Can Value-Based Designs Control Employee Health Care Costs?

A recent New York Times op/ed piece made the case, for using value-based designs as a tool to manage Medicare costs. The time could be coming for CFOs to make the same case for their own companies to use value-based designs to control health benefit costs.

Value-based designs structure out-of-pocket costs like co-pays and insurance premiums to favor higher value and more effective health care services. In some case, value-based designs eliminate out-of-pocket costs entirely for the most effective treatments. Value-based designs also work the other way by increasing patient out-of-pocket costs for treatments and services proven to be less effective or less valuable.

For example, Evraz Oregon Steel in Oregon has begun offering value-based insurance plans that provide free care for six chronic illnesses, including diabetes and depression, but require much higher than average out-of-pocket costs for treatments deemed overused or less effective than other available treatments, including knee replacements, hysterectomies and heart bypass surgery.

You don't have to be a large company to implement this value-based approach. The Center for Health Value Innovation's 2010 Value-Based Design Survey found that two small companies have been using value-based designs for at least four years—one with 80 employees and one with six employees. The study was released in February 2011 and had 176 respondents with plans affecting four million active and retired employees.

Many employers have been using value-based designs in their prescription drug programs by removing co-pays for drugs used to treat chronic conditions. The rationale is that, if the employer removes all co-pays for, say, diabetes drugs or statins to control high cholesterol, individuals will be more likely to fill those prescriptions, take the drugs and avoid the expensive complications that can result from these chronic conditions. Taking it a step further, employers could eliminate or reduce out-of-pocket costs for the specific drugs clinically proven to be most effective for treating specific diseases and conditions.

Although value-based designs often focus on encouraging the use of high-value health treatment and services, some companies extend value-based design to include encouraging healthy lifestyles and driving care toward proven high-performance health care providers that rely on evidence-based treatment guidelines. A survey of 368 midsize to large companies conducted by Towers Watson found that nearly half of the companies surveyed (49%) are planning to adopt this broader approach to value-based designs or are considering doing so between now and 2014.

Of course, the long-term viability of value-based designs will depend on their ability to produce health care cost savings. So far, the studies coming out look promising. For example, one study published in Health Affairs journal found diabetes patients participating in a value-based insurance design and a disease management program showed sustained improvement over time. More specifically, the use of diabetes medications in this group increased 6.5 percent over three years as did adherence to diabetes medical guidelines. Overall, the program saved $1.33 for every dollar invested.