The complexity of Medicare Advantage (MA) physician networks has been well-documented, but the payment regulations that underlie these plans remain opaque, even to experts. If an MA plan enrollee sees an out-of-network doctor, how much should she expect to pay?
The answer, like much of the American healthcare system, is complicated. We’ve consulted experts and scoured nearly inscrutable government documents to try to find it. In this post we try to explain what we’ve learned in a much more accessible way.
Medicare Advantage Basics
Medicare Advantage is the private insurance alternative to traditional Medicare (TM), comprised largely of HMO and PPO options. One-third of the 60+ million Americans covered by Medicare are enrolled in MA plans. These plans, subsidized by the government, are governed by Medicare rules, but, within certain limits, are able to set their own premiums, deductibles, and service payment schedules each year.
Critically, they also determine their own network extent, choosing which physicians are in- or out-of-network. Apart from cost sharing or deductibles, the cost of care from providers that are in-network is covered by the plan. However, if an enrollee seeks care from a provider who is outside of their plan’s network, what the cost is and who bears it is much more complex.
To understand the MA (and enrollee) payment-to-provider pipeline, we first need to understand the types of providers that exist within the Medicare system.
Participating providers, which constitute about 97% of all physicians in the U.S., accept Medicare Fee-For-Service (FFS) rates for full payment of their services. These are the rates paid by TM. These doctors are subject to the fee schedules and regulations established by Medicare and MA plans.
Non-participating providers (about 2% of practicing physicians) can accept FFS Medicare rates for full payment if they wish (a.k.a., “take assignment”), but they generally don’t do so. When they don’t take assignment on a particular case, these providers are not limited to charging FFS rates.
Opt-out providers don’t accept Medicare FFS payment under any circumstances. These providers, constituting only 1% of practicing physicians, can set their own charges for services and require payment directly from the patient. (Many psychiatrists fall into this category: they make up 42% of all opt-out providers. This is particularly concerning in light of studies suggesting increased rates of anxiety and depression among adults as a result of the COVID-19 pandemic).
How Out-of-Network Doctors are Paid
So, if an MA beneficiary goes to see an out-of-network doctor, by whom does the doctor get paid and how much? At the most basic level, when a Medicare Advantage HMO member willingly seeks care from an out-of-network provider, the member assumes full liability for payment. That is, neither the HMO plan nor TM will pay for services when an MA member goes out-of-network.
The price that the provider can charge for these services, though, varies, and must be disclosed to the patient before any services are administered. If the provider is participating with Medicare (in the sense defined above), they charge the patient no more than the standard Medicare FFS rate for their services. Non-participating providers that do not take assignment on the claim are limited to charging the beneficiary 115% of the Medicare FFS amount, the “limiting charge.” (Some states further restrict this. In New York State, for instance, the maximum is 105% of Medicare FFS payment.) In these cases, the provider charges the patient directly, and they are responsible for the entire amount (See Figure 1.)
Alternatively, if the provider has opted-out of Medicare, there are no limits to what they can charge for their services. The provider and patient enter into a private contract; the patient agrees to pay the full amount, out of pocket, for all services.
MA PPO plans operate slightly differently. By nature of the PPO plan, there are built-in benefits covering visits to out-of-network physicians (usually at the expense of higher annual deductibles and co-insurance compared to HMO plans). Like with HMO enrollees, an out-of-network Medicare-participating physician will charge the PPO enrollee no more than the standard FFS rate for their services. The PPO plan will then reimburse the enrollee 100% of this rate, less coinsurance. (See Figure 2.)
In contrast, a non-participating physician that does not take assignment is limited to charging a PPO enrollee 115% of the Medicare FFS amount, which can be further limited by state regulations. In this case, the PPO enrollee is also reimbursed by their plan up to 100% (less coinsurance) of the FFS amount for their visit. Again, opt-out physicians are exempt from these regulations and must enter private contracts with patients.
There are two major caveats to these payment schemes (with many more nuanced and less-frequent exceptions detailed here). First, if a beneficiary seeks urgent or emergent care (as defined by Medicare) and the provider happens to be out-of-network for the MA plan (regardless of HMO/PPO status), the plan must cover the services at their established in-network emergency services rates.
The second caveat is in regard to the declared public health emergency due to COVID-19 (set to expire in April 2021, but likely to be extended). MA plans are currently required to cover all out-of-network services from providers that contract with Medicare (i.e., all but opt-out providers) and charge beneficiaries no more than the plan-established in-network rates for these services. This is being mandated by CMS to compensate for practice closures and other difficulties of finding in-network care as a result of the pandemic.
