For immediate release:
Friday, January 30, 2007
12:01 a.m. EDT


Christopher Fleming

Cost-Sharing Levels Should Vary By Treatment Efficacy, Say Health Affairs Authors

Principles Of “Value-Based Insurance Design” Aim To Align Incentives To Address Cost Growth And Ensure High-Quality Care

Bethesda, MD -- Adjusting cost sharing to recognize clinical and financial differences among treatments and patients can improve care and save money, according to a comprehensive discussion of “value-based insurance design” (VBID), published January 30 on the Health Affairs Web site.

“Everyone agrees that cost sharing should discourage the use of inappropriate procedures but should not provide a disincentive to discourage the use potentially life-saving services,” said lead author Michael Chernew, a professor of health policy at Harvard University. “Traditional health insurance plans hold cost sharing constant across treatments -- and then trust patients to purchase health care based on the value of each specific treatment. The trouble is, as experience has shown time and time again, that patients are unable to do spend their health care dollars wisely.”

The result, not surprisingly, is that “higher copayments reduce the use of both highly valuable and marginally valuable services and may result in worse health outcomes,” report Chernew and University of Michigan medical school professors Allison Rosen and Mark Fendrick. All three authors are also affiliated with the University of Michigan Center for Value-Based Insurance Design.

The solution, say Chernew and his colleagues, is to develop a “clinically sensitive” benefit design that encourages the use of cost-effective medical interventions by reducing or eliminating copayments, while raising cost-sharing requirements for inappropriate treatments that might otherwise be overused.

“It is essential that clinical and economic incentives be aligned to optimize the return on investment on our health care expenditures,” said Fendrick.

Two Approaches To VBID: Looking At Just Treatments,
Or At Treatments For Specific Patients

The theory of VBID argues for cost sharing that varies by individual, and an increased investment in comparative effectiveness research and information technology would make such a benefit approach possible, the authors write. In the meantime, employers are actively experimenting with two more general approaches to VBID. The first approach simply targets certain services deemed clinically valuable for copayment reduction. The second approach lowers cost sharing for specific, high-value services for patients with specific clinical indications.

Several firms are experimenting with the first approach to VBID. For example, Pitney Bowes has reduced payments for all users of drugs commonly prescribed for diabetes, asthma, and hypertension, and ActiveHealth Management, a independent, integrated care management subsidiary of Aetna, has worked with a client to lower copayments for selected heart, asthma, and diabetes medications. The second approach -- which more closely tracks the theory of VBID -- requires more-sophisticated data systems. Examples of the second approach include the municipality of Asheville, North Carolina, and the University of Michigan, both of which have implemented a program that lowers copayments for selected medications specifically for employees with a diagnosis of diabetes mellitus.

Encouraging More Use Of Some Services
Can Cut Costs, Pitney Bowes Example Shows

Chernew and coauthors outline a number of potential challenges -- all surmountable -- to the wider use of VBID. One is concern over increased costs: Purchasers looking to stem rising health care costs could be worried about the short-term cost implications of lowering copayments to increase the use of certain services. However, increasing the use of medications to control chronic conditions such as asthma and diabetes can cut costs over the longer term: “One year after Pitney Bowes lowered medication copays for asthma and diabetes medications in 2001, the company reported . . . a one-year savings of $1 million.” Chernew and coauthors point out that a VBID approach can be designed to meet any cost target through raising cost sharing for nontargeted patients or medications, although they emphasize that “the driving idea behind VBID” is not saving money, but rather “that the use of high value services should be encouraged.”

In a Perspective on the Chernew paper, two senior managed care executives say that adherence to the principles of VBID is crucial to the success of consumer-directed care, which aims in large part to make consumers more prudent purchasers of health care by giving them bigger financial stakes in their health care decisions.

“We believe that this next generation of consumer-driven care has major potential for improving quality while decreasing costs,” write Troyen Brennan, Aetna’s chief medical officer, and Lonny Reisman, chief executive officer of ActiveHealth Management. But “more-sophisticated clinical thinking must be incorporated into insurance arrangements,” they say. Brennan and Reisman point out that the next phase of the health information technology revolution, “now under way in some parts of the insurance industry, is to use [information technology] to fuse clinical information into benefit design and to better inform the patient.”

The Perspective authors agree with Chernew, Rosen, and Fendrick that drug copayments should be graduated based on “evidence of efficacy.” Copayments for expensive antihistamines prescribed for common allergies should be high, they say, while post-heart attack beta-blockers should be free of any copayment obligations. Brennan and Reisman endorse a “real trial” for a proposal, advanced by Niteesh Choudhry and coauthors in a recent paper in the Jan/Feb 2007 issue of  Health Affairs, to eliminate copayments for beta-blockers and other heart medications for patients who have had heart attacks.

And in some cases, say Brennen and Reisman, free may not be cheap enough: “In certain situations, insurers might even pay member s to take their drugs -- taking a page out of the public health book with regard to treatment of tuberculosis.”

You can read the article by Chernew and coauthors at

You can read the Perspective by Brennan and Reisman at


Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at


©2007 Project HOPE–The People-to-People Health Foundation, Inc.