Strategies for Incorporating Value-Based Insurance Design in Health Insurance Exchanges
Originally produced: July 2016 Updated: May 2020
The 2010 Patient Protection and Affordable Care Act (ACA) called for the creation of a health insurance exchange in each state. As of the 2020 plan year, there are 13 state-based marketplaces, six state-based exchanges on the federal platform, six state-federal partnership marketplaces, and 26 fully federally-run marketplaces1, altogether providing coverage for 11.4 million Americans.2
In the proposed 2021 Notice of Benefit and Payment Parameters rule released on January 31, 2020, the Department of Health and Human Services (HHS) strongly endorsed the inclusion of V-BID principles in marketplace health plans.3 The rule includes language and research from the V-BID Center’s guidelines for the V-BID X plan template, and describes the potential for a “value-based model” qualified health plan. V-BID programs lower or remove financial barriers to specific preventive services, diagnostic tests, treatments, and providers demonstrated to be of high value and decrease access to low-value care. Health insurance exchanges can expand coverage options by including and promoting plans that include value-based insurance design (V-BID) principles.
Section 1311 of the ACA and the final exchange rule (45 C.F.R. § 155-157) set out parameters for how exchanges should operate, yet stakeholders have flexibility within these parameters. Below are policy options for the increased use of V-BID in exchanges. The approaches are not mutually exclusive; portions of each may be combined.
1: Offer a V-BID X Health Plan
With support from Arnold Ventures, a group of public and private stakeholders developed a template for a cost-neutral health plan that skews coverage towards clinically-indicated, high-value care and away from overused, low-value services. To create such a plan, stakeholders identified high-value services for reduced or eliminated cost-sharing, and low-value services for increased cost-sharing (Table 1). It is important to note that the services chosen in this template represent a single example of what a V-BID X health plan could look like. There are a large number of plausible combinations of services or cost-sharing changes that can meet different needs and goals, depending on the carrier and the market.
Note: This table is taken from “V-BID X: Creating A Value-Based Insurance Design Plan for the Exchange Market”
By increasing out-of-pocket costs on the selected low-value services, the V-BID X plan creates “headroom” for increased spending on high-value care, resulting in the same level of total spending. If the reduction in spending on services with no clinical benefit exceeds the added expenditures on high-value care, plans will have lower premiums.
V-BID X plans offered on the individual marketplace have the opportunity to provide meaningful coverage for necessary care, without increasing premiums or deductibles.
Applying targeted cost-sharing based on the clinical value – not the price – of a service will allow consumers improved access to high-value care, reduced cost-related non-adherence and decreased exposure to harmful care. Payers meanwhile enjoy the advantage of improved efficiency of their medical expenditures.
2: Require that plans in the exchange include additional V-BID elements
The ACA requires all non-grandfathered plans to cover certain preventive services without out-of-pocket cost-sharing. This includes routine immunizations and preventive services rated as “A” or “B” by the U.S. Preventive Services Task Force.4 This means that all plans sold on the exchange must include important V-BID elements. However, there are many other evidence-based V-BID features that exchanges (especially those functioning as “active purchasers”5) might require all qualified health plans to deploy. Exchanges could require plans to reduce or eliminate copayments for cholesterol control medication for at-risk individuals or lower financial barriers to guideline-recommended services, such as hemoglobin A1c testing and eye examinations for individuals with diabetes. For one example, ambulatory primary care and specialty visits are not subject to the plan deductible in all Covered California plans.6
Mitigating the potential for adverse selection is a key advantage of requiring V-BID. Without requirements for V-BID, exchanges may encounter carriers that are hesitant to incorporate V-BID (especially incentives) out of fear that their plans will disproportionately attract high-need individuals. Adverse selection is a concern since a substantial majority of V-BID programs reduce cost-sharing for evidence-based services for high-cost chronic conditions such as heart disease, diabetes, and depression. As cost savings may take years to accrue and consumers often move between plans, insurers may also be reluctant to offer designs that will likely increase spending in the short-term while potentially benefiting competitors in the long-term.
