‘Value’ in Health Insurance Acquires New Meaning

“Value” is gaining clout in the health care industry.

The Patient Protection and Affordable Care Act is set to test whether value-based insurance design can be a viable tool for aligning out-of-pocket costs and the value of medical services.

National reform will further encourage value-based insurance design in 2014, when it allows employers to reimburse employees up to 30% of health insurance costs if workers meet health and wellness goals. The current reimbursement rate is 20%.

“As we move away from a one-size-fits-all, cost-sharing model to VBID, we are removing barriers to accessing high-value care and at times, creating disincentives to deter care of little value,” said A. Mark Fendrick, director of the Center for Value-Based Insurance Design at the University of Michigan.

Value-based insurance adjusts out-of-pocket costs based on an assessment of the clinical benefit value — not simply the cost — to a specific patient population, according to Fendrick.

Simply put, value equals the clinical benefit achieved for the money spent.

The Pacific Business Group on Health, an employer purchasing coalition based in San Francisco, takes a broader approach to value-based insurance design. Moving beyond just copayment or coinsurance reductions, the model should include shared decisionmaking, network design, incentive design and disease management, said PBGH Director Emma Hoo.

PBGH’s commitment to those principles comes into play within the development of its Value Based Benefit Design and Right Price Projects, which help consumers make decisions based on more transparent pricing. By analyzing cost variation for certain procedures, PBGH recommends fixed-dollar coverage levels to providers and insurers.

VBID Makes Inroads

In California, Blue Shield of California and SeeChange Health are working on value-based plans with options that offer members a chance to put money back in their pockets by engaging in healthy behaviors.

Two other California-based entities — CalPERS and Safeway — have introduced “reference pricing,” which establishes a standard price for a medication, procedure or service and requires members to pay any charges beyond the price.

Suzanne Delbanco, executive director of Catalyst for Payment Reform — a San Francisco-based independent organization working to improve health care quality and reduce costs – said reference pricing offers an opportunity to engage consumers in decisionmaking, while reducing unwarranted prices — especially if members have access to information on provider volume, quality and outcomes. She anticipates an increased emphasis on quality in reference pricing.

To secure a foothold in the VBID marketplace, San Francisco-based SeeChange Health is launching a two-pronged approach.

Through an insurance arm, SeeChange began offering a value-based managed care plan last June to insured California groups with two to 200 employees.

A self-insured option followed in November, targeting mid- and large-sized groups nationwide through SeeChange Health Solutions, which provides only administrative services. Cigna serves as the national provider network for both products.

Janice Rahm, president of SeeChange Health, said, “As an ASO, we help employers customize medical and prescription benefits, to promote maximum control over costs and add design incentives to encourage healthy behavior by employees.”

Employees earn incentives by completing a health risk assessment, undergoing biometric testing and receiving an annual health screening. Typical incentives include up to a $400 deposit into a health incentive account and the elimination of in-network coinsurance.

When Steve Poizner launched Encore Career Institute – an online educational company based in Los Gatos – six months ago, he wanted to ensure that his 30 employees received affordable and high-quality health care as soon as possible. He chose SeeChange’s value-based plan.

“As premiums continue to grow, I sought an innovative set of benefits with incentives that could focus employees on chronic disease before the conditions became too serious. These diseases eat up a majority of health care costs,” Poizner said.

With a health savings account embedded into the plan, Poizner offered his employees a two-track program under SeeChange. If they achieve all three of the preventive health actions prescribed by SeeChange, their coinsurance is eliminated and they earn a deposit into their HSA. If they do not complete requirements, employees are enrolled in a standard PPO plan. Most have opted for the VBID component.

He said his employees can save as much as 20% over the regular PPO.

Blue Shield Develops Three-Tiered Plan

Blue Shield of California developed Blue Groove, a three-tiered, value-based program for large employer groups to be piloted in the Sacramento area beginning in 2012. Participants will use the services of Hill Physicians.

The three levels — basic, main and care+ groove — provide a range of health and wellness benefits, opportunities to earn incentives and lower out-of-pocket payments.

Participants who achieve healthy parameters can earn up to $500 in cash deposited into a health reimbursement account and/or receive a discount on premiums. They must comply with evidence-based protocols outlined in a customized care plan.

The three tiers are determined by a member’s level of engagement and health status, said Michael O’Neil, director of product innovation at Blue Shield, which is based in San Francisco.

For example, members with diabetes are candidates for care+ groove, which offers a primary care physician and care team, reduced out-of-pocket expenses for specific services and access to a narrow network of providers.

O’Neil anticipates Blue Groove will reduce the premium for employers by 10% to 15% in the first year and  significantly improve members’ health.

“Blue Groove represents the ‘next generation’ of VBID programs that incorporate incentives for beneficiaries to use high-value services (demand side) tied to supply side innovations, such as patient-centered medical homes,” Fendrick says.

Blue Groove builds on the infrastructure of the plan’s successful two-year, accountable care organization pilot with the California Public Employees’ Retirement System.

Reimbursement Tied to Value

CalPERS analyzed seven years of claims to develop its value-based insurance offering. In 2009, the organization evaluated claims for osteoarthritis and found a wide range in costs with little quality differentiation. “That definitely raised eyebrows,” said Ann Boynton, deputy executive officer for benefit programs policy and planning at CalPERS.

The result is a program for single joint, elective hip and knee replacements not due to a traumatic event.

CalPERS asked its PPO, Anthem Blue Cross, to research the average costs for hip and knee replacements among hospitals and develop a program that ensures sufficient coverage by those hospitals that meet a certain cost threshold. The program set a maximum of $30,000. In 2011, 46 medical institutions – including Stanford and UC-San Francisco — were included in the plan.

“If there is homogeneity among services in quality, such as routine blood tests and chest X-rays, there is a role for reference pricing in a value-based insurance model — unlike heart bypass surgery, for which costs and quality can vary greatly,” Fendrick said.

The program has paid off: During the first half of 2011, CalPERS incurred 246 claims with 70% falling below the $30,000 threshold and averaging $18,000; the 30% of claims above the threshold paid out an average of $34,000.

In addition, selection of the preferred centers rose by 6.8% and decreased by 26.5% for the higher cost centers compared with 2010.

Estimating about $16 million in savings for the hip and knee replacements during the first year, CalPERS embedded the 2011 savings into its new rates to reduce premiums.

“We have seen high-cost hospitals drop their costs and have encouraged employees to negotiate with their current providers to remain under the threshold,” Boynton said. “Our program also helps make the marketplace aware of variation and why it is occurring.”

In 2012, CalPERS will extend its reference pricing to colonoscopies, cataract surgery and arthroscopy conducted in outpatient hospitals and will assign maximum reimbursements to the facilities of $1,500, $2,000 and $6,000, respectively.

As one of CalPERS’ HMOs, Blue Shield plans to launch a similar VBID program for hip and knee replacements for CalPERS members this month.

Categories: Insight, Insurance