Outside of the pandemic and emergency situations, knowing how much you’ll need to pay for out-of-network services as a MA enrollee depends on a multitude of factors. Though the vast majority of American physicians contract with Medicare, the intersection of insurer-engineered physician networks and the complex MA payment system could lead to significant unexpected costs to the patient.
The Affordable Care Act (ACA) made historic strides in expanding access to health insurance coverage by covering an additional 20 million Americans. President Joe Biden ran on a platform of building upon the ACA and filling in its gaps. With Democratic majority in the Senate, aspects of his health care plan could move from idea into reality.
The administration’s main focus is on uninsurance, which President Biden proposes to tackle in three main ways: providing an accessible and affordable public option, increasing tax credits to help lower monthly premiums, and indexing marketplace tax credits to gold rather than silver plans.
However, underinsurance remains a problem. Besides the nearly 29 million remaining uninsured Americans, over 40% of working age adults are underinsured, meaning their out-of-pocket cost-sharing, excluding premiums, are 5-10% of household income or more, depending on income level.
High cost-sharing obligations—especially high deductibles—means insurance might provide little financial protection against medical costs beneath the deductible. Bills for several thousand dollars could financially devastate a family, with the insurer owing nothing at all. Recent trends in health insurance enrollment suggest that uninsurance should not be the only issue to address.
A high demand for low premiums
Enrollment in high deductible health plans (HDHP) has been on a meteoric rise over the past 15 years, from approximately 4% of people with employer-sponsored insurance in 2006 to nearly 30% in 2019, leading to growing concern about underinsurance. “Qualified” HDHPs, which come with additional tax benefits, generally have lower monthly premiums, but high minimum deductibles. As of 2020, the Internal Revenue Service defines HDHPs as plans with minimum deductibles of at least $1,400 for an individual ($2,800 for families), although average annual deductibles are $2,583 for an individual ($5,335 for families).
HDHPs are associated with delays in both unnecessary and necessary care, including cancer screenings and treatment, or skipped prescription fills. There is evidence that Black patients disproportionately experience these effects, which may further widen racial health inequities.
A common prescription has been to expand access to Health Savings Accounts (HSAs), with employer and individual contributions offsetting higher upfront cost-sharing. Employers often contribute on behalf of their employees to HSAs, but for individuals in lower wage jobs without such benefits or without extra income to contribute themselves, the account itself may sit empty, rendering it useless.
A recent article in Health Affairs found that HDHP enrollment increased from 2007 to 2018 across all racial, ethnic, and income groups, but also revealed that low-income, Black, and Hispanic enrollees were significantly less likely to have an HSA, with disparities growing over time. For instance, by 2018, they found that among HDHP enrollees under 200% of the federal poverty level (FPL), only 21% had an HSA, while 52% of those over 400% FPL had an HSA. In short, the people who could most likely benefit from an HSA were also least likely to have one.
If trends in HDHP enrollment and HSA access continue, it could result in even more Americans who are covered on paper, yet potentially unable to afford care.
Addressing uninsurance could also begin to address underinsurance
President Biden’s health care proposal primarily addresses uninsurance by making it more affordable and accessible. This can also tangentially tackle underinsurance.
To make individual market insurance more affordable, Biden proposes expanding the tax credits established under the ACA. His plan calls for removing the 400% FPL cap on financial assistance in the marketplaces and lowering the limit on health insurance premiums to 8.5% of income. Americans would now be able to opt out of their employer plan if there is a better deal on HealthCare.gov or their state Marketplace. Previously, most individuals who had an offer of employer coverage were ineligible for premium subsidies—important for individuals whose only option might have been an employer-sponsored HDHP.
Biden also proposes to index the tax credits that subsidize premiums to gold plans, rather than silver plans as currently done. This would increase the size of these tax credits, making it easier for Americans to afford more generous plans with lower deductibles and out-of-pocket costs, substantially reducing underinsurance.
The most ambitious of Biden’s proposed health policies is a public option, which would create a Medicare-esque offering on marketplaces, available to anyone. As conceived in Biden’s proposal, such a plan would eliminate premiums and having minimal-to-no cost-sharing for low-income enrollees; especially meaningful for under- and uninsured people in states yet to expand Medicaid.
