Value Based Insurance Design: Return on Investment

August 24, 2010 at 9:52 AM 2 comments


 Introduction

Fact:  Treating pre-diabetic patients costs $5,000 in total, while the average annual cost of diagnosed diabetes with complications, such as heart disease or kidney failure, can be as high as $30,000 per year.[1] 

Given the limited nature of healthcare resources, value-based insurance design (VBID) sets allocation priorities based on clinical evidence demonstrating which type of care delivers the greatest value .  That is, VBID programs motivate patients to use, and physicians to prescribe, the treatment alternatives that best enhances health status at the lowest possible net cost.  VBID programs discourage the use of services with marginal value to ensure the appropriate and cost-effective utilization of health care resources.  

One way to measure the effectiveness of VBID programs is return on investment (ROI), which demonstrates the improvement in health status as compared to the money spent in designing, developing and implementing a VBID initiative. 

 ROI Calculation for VBID

 Generally, there are two ways to go about calculating the ROI for VBID initiatives.   The first method considers the costs to the health plan related to reduced co-pays and other financial incentives plus any increased utilization of healthcare resources that may result from the incentives.  The ROI is then calculated by comparing those costs to the reduced medical costs resulting from increased treatment adherence by the newly engaged enrollees plus any increase in revenue due to new beneficiaries who join a plan due to the VBID program.[2] 

Alternatively, the more expansive ROI calculations include program costs, such as communication initiatives and disease management and other support programs, as well as productivity increases associated with reductions in absenteeism and presenteeism.[3] 

Both of the above calculations do not take into account the impact of healthcare treatment on the patient’s quality of life.  While quality of life is an important outcome of healthcare, objective measurement ranges from difficult to impossible.

 So far, several health plans have reported positive results from their VBID programs.  Here are some examples.

 (1)     Savings from Adjustment and or Waiver of Co-payment

 WellPoint tested a VBID model in the State of Maine, with 40,000 employees, targeting diabetes by either waiving or reducing copayments.  This pilot program covered four employers, including the  Preliminary results for the City of Maine pilot, the Telephonic Diabetes Education and Support program, showed an improvement in medication possession rate increasing from 77 percent to 86 percent post the implementation of the program.  One year follow-up study reported adjusted average cost for participating members being $1,300 less compared to the non-participants. 

 (2)     Long Term Savings from Increase Medication Adherence

 Health Alliance Medical Pans, Inc.’s VBID initiative made available to 86,000 fully insured members and dependents a fourth copayment tier called the Value Based Benefit tier addressing members with diabetes, hypertension and asthma.  The new benefit made specific drugs related to the three conditions available for a 10 percent copayment, a copayment less than its second tier $22 copayment.  Under the Value Based Benefit tier, the plan provider shifted lower value drugs to higher tiers by choosing not to cover over-the-counter non-sedating antihistamines that instantly saved the plan provider $2 million.  Although utilization and monthly prescription drug costs increased, medication adherence for diabetes and asthmatics increased 10.6 percent and 32.7 percent, which is likely to generate long-term medical savings. [4] 

 (3)     Savings from Comparatively Lower Rate of Increase in Healthcare Cost

 Also encouraging is the comparatively slower rate of increase in healthcare cost noted by VBID program providers.  For example, IBM reported that the company, as one of the early adopters of VBID for its employee healthcare plans, was able to maintain a health care cost trend at 3% to 4% mark while comparative average healthcare cost trend was 12% and higher.[5]


[1] Houy, M. Value-Based Benefit Design: A Purchaser Guide. National Business Coalition on Health. January 2009.

[2-5] ibid

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Entry filed under: Healthcare Economics, Healthcare Reform, Value-Based Insurance Design.

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2 Comments Add your own

  • 1. Jeremy Engdahl-Johnson  |  August 25, 2010 at 11:32 AM

    What is the economic burden of diabetes? Proper mgmt and control could save 49,000 lives and $196 million annually. http://www.healthcaretownhall.com/?p=2699

    Reply
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