Value-Based Insurance Design

Value-Based Insurance Design (a.k.a. V-BID, VBID, Evidence-Based Benefit Design, or Value-Based Benefit Design) is a demand-side approach to health policy reform. V-BID generally refers to health insurers’ efforts to structure enrollee cost-sharing and other health plan design elements to encourage enrollees to consume high-value clinical services – those that have the greatest potential to positively impact enrollee health. V-BID also discourages the use of low-value clinical services – when benefits do not justify the cost. V-BID aims to increase health care quality and decrease costs by using financial incentives to promote cost efficient health care services and consumer choices. V-BID health insurance plans are designed with the tenets of "clinical nuance" in mind. These tenets recognize that medical services differ in the amount of health produced, and the clinical benefit derived from a specific service depends on the consumer using it, as well as when and where the service is provided.

The basic V-BID premise is to align patients’ out-of-pocket costs, such as copayments and premiums, with the value of health services. By reducing barriers to high-value treatments (through lower costs to patients) and discouraging low-value treatments (through higher costs to patients), V-BID plans may achieve improved health outcomes at any level of health care expenditure. Studies have shown that when barriers are reduced, significant increases in patient compliance with recommended treatments and potential cost savings result.

The concept of Value-Based Benefit Design (VBBD) arose in the 1990s. In 1993, Dr. Jack Mahoney and David Hom of Pitney Bowes pushed to move health forward in their workforce by removing barriers to access in mental health services and establishing on-site services and educational programs. The company began reducing drug copays as a means to reducing the cost barrier that is often found with medications to treat chronic conditions. In 1996, Asheville, North Carolina, began a community-based medication management program for self-insured employers to address diabetes in their workforce. The initiative elevated the role of the pharmacists and reimbursed them for the time they spent educating and counseling diabetic patients. This service required no out-of-pocket cost from the health care consumer and resulted in better health outcomes as well as direct and indirect cost savings.

In the late 1990s, researchers, physicians, and economists at the University of Michigan (U-M) began studying a concept similar to VBBD, something termed "benefit-based copay". In 2001, the team at U-M published on the concept of benefit-based copays in The American Journal of Managed Care. The benefit-based copayment model aligned a patient's payment for a drug with how much benefit he or she derived from the medication – specifically, it placed consumers with established medical need on the lowest formulary tier. In 2004, the U-M benefit-based copay model was highlighted in an article in The Wall Street Journal.

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