Exchanges can proactively address this dilemma by requiring all qualified health plans to incorporate specific, evidence-based V-BID features that are unquestioned in their clinical benefit and have evidence demonstrating cost savings, cost neutrality, or cost effectiveness.7
3: Allow benefit design flexibility for plans incorporating V-BID, and ensure adequate risk adjustment
Variation in benefits can make comparison shopping difficult for consumers.8 As a result, exchanges may elect to standardize benefit designs for plans seeking to participate in the exchange.9
One potential undesirable outcome of standardized benefit packages is the stifling of innovation, such as clinically nuanced value-based designs that promote efficiency and better health. For instance, a plan waiving cost-sharing for medications that prevent asthma exacerbations or seizures might fail to meet requirements for standard copayment levels. Likewise, a plan varying cost-sharing for high-value clinician visits, laboratory testing, or imaging services might also run afoul of standardization rules. Even if designed with care, cost-sharing standardization requirements are unlikely to keep pace with advances in clinical evidence.
Exchanges can strike a middle ground between flexibility and standardization by allowing carriers to offer V-BID plans alongside required standard plans. As a condition of offering a V-BID plan, exchanges might require issuers to present evidence that the proposed V-BID provisions are clinically nuanced and grounded in research. The exchange could also develop a list of “pre-approved” V-BID options.
California’s exchange recommends this approach, offering carriers the flexibility to reduce cost-sharing for certain services in special V-BID plans.10 The V-BID Center recommends that exchanges allow health plans to impose incentives and disincentives in V-BID plans. Higher cost-sharing for harmful services and services of uncertain benefit can discourage the use of unnecessary care. Disincentives for certain services can also help produce V-BID plans that are cost saving.11
While V-BID is optional for plans on the exchange, effective diagnosis-based risk adjustment programs will be particularly important to alleviate adverse selection concerns.12 Under current federal law, insurers in the individual and small-group markets are not allowed to vary premiums by health status and/or gender, and have minimal flexibility in varying them by age. Without this capability, insurers may be incentivized to dissuade high risk individuals from enrolling through the use of discriminatory benefit designs, networks, formularies, and/or marketing techniques. To account for this, section 1343 of the ACA established a permanent risk adjustment program, aiming to mitigate the potential financial impact of enrolling beneficiaries with a high risk of incurring health care costs. Under this provision, risk adjustment will apply to all non-grandfathered plans in the individual and small group markets.13 Policy makers should carefully develop, monitor, and refine the risk adjustment program to ensure the viability of voluntary inclusion of V-BID.
4: Allow carriers to market V-BID plans to consumers with specific conditions
Exchanges might permit health plan designs that are targeted and marketed to people with specific conditions – such as asthma, diabetes, or mental illness – to compete on the exchange. These plans could be structured to include focused V-BID plan components that are specific to the targeted condition. Again, risk adjustment may be important to ensure the viability of these plans if offered on the exchange.
5: Highlight and promote V-BID plans when consumers search
Overwhelming choice may lead to suboptimal plan selection,8 and consumers searching for coverage on the exchange might find dozens of options from which to choose. Accordingly, exchanges must carefully consider how they will communicate and display coverage options. Consumers are heavily influenced by presentation, and research shows that defaults are critically important.14 While Value-Based Insurance Design Plans will not be given preferential display on the federal exchange, HHS announced they are looking into ways to make V-BID plans easily identifiable on the exchanges.3
In determining an exchange’s choice architecture – that is, how it will present options to consumers – exchanges can highlight V-BID plans. Under this approach, a plan that features extensive use of V-BID might be displayed more prominently than a plan that contains few V-BID elements. Exchanges could also use symbols to denote V-BID plans, much as they might use other symbols to denote plans with limited networks or other features.
6: Recognize V-BID designs in quality ratings
The law requires all exchanges to rate carriers’ efforts to promote quality. Quality ratings, as determined by the exchange, may consider V-BID designs insofar as they encourage patients to use evidence-based, high-value services. State exchanges can recognize the impact of value-based designs by assigning higher ratings to plans that include V-BID features. This may be particularly valuable when plan-specific data on health outcomes is unavailable.