Moving forward: A need to directly address underinsurance
More extensive efforts are necessary to meaningfully address underinsurance and related inequities. For instance, the majority of persons with HDHPs receive coverage through an employer, where the employer shares in paying premiums, yet cost-sharing does not adjust with income as it can in the marketplace. Possible solutions range from employer incentives to expanding the scope of deductible-exempt services, which could also address some of the underlying disparities that affect access to and use of health care.
The burden of high cost-sharing often falls on those who cannot afford it, while benefiting employers, healthy employees, or those who can afford large deductibles. Instead of encouraging HSAs, offering greater pre-tax incentives that encourage employers to reabsorb some of the costs that they have shifted on their lower-income employees could prevent the income inequity gap from widening further.
Under the ACA, most health insurance plans are required to cover certain preventative services without patient cost-sharing. Many health plans also exempt other types of services from the deductible – from generic drugs to certain types of specialist visits – although these exemptions vary widely across plans. Expanding deductible-exempt services to include follow-up care or other high-value services could improve access to important services or even medication adherence without high patient cost burden. Better educating employees about what services are exempt would make sure that patients aren’t forgoing care that should be fully covered.
Health insurance is complicated. Choosing a plan is only the start. More affordable choices are helpful only if these choices are fully understood, e.g., the tradeoff between an HDHP’s lower monthly premium and the large upfront out-of-pocket cost when using care. Investing in well-trained, diverse navigators to help people understand how their options work with their budget and health care needs can make a big difference, given that low health insurance literacy is related to higher avoidance of care.
The ACA helped expand coverage, but now it’s time to make sure the coverage provided is more than an unused insurance card. The Biden administration has the opportunity and responsibility to make progress not only on reducing the uninsured rate, but also in reducing disparities in access and patient affordability.
A growing body of research keeps undermining a key tenet of health economics, Axios’ Sam Baker writes — the belief that requiring patients to pay more out of their own pockets will make them smarter consumers, forcing the health care system to deliver value.
Driving the news: Even a seemingly modest increase in out-of-pocket costs will cause many patients to stop taking drugs they need, according to a new working paper from Harvard economist Amitabh Chandra.
- Raising Medicare recipients’ out-of-pocket costs by just $10 per prescription led to a 23% drop in overall drug consumption, and to a 33% increase in mortality.
- And seniors weren’t simply ditching “low-value” drugs. People at high risk for heart attacks or strokes cut back on statins and blood-pressure medications even more than lower-risk patients.
Between the lines: This research focuses on Medicare’s drug benefit, but higher cost-sharing is all the rage throughout the system, and there’s little evidence that it has generated “smarter shoppers.”
- Patients with high-deductible plans — increasingly common in the employer market — don’t shop around for the best deal, which is all but impossible to do in many cases even if you wanted to try.
Top executives at some of the biggest commercial insurers outlined their shifting strategies and what markets are growth opportunities in light of the recession at Morgan Stanley’s annual conference.
Top executives at some of the biggest commercial insurers provided a peak behind their curtains at Morgan Stanley’s annual investor conference this week, discussing the pace of utilization recovery and how they’re approaching rate setting and risk going into next year
Though there’s significant uncertainty around the future of the insurance industry, many remarks can be summed up in a line from Cigna CEO David Cordani: “We feel bullish on 2021.”
And despite the major role of government in regulating healthcare, most officials seemed agnostic on the presidential election looming in less than two months.
Payers are reporting skyrocketing profits amid the COVID-19 pandemic as patients deferred care in droves in the second quarter, sparking a congressional investigation into business practices. Use of healthcare services continues to recover from a nadir in March and April, and that recovery has continued into the third quarter, payer executives said. But the pace has differed by segment.
At the start of the pandemic, Humana saw beneficiary use drop to about 30% of pre-COVID-19 levels until mid-May, when it slowly started to tick back up. The Louisville, Kentucky-based insurer’s utilization is now still “a little below par,” but well above that depression and meeting internal expectations, CEO Bruce Broussard said.
CVS Health-owned Aetna has seen its commercial business come back faster than Medicare, CFO Eva Boratto said. Primary care and labs have seen a quicker rebound, but it’s been slower in inpatient and ambulatory.
Centene CEO Michael Neidorff predicts utilization will be between 65% to 80% of normal by the end of the year, but remains cautious due to the shifting nature of the pandemic, and how it could coincide with a potentially nasty flu season.
