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Implementing Value-Based Insurance Design in Medicare Advantage


Due to misaligned incentives, Medicare beneficiaries currently receive too little high-value care and too much low-value care.  Value-Based Insurance Design (V-BID) is an innovative approach that can address this problem when implemented correctly.  The basic premise of V-BID is to align consumer incentives with value by reducing barriers to high-value health services and providers (‘carrots’) and discouraging the use of low-value health services and providers (‘sticks’).  When ‘carrots’ and ‘sticks’ are used in a clinically nuanced manner, V-BID improves health care quality and controls spending growth.  The concept of clinical nuance recognizes that 1) medical services differ in the amount of health produced, and 2) the clinical benefit derived from a specific service depends on the consumer using it, as well as when, where, and by whom the service is provided.

cmslogoIn September 2015, the Center for Medicare and Medicaid Innovation announced the launch of the Medicare Advantage Value-Based Insurance Design model test in its effort to create a Medicare program that maximizes health per dollar spent while addressing the substantial variation in value across health care services and providers.

Encouraging Medicare Beneficiaries to Use High-Value Services and Providers:  The Case for V-BID

Transitioning from a volume-driven to value-based delivery system requires a change in both how we pay for care (supply-side initiatives) and how we engage consumers to seek care (demand-side initiatives).  For example, cost-sharing for all clinician visits, diagnostic tests, and prescription drugs is typically implemented in a ‘one-size-fits-all’ way.  Under the fee-for-service (FFS) Medicare program, this is the required approach.  A growing body of evidence demonstrates that increases in patient cost-sharing lead to decreases in the use of both non-essential and essential care.  Peer-reviewed studies reveal that when patients are asked to pay more for high-value cancer screenings and potentially life-saving drugs, they use significantly less of these services.  Conversely, decreases in cost-sharing applied to all services – regardless of clinical benefit – may lead to overuse or misuse of services that are potentially harmful or provide little clinical value.

To encourage consumers to take advantage of high-value services and actively participate in decision making about treatments that are subject to misuse, private sector purchasers began to implement V-BID more than a decade ago.  While the success of V-BID programs is well-established, there are opportunities and challenges to implementing V-USPSTF LogoBID in the Medicare program.  Although the Medicare statute provides for coverage of certain preventive services identified by the U.S. Preventive Services Task Force (USPSTF) with zero cost-sharing, the fee-for-service (FFS) program allows little flexibility to implement clinically driven benefits.  Specifically, program administrators are limited in their ability to lower cost-sharing levels for other services recommended in clinical guidelines.  Moreover, the FFS program is unable to use benefit design to encourage patients to use high-value providers.  Within a provider type, Medicare beneficiaries must pay the same regardless of which provider they choose.  Though practice patterns and quality may vary across providers, the FFS program sets prices administratively, using methodologies that do not allow variation in price to align with variation in value.  Unlike in the private sector, the FFS program is unable to incorporate clinically focused benefit design to promote better outcomes and greater efficiency.

In contrast, private health plans participating in Medicare Advantage (MA), have flexibility to use care management techniques to promote evidence-based care, including limited ability to adjust benefit design.  The compendium of MA tools includes network formation, provider-facing interventions (e.g., bonuses for quality and high performance), and utilization management programs to identify under-utilization as well as over-utilization.  From the consumer engagement perspective, however, MA plans could further enhance their ability to serve beneficiaries if they had greater ability to use benefit design to promote value.

V-BID in Medicare Advantage Model Overview

The MA-VBID model test is scheduled to begin on January 1, 2017.  The seven states that CMS selected to participate in the model test are:  Arizona, Indiana, Iowa, Massachusetts, Oregon, Pennsylvania, and Tennessee.  Organizations within those states that apply and are selected to participate in the MA-VBID model test are allowed to target seven specific chronic conditions.  Those conditions include:  diabetes, chronic obstructive pulmonary disease (COPD), congestive heart failure (CHF), patients with past stroke, hypertension, coronary artery disease, and mood disorders.

V-BID Aspects Within the CMS Model

There are four main interventions in the Medicare Advantage Value-Based Insurance Design Model Test that are intended to move the Medicare program into the 21st Century by encouraging quality and containing cost growth:

Intervention 1:  Reduced Cost-Sharing for High-Value Services

Participating organizations have the ability to reduce or eliminate cost-sharing for healthcare services that they have identified as high-value services for a given target population, as long as the services are clearly identified and defined in advance.

Intervention 2:  Reduced Cost-Sharing for High-Value Providers

Organizations are allowed to reduce cost-sharing for high-value healthcare providers.  Organizations can decide to reduce cost-sharing for any service that is provided by a high-value provider or to only reduce cost-sharing for a high-value service that is provided by a high-value provider.  Either way, the organization must support their methodology for determining a high-value provider and are encouraged to emphasize the clinical rationale.  CMS will review each individual proposal, but they will only accept proposals that they believe have acceptable criteria for selecting high-value providers.  Organizations are encouraged to rely on independent, external metrics in their criteria.

Intervention 3:  Reduced Cost-Sharing for Enrollees Participating in Disease Management or Related Programs

Participating organizations can reduce cost-sharing for healthcare services for enrollees who participate in a plan-sponsored disease management program.  An example of this intervention is a reduction in primary care co-pays for patients with heart disease who regularly meet with a case manager.  While organizations can base cost-sharing reductions on enrollees meeting certain milestones, they cannot base cost-sharing reductions on enrollees meeting certain physical checkmarks such as body-mass index.

Intervention 4:  Coverage of Additional Supplemental Benefits

The last intervention allows organizations to offer supplemental benefits coverage to targeted populations with the goal of either reducing costs or improving outcomes.  CMS will review the organization’s clinical rationale for offering the supplemental benefits to the targeted population.  An example of this kind of intervention is a tobacco cessation program for enrollees with COPD.

CMS announced that the model will expand the model in 2018 to Alabama, Michigan, and Texas and will include two additional clinical conditions:  rheumatoid arthritis and dementia.


Although there is urgency to bend the Medicare cost curve, it is critical for cost containment efforts to go hand-in-hand with a focus on quality.  Applying clinically nuanced strategies in benefit design presents an enormous opportunity for the Medicare program.  V-BID can encourage the utilization of high-value providers and services and limit the use of services that are of potentially low-value, thus helping Medicare Advantage plans improve health and quality, enhance consumer engagement, and reduce costs.  Allowing MA plans to utilize value-based insurance design principles will better serve beneficiaries in the long run.

This brief is based on the May 2013 V-BIDHealth white paper and the September 2015 CMS Announcement of the Medicare Advantage Value-Based Insurance Design Model Test.

For more information, please visit the V-BID Center Medicare/Medicare Advantage Initiative webpage.