Employers who wish to improve the value-proposition of health care for both their employees and themselves must address both the supply and the demand variables in the equation. In the final part of this series on the Healthcare Value Problem, we’ll discuss two strategies that purchasers can use to buy more health, not more healthcare: Value-Based Purchasing and Value-Based Insurance Design are essential.
A family of four paid an average of $25,826 a year for healthcare in 2016 – a three-fold increase over 2001 when it was $8,414. In Part 1 of this three-part series, I argued that we must do more than simply inventory the seemingly countless number of issues that contribute to the problem: we must carefully distinguish between results and causes.
In Part Two, we identified two primary root causes to America’s Healthcare Value Problem, each of which exacerbates the other:
- Surrogate purchasing (e.g., paying for premiums through a third party rather than directly purchasing health care based on overall value).
- Undifferentiated benefit designs (e.g., providing the same benefit for low-value care as for high-value care).
So what can we do this information?
We must replace the surrogate purchasing model by proactively purchasing health care.
First, to be clear, insurers and third party administrators play an important role in health care. They perform vital functions that employers do not and should not be expected to perform. But relying on third parties to purchase care without employer involvement causes four major problems:
- It creates a buyer-seller disconnect. It places the value-proposition for the third party (the surrogate) above the value-proposition for the employer and user.
- It ignores quality. Historically, both health plans have emphasized discounting price and largely ignored quality – despite the fact that quality is the underlying problem.
- It promotes the wrong strategies. A prime example: high-deductible health plans. Once in such plans, research has shown that consumers postpone or avoid high-value care as much as they do lower value care. Ultimately, chronic diseases end up costing significantly more.
- It distorts market incentives. The emphasis on discounts and narrow networks simply creates incentives for providers to consolidate into bigger and bigger systems – not to realize economies of scale, but to better negotiate contracts.
Value-Based Insurance Design
Employer benefits must be designed to encourage the use of high-value services and discourage the use of lower value services.
The National Business Coalition on Health (NBCH) “Value-Based Purchasing Guide” defines value-based purchasing as “a demand-side strategy to measure, report, and reward excellence in health care delivery, taking into consideration access, price, quality, efficiency, and alignment of incentives.”
This means employers reward high performing health care providers through transparency and employee reporting.
We know that some services – particularly preventative care and primary care – offer high value. And we know that other services – such as those on “Choosing Wisely” either offer limited or no value. Undifferentiated benefit design translates in employees under-utilizing and under-valuing the most beneficial health care services while demanding services that either doesn’t help or may actually harm them.
The University of Michigan established value-based insurance design “on the principle of lowering or removing financial barriers to essential, high-value clinical services. Through the process, health plans are designed to align patients’ out-of-pocket costs, such as copayments, with the value of services.”
All sorts of health plans have benefitted – clinically and financially – from implementing value-based insurance design, including:
- Public Employee Health Plans
- High Deductible Health Plans
- Medicaid Programs
“The theory is that only the surrogates have enough knowledge to control excess care, enough market power to discipline rising prices, and enough vested interest in our health to drive greater safety and quality. But the past 50 years suggests the theory is wrong: the surrogates them-selves create many of the incentives for bad behavior in health care.”
David Goldhill, Catastrophic Care: Why Everything We Think We Know About Health Care is Wrong
Executive Director, Colorado Business Group on Health