Originally Produced: April 2013   Updated: July 2016.

V-BID and Grandfathered Health Plans: Promoting High Value Services and Controlling Costs


carrots and sticksValue-Based Insurance Design (V-BID) is an innovative approach that can improve clinical outcomes and contain costs.  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 healthcare quality and controls spending growth.  The concept of clinical nuance recognizes that: 1) medical services differ in the benefit provided; and 2) the clinical benefit derived from a specific service depends on the patient using it, as well as when and where the service is provided.

Maintaining Grandfathered Health Plan Status

Allowing Americans to keep their existing health insurance was a critical element of health care reform deliberations.  The ‘grandfathered health plan’ provisions in the Patient Protection and Affordable Care Act (PPACA) codified this desired component.  Grandfathered health plans are not required to implement several provisions of PPACA, including the requirements to offer essential health benefits packages and specified preventive services without patient cost sharing.  Resulting regulations from the Departments of Health and Human Services, Treasury, and Labor also specify that grandfathered health plans are only permitted to make minor modifications to a plan’s existing benefit structure as of the date the law was enacted, March 23, 2010.

Key provisions of these regulations limit increases in patient cost sharing and prohibit the elimination of clinical services necessary to diagnose or treat a particular disease.

Incorporating V-BID into Grandfathered Health Plans

Approximately half of current employer-sponsored plans have maintained grandfathered health plan status.1 Plan sponsors striving to maintain grandfathered health plan status have questioned whether these plans can pursue new V-BID designs under existing regulations.  A Department of Health and Human Services document states that group health plans may continue to provide incentives for wellness by providing premium discounts or additional benefits to reward healthy behaviors by participants or beneficiaries, by rewarding high quality providers, and by incorporating evidence-based treatments into benefit plans.2  Essentially, plans may implement V-BID programs that reduce financial barriers to high-value health services and providers without losing grandfathered status.

Addressing Low-Value Services

Employers and issuers wishing to maintain grandfathered health plan status are limited in their ability to incorporate the “stick” aspects of clinical nuance.  Reducing benefits or increasing cost-sharing beyond certain levels for services covered prior to March 2010 is prohibited by the grandfathered health plan regulations.  However, alternative strategies exist to better inform providers and consumers about low-value services.

The Choosing Wisely initiative is an important example of an educational campaign to bring attention to unnecessary or harmful health care.  Encompassing over twenty medical specialty societies, Choosing Wisely aims to initiate conversations between physicians and patients about the clinical value of specific treatments.

To spark these conversations, each specialty society created a list of “Things Physicians and Patients Should Question” consisting of evidence-based recommendations that should be discussed to help make wise decisions about the most appropriate care based on a patient’s individual situation.  Screen grabEmployers and plan issuers should promote Choosing Wisely in the absence of the ability to increase cost sharing on low value services.  Educating enrollees about duplicative and dangerous care is permissible for grandfathered health plans and is a strategy which can enhance health care efficiency and effectiveness.

V-BID in Grandfathered Plans:  Moving Forward

There are multiple approaches to incorporate V-BID principles into the benefit design for grandfathered health plans to encourage consumers to use high-value services and providers.  Coupling V-BID programs with carefully designed strategies for consumer education and communication provides an important opportunity to improve healthcare quality and contain costs.

Clinical Nuance Infographic


1 Kaiser Family Foundation and Health Research and Educational Trust. “ Employer Health Benefits: 2012 Annual Survey.” Available at: http://ehbs.kff.org/pdf/2012/8345.pdf

2 https://www.cms.gov/cciio/index.html