“We don’t know what other peaks we’re going to see,” Neidorff said.
2021 rate setting, strategic pivots
Unsurprisingly, COVID-19 is also shaping major payer’s go-to-market approaches and how they’re thinking about 2021 bids.
Humana, for example, studied both historical data prior to COVID-19 and did scenario planning around what the pandemic could do to factors like utilization, testing and treatment if it continued throughout the year. Eventually, the payer decided to base bid assumptions off trending historical information forward, according to Broussard.
“We were very oriented to pricing that was more conservative as we thought about the approach,” he said.
It appears Centene, contrastingly, is using 2020 data to risk score. When asked how the payer is approaching rate setting, Neidorff said: “We’re dealing with this year. And we’re saying that any concessions this year should not necessarily carry into next year, which is an entirely different year.”
Employers and plans nationwide are struggling with this issue. Only about 60% of employers are using 2020 claims to set rates for next year, while another 26% are calculating expected medical costs based on data from 2019, and 9% are using data from the first two months of 2020 alone, according to Credit Suisse.
The pandemic has also shifted insurers’ broader strategic priorities in 2021 and beyond, especially by hammering home the need for diversified revenue streams to keep afloat, top execs said.
“We’re in 37 states. If you have a stock that’s not performing well in your portfolio, you probably have some that are offsetting it,” Centene’s Neidorff said.
Humana has been investing in telesales, at-home and in-community offerings and digital capabilities, with an eye for growth. Broussard said Humana’s customers have been mostreactive to an omnichannel approach to care delivery.
For example, the payer is seeing home as an increasingly valid path for care a little more acute in service than in the past. As a result, Humana plans to continue investing in areas that dovetail with that trend, and those with biggest impact on downstream healthcare costs, including primary care, social determinants of health, behavioral health and pharmacy.
CVS has also accelerated development of its virtual care offering, eClinic, as a result of the pandemic and relaxed federal regulations. Visits are up 40% since the end of June, CEO Larry Merlo said, noting he believes the future of healthcare delivery is at the intersection between digital and physical.
Because of the pandemic, “we are seeing an accelerated shift to this multichannel, integrated approach,” Merlo said. “We did change some of our priorities, and accelerate some things that may have been further down the road.”
CVS is continuing to convert existing stores to health- and wellness-focused locations, called HealthHUBs, which devote a fifth of floor space to healthcare products and services. Currently, the Rhode Island-based giant has 275 HUBs up and running, despite pausing conversions for a time in March.
Cigna is also looking to drive revenue by moving beyond a payer’s traditional wheelhouse. On Wednesday, the insurer announced it was rebranding its health services division as Evernorth, in a next step for the Cigna-Express Scripts megamerger completed almost two years ago.
For its part, Centene is introducing more value-based contracts in 2021, after seeing providers it contracts with in alternative payment models are reporting stronger cash flow and patient relationships amid COVID-19 than those in fee-for-service relationships.
Going into next year, the payer is also focused on margin expansion, working with states to set rates and federal lobbying for friendly policies like an increased Medicaid match rate, Neidorff said.
The COVID-19 recession booted millions of Americans off employer-sponsored insurance, though the full scope of the insurance crisis isn’t yet clear. Cigna’s Cordani noted the disenrollment in the first half of the year in its commercial population was lower than expected, helped by the fact the payer is less active in sectors hit hardest by the pandemic like travel and leisure.
But disenrollment could still snowball in the second half of 2020. As a result, a number of major commercial payers are building out offerings in two coverage backstops in the market: Medicaid and the Affordable Care Act exchanges.
Broussard said Humana sees ample opportunity in Medicaid — including the dually eligible — but wants to be more surgical in expansion moving forward, especially as states look for a more contemporary delivery of services and engagement with clinical programs. Humana is going to look for tuck-in acquisitions.
“Is there a way to enter the market in a small way, and leverage our capabilities and grow from that?,” Broussard said.
Cordani agreed that budget-strapped states are looking for new ways to lower costs, but said “Medicaid has always been a lower priority growth platform” for Cigna. Instead, the insurer sees the safety net program as an opportunity for Evernorth in the near term, more than its government business.
Of the 1.1 million new members Centene added from March through August, the majority were in Medicaid, but a significant portion were in the ACA exchanges, Neidorff said. Capitalizing on that momentum, Centene — already the largest payer in the exchanges — is adding 2 new states to its footprint for 2021. “I think we’ll grow in marketplace, given the level of people and the subsidies they get,” Neidorff said. “I see it as a positive going forward.”