Large purchasers are embracing V-BID in ever-growing numbers in light of its proven benefits in health and cost.15 Ensuring the availability of V-BID for all consumers will require focused strategies and the thoughtful leadership from decision-makers in states, the federal government, and the private sector. While exchange leaders must balance many competing priorities, the opportunities to promote high-value health care through V-BID merit attention, consideration, and action.
For More Information
The University of Michigan Center for Value-Based Insurance Design leads in research, development, and advocacy for innovative health benefit plans. Established in 2005, the Center works as a liaison between the research community and implementers – employers, plan designers, and policy makers – to help synthesize and communicate research findings, and encourage the benefits of V-BID.
- Norris, L., 2018. The State Of Your Health Insurance Marketplace. healthinsurance.org. Accessed at: https://www.healthinsurance.org/state-health-insurance-exchanges/
- Keith, K., 2020. Final Marketplace Enrollment Data For 2020 | Health Affairs. Healthaffairs.org. Accessed at: https://www.healthaffairs.org/do/10.1377/hblog20200402.109653/full/
- Federal Register. 2020. Patient Protection And Affordable Care Act; HHS Notice Of Benefit And Payment Parameters For 2021; Notice Requirement For Non-Federal Governmental Plans. Accessed at: https://www.federalregister.gov/documents/2020/02/06/2020-02021/patient-protection-and-affordable-care-act-hhs-notice-of-benefit-and-payment-parameters-for-2021
- HealthCare.gov. 2020. Preventive Health Services. Accessed at: https://www.healthcare.gov/coverage/preventive-care-benefits/
- Schwartz, S., 2012. Six States Give Green Light To Active Purchasing In The Exchange – The National Academy For State Health Policy. Nashp.org. Accessed at: https://nashp.org/six-states-give-green-light-to-active-purchasing-in-the-exchange/
- Health for California Insurance Center. 2020. Metallic Plan Benefits: Covered California. Accessed at: https://www.healthforcalifornia.com/covered-california/plans
- Risk adjustment programs can mitigate adverse selection concerns that may arise when exchanges impose V-BID requirements that do not apply outside the exchange.
- Zhou, C. and Zhang, Y., 2012. The Vast Majority Of Medicare Part D Beneficiaries Still Don’t Choose The Cheapest Plans That Meet Their Medication Needs. Healthaffairs.org. Accessed at: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2012.0087
- Bluecrossmafoundation.org. 2011. Determining Health Benefit Designs To Be Offered On A State Health Insurance Exchange | The Blue Cross Blue Shield Of Massachusetts Foundation. Accessed at: https://www.bluecrossmafoundation.org/publication/determining-health-benefit-designs-be-offered-state-health-insurance-exchange
- California Health Benefit Exchange. Qualified Health Plan Policies And Strategies To Improve Care, Prevention And Affordability: Discussion Draft – Options And Recommendations. California Health Benefit Exchange, 2012. Accessed at: https://vbidcenter.org/wp-content/uploads/2014/12/CA-HBEX2012.pdf
- Fendrick, A., Smith, D. and Chernew, M., 2010. Applying Value-Based Insurance Design To Low-Value Health Services. Healthaffairs.org. Accessed at: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2010.0878
- Weiner JP, et al., 2012. Adjusting For Risk Selection In State Health Insurance Exchanges Will Be Critically Important And Feasible, But Not Easy. Healthaffairs.org. Accessed at: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2011.0420
- Fernandez, B., 2018. The Patient Protection And Affordable Care Act’s (ACA’S) Risk Adjustment Program: Frequently Asked Questions. crsreports.congress.gov. Accessed at: https://crsreports.congress.gov/product/pdf/R/R45334
- Kleimann Communication Group, Consumers Union., 2012. Choice Architecture: Design Decisions That Affect Consumers’ Health Plan Choices. Accessed at: https://advocacy.consumerreports.org/wp-content/uploads/2013/02/Choice_Architecture_Report.pdf
- Choudhry NK, Rosenthal MB, Milstein A., 2010. Assessing The Evidence For Value-Based Insurance Design. Healthaffairs.org. Accessed at: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2009.0324