harvard Medical School; and A. Mark Fendrick, a physician and professor in the University of Michigan’s Division of General Medicine, along with contributors from ActiveHealth Management, drugmaker Merck and Company, and Ortho-McNeil Janssen Scientific Affairs.

The authors have long advocated value-based insurance design, which entails setting patient cost sharing for certain treatments (mainly drugs for chronic medical conditions) based on value, not price, so that highly valued services would require the lowest copayment, while a middle copayment would be used for effective but expensive services, and the highest copayment would be used for services of unproven or marginal benefit. Pitney Bowes has pioneered value-based benefit design for its employees and their families since 2002.

The main premise of value-based insurance design is that health care costs will be lowered when, as financial barriers are lowered or removed, patients take proven clinically-effective medications to control their chronic medical conditions, thus avoiding expensive medical services associated with treatment noncompliance. Although the higher spending for drugs might offset any savings from avoided nondrug medical services, cost savings might result from improved employee productivity.

The authors recognize that “the fiscal consequences of the value-based insurance concept will depend on the details of the program, particularly the extent to which copayment changes are clinically targeted.” The study results are based on an examination of one value-based program of one large employer, and in that program the employer reduced copayments for highly valued medications to treat high blood pressure (ACE inhibitors and beta blockers); high cholesterol (statins); diabetes; and asthma. As a result of this program, medication nonadherence dropped by 10% for four of the five drug categories.

Savings derived from a value-based program will depend on several factors, including the following listed by the authors:

“(1) the underlying clinical risks in the population treated,

“(2) the effectiveness of the program at increasing the use of high-value health care services,

“(3) the ability of those high-value services to mitigate the risks, and

“(4) the cost of the health care services averted.”

These factors, along with the number of people who must be treated to avoid one adverse event, “may be too large for the value-based insurance program to fully offset its costs,” the authors added. “A more targeted intervention, focusing on high-risk patients, would likely have a more favorable financial profile because nearly the same number of averted clinical adverse events would be spread over the smaller higher-risk denominator.

“Employers face considerable pressure to control health care costs,” the authors concluded. “Across-the-board increases in copayments—a common and tempting way to lower employer costs—may lead to negative health consequences. Value-based insurance design, through its targeted copayment changes, could mitigate those adverse effects at a low (or even negative) cost to employers and employees and thus be an important component of a broader cost-containment strategy.”

For more information, visit http://www.healthaffairs.org.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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