Humana, however, is leery on entering the exchange market, given political uncertainty around the upcoming 2020 presidential election, according to its top exec.
“The exchange market has stabilized in a lot of different ways, but still has elements where it tends to be a sicker, more transient population,” Broussard said. “We’d rather not be in the situation where we go in and have to pull out because of the political realm.”
Payers also continue to forecast strong growth in Medicare Advantage. Currently, about 34% of Medicare beneficiaries are in the privately run Medicare plans. It’s a popular program: The Congressional Budget Office predicts MA’s share of the overall Medicare population will swell to 47% by 2029.
CVS is currently on track for mid-single-digit growth next year, and sees Aetna’s continued growth in MA as one of the building blocks to continued earnings power, Boratto said.
Similarly, Cigna is well on track to meeting its goal of 10% to 15% annual organic growth in MA, Cordani said. Historically, Cigna has only been present in about 18% to 19% of the addressable government market, but is trying to eventually expand to 50%.
Shrugging off election
Unlike years past when some payers worried of Democratic plans for Medicare and other aspects of insurance, most executives seemed to shrugged off the coming presidential election.
President Donald Trump has made undermining the ACA one of the chief goals of his first term, while Democrat nominee former Vice President Joe Biden’s healthcare plan revolves around shoring up the decade-old law, enacting a public option and lowering Medicare’s age of eligibility.
But executives noted Trump’s tenure hasn’t necessarily been bad for them, and having Biden at the helm could provide some opportunity for savvy operators.
Humana could be particularly at risk going into a period of political uncertainty. The payer has a smaller portfolio and fewer assets than some of its bigger peers, Ricky Goldwasser, managing director at Morgan Stanley, said.
But Broussard said regardless of whether the inhabitant of the White House is blue or red, they’ll likely support value-based payment models — a key tenet of its strategy. Additionally, the seemingly-threatening Medicare buy-in option is “very similar to MA,” Broussard said. “We’d see that as the opportunity to expand our ability to bring our capabilities to maybe a younger population, but with a lot of the same elements.”
Some industry experts see the public option, which has bipartisan support among voters, as a potential benefit for companies with leading market share in MA, like UnitedHealth, Humana and Aetna.
“We’ve had public options and done well in public options. So history says that’s fine,” Centene’s Neidorff said. “I think Biden would not be a threat, but an opportunity. I think a Trump re-election would just be more of what we’ve seen. And we’ve done OK with that.”
Insurance Commissioner Mike Kreidler’s action against Aliera Healthcare, Inc. (Aliera) ordering the company to stop selling health insurance illegally was upheld on Nov. 13 after the company appealed. Today, Aliera was ordered to pay a $1 million fine. It has 90 days to appeal.
Kreidler took action against Aliera and its partner, Trinity Healthshare, Inc. (Trinity) in May 2019 after an investigation revealed that since August 2018, the companies sold 3,058 policies to Washington consumers and collected $3.8 million in premium. Trinity agreed to Kreidler’s order.
“Aliera and Trinity promised to provide people with coverage when they needed it only to leave consumers with huge medical bills,” said Kreidler. “I’m taking action today to send a message to all scam artists – if you harm our consumers, you will pay heavily.
“Shopping for health insurance can be very stressful – especially if you have to worry about being ripped off. True insurance companies have to meet rigorous standards before they can sell coverage to consumers. These companies are hiding behind a federal and state exemption that exists for legitimate health care sharing ministries and using it to rake in profit across the country on the backs of vulnerable consumers.”
Aliera, an unlicensed insurance producer in Washington, administered and marketed health coverage on behalf of Trinity HealthShare. Trinity represents itself as a health care sharing ministry. Such ministries are exempt from state insurance regulation only if they meet statutory requirements. If so, they do not have to meet the same consumer protections guaranteed under the Affordable Care Act. This includes providing coverage for anyone with a pre-existing medical condition.
A legal health care sharing ministry is a nonprofit organization whose members share a common set of ethical or religious beliefs and share medical expenses consistent with those beliefs.
Kreidler’s office has received more than 20 complaints from consumers. Some believed they were buying health insurance without knowing they had joined a health care sharing ministry. Many discovered this when the company denied their claims because their medical conditions were considered pre-existing under the plan.
