Reducing_Discrimination

Running Head: VALUE-BASED INSURANCE DESIGN Review of Evidence that Value-based Insurance Can Be Effectt Review of Evidence that Value-based Insurance Can Be Effective CITATION Chernew, M. E., Juster, I. A., Shah, M., Wegh, A., Rosenberg, S., Rosen, A. B., Sokol, M. C., Yu-Isenberg, K., & Fendrick A. M. (2010). Evidence that Value-based Insurance Can Be Effective.  Health Affairs, Web Exclusive. January 2010. Retrieved November 18, 2010, from http://www.sph.umich.edu/vbidcenter/publications/index.html. MAJOR THESIS More and more organizations struggling to compete in this economic uncertainty, rising costs, and market volatility find themselves having to rethink their employee compensation and benefit strategies. In many cases, those efforts have led to layoffs, lower starting pay levels, pay cuts, reduction in benefits, or even increases in cost sharing of health benefits—that is, employees are now being required to assume a greater responsibility for their healthcare costs. In fact, according to Bohlander & Snell (2010), employee contribution for medical coverage was up by more than 70 percent from 2000 to 20006 (p. 499). Nevertheless, organizations understand the value of healthcare is not exclusively financial, so employers continue to search for alternative solutions to affordable healthcare for their employees (Chernew, et al., 2010). One such alternative touted for its potential cost-saving results is Value-Based Insurance Design (VBID). This article examines the financial implications of a value-based insurance design program. The authors begin by explaining the concept of VBID and its growing popularity among employers, the media, and policymakers—as evidenced by its inclusion in the recent federal health reform legislation—for balancing costs and improving the overall the quality of healthcare. Further adding, the momentum for implementing such programs may also stem from the awareness that the different financial incentives in health benefit packages may actually be working against each other, ultimately having an unfavorable effect on healthcare costs and health outcome (Chernew, et al., 2010). For instance, in cases where employers have adopted programs such as disease management or pay-for-performance, aimed at increasing the use of higher-value services, may actually not be working as planned because rising co-pays are discouraging patients from using their recommended services. Consequently, VBID programs are designed to reduce patients’ out-of-pocket expenses (e.g., co-pays and premiums) by encouraging the use of higher-value services that greatly improve health outcomes (reducing costs in the long-run) versus increasing co-pays to lower-value treatments that may be less effective and result in worse outcomes (increasing costs in the long-run). However, the authors reiterate, even though reports in the press are very supportive and Pitney Bowes and others have reported favorable results from VBID, claims of “total medical spending reductions following decreases in patient co-pays are generally based on evaluations that lack rigorous design” (Chernew, et al., 2010). For this reason, the authors set out to conduct their own study to examine the financial consequences of a value-based insurance design program on a large company. According to the authors, the analysis suggested “that it is likely that the value-based insurance program evaluated broke even in the broadest sense” (Chernew, et al., 2010). But, the authors were clear to say that such findings do not apply to all VBID initiatives because programs can vary greatly. In fact, they argue that cost savings will vary depending on the details of the program, in particular, how changes in co-pays are clinically targeted. More specifically, the authors point out cost savings will depend on various factors, such as “(a) the underlying clinical risks in the population treated, (b) the effectiveness of the program at increasing the use of thigh-value care services, (c) the ability of those high-value services to mitigate the risks, and (d) the cost of the health care services averted” (Chernew, et al., 2010). Adding that “depending on the relative magnitude of these factors, 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” (Chernew, et al., 2010). The authors further support their case by noting it is important to understand the difference between cost-saving and cost-effective. Adding that to promote the use of services that are cost-effective will not generate cost-savings. They also explain that cost savings is when you spend money on health services, total health care spending will go down because other services will not be needed; however, cost-effective is when you get a lot of health in return but spending will still go up. Which is why they say that the “financial profile of a program will depend crucially on how it is targeted” (Chernew, et al., 2010). Keeping in mind that when assessing the financial value of VBID, it does not only involve accounting for medical offsets, but also taking into account the potential cost-savings derived from the improved health, such as fewer disability days, less absenteeism, greater productivity, and etc. Lastly, the authors acknowledge controlling healthcare costs is central to any cost saving strategy, and naturally employers would be tempted to increase co-payments across-the-board as a way to lower their costs. However, this may actually lead to negative health consequences. As an alternative, through VBID’s targeted co-payment changes could mitigate those adverse effects at a low cost to employers and employees, and thus be an essential component of a broader cost containment approach (Chernew, et al., 2010). UTILITY The article was very informative and could be most beneficial to those new to the topic. The authors do a great job of familiarizing the reader with the concept of VBID as well as explain its growing interest by many in the business, healthcare, and political arenas. VBID is a fairly new concept developed at the University of Michigan designed to balance the cost and quality of healthcare. And, so far has been recognized by many organizations, private and public, for its innovative approach to cost containment, while yet providing better health outcomes (Chernew, et al., 2010). Also interesting to learn was that VBID was incorporated into the federal health reform law passed earlier this year. Although the primary target audiences are businesses and policymakers, the article could be of interest to HR, senior management, business owners, and employees. The information could also be very helpful to my previous employer. For example, like so many other organizations, our company was impacted by the collapse of the housing market, so cutting expenses was to be expected considering the economic circumstance. As such, our company quickly realigned its expenses and began to take the necessary measures in order to survive. In addition to the typical layoff and pay cuts, some of the measures included increasing co-pays, raising deductibles, as well as increasing the employee’s share of health premiums. Imagine what this did to the company morale, let alone the ability to attract and retain employees. If the VBID approach had been used by the company rather than an across-the-board cost cutting approach, then the company could have potentially realized a more significant cost savings in its healthcare benefits plan without having to solely relying on passing on costs to its employees and scarifying employee happiness. After all, “happy employees make productive employees” (Anonymous). CONCLUSION It’s hard to miss the fact that increasing healthcare costs are a major concern for everyone. An alternative solution such as VBID programs may be an approach that could very well contribute to the long-term success of organizations and consumers for balancing cost and quality healthcare. I think this article provides great insight for businesses looking to find affordable solutions in designing healthcare benefits packages for their employees. References Anonymous. Happy employees make productive employees. Bohlander, G., & Snell, S. (2010). Managing human resources. Mason, OH: South-Western. Chernew, M. E., Juster, I. A., Shah, M., Wegh, A., Rosenberg, S., Rosen, A. B., Sokol, M. C., Yu-Isenberg, K., & Fendrick A. M. (2010). Evidence that Value-based Insurance Can Be Effective.  Health Affairs, Web Exclusive. January 2010. Retrieved November 18, 2010, from http://www.sph.umich.edu/vbidcenter/publications/index.html.