“Real health care sharing ministries can offer a valuable service to their members,” Kreidler said. “Unfortunately, we’re seeing players out there trying to use the exemptions for legitimate ministries to skirt insurance regulation and mislead trusting consumers. I want these outfits to know we’re on to them and we will hold them accountable.”
Kreidler’s investigation found Aliera:
- Sold insurance without a Washington insurance producer license.
- Represented an unauthorized insurer, Trinity.
- Operated an unlicensed discount plan organization.
Kreidler’s investigation into Trinity found that it failed to meet key federal and state requirements:
Trinity was formed on June 27, 2018, without any members. Federal and state laws require that health care sharing ministries be formed before Dec. 31, 1999, and their members to have been actively sharing medical costs.
What are the implications for pharma as COVID-19 forces fundamental change in US payer practice and policy?
The COVID-19 pandemic has created a unique set of challenges for US payers. In the short-term emergency healthcare packages have included increasing patient access to medicines, waiving co-pays, relaxing prior approval requirements and increasing telemedicine services. But longer term? The commercial healthcare market is likely to contract and demand for Medicare/Medicaid will increase. Payers are looking at a very different post-COVID-19 world and the impact on drug prices, formulary coverage, generic use and plan coverage will present significant hurdles to drug manufacturers.
Pharma needs to plan for a new long-term reality. To explore current thinking we interviewed, in COVID-19 implications for pharma: US payer insights, experienced US payers to give you a clear perspective of the immediate actions being taken and the emerging issues and trends that will shape pharma/payer relations.
Payers explore key issues
- What emergency measures are in place to ensure the health plans address customers’ medical needs and will these need to be reconsidered on an ongoing basis?
- What precautions are currently being taken to negate the impact of costs directly related to COVID-19 such as screening, hospital admissions and long-term treatment of COVID-related health issues?
- What impact could COVID-19 have on private healthcare plans and Medicare/Medicaid and their formulary coverage, market access to medicines and the role of telemedicine services in the future?
- How might COVID-19 impact policy on co-payments, premiums and patient selection criteria for treatments in the future?
- What impact could COVID-19 have on pricing and reimbursement of drugs and the role of value-based contracting?
Over the past months, the country and the economy have radically shifted to unchartered territory. Now more than ever, we must reexamine how we spend health care dollars.
While the COVID-19 pandemic has exposed challenges with health care in America, we see two overarching opportunities for change:
1) the under-delivery of evidence-based care that materially improves the lives and well-being of Americans and
2) the over-delivery of unnecessary and, sometimes, harmful care.
The implications of reallocating our health care spending to high-value services are far-ranging, from improving health to economic recovery.
To prepare for coronavirus patients and preserve protective equipment, clinicians and hospitals across the country halted non-urgent visits and procedures. This has led to a substantial reduction in high-value care: emergency care for strokes or heart attacks, childhood vaccinations, and routine chronic disease management. However, one silver lining to this near shutdown is that a similarly dramatic reduction in the use of low-value services has also ensued.
As offices and hospitals re-open, we have a once in a century opportunity to align incentives for providers and consumers, so patients get more high-value services in high-value settings, while minimizing the resurgence of low-value care. For example, the use of pre-operative testing in low-risk patients should not accompany the return of elective procedures such as cataract removal. Conversely, benefit designs should permanently remove barriers to high-value settings and services, like patients receiving dialysis at home or phone calls with mental health providers.
People with low incomes and multiple chronic conditions are of particular concern as unemployment rises and more Americans lose their health care coverage. Suboptimal access and affordability to high-value chronic disease care prior to the COVID-19 pandemic was well documented As financially distressed providers re-open to a new normal, hopeful to regain their financial footing, highly profitable services are likely to be prioritized.
Unfortunately, clinical impact and profitability are frequently not linked. The post-COVID reopening should build on existing quality-driven payment models and increase reimbursement for high-value care to ensure that compensation better aligns with patient-centered outcomes.
At the same time, the dramatic fall in “non-essential care” included a significant reduction in services that we know to be harmful or useless. Billions are spent annually in the US on routinely delivered care that does not improve health; a recent study from 4 states reports that patients pay a substantial proportion (>10 percent) of this tab out-of-pocket. This type of low-value care can lead to direct harm to patients — physically or financially or both — as well as cascading iatrogenic harm, which can amplify the total cost of just one low-value service by up to 10 fold. Health care leaders, through the Smarter Health Care Coalition, have hence called on the Department of Health and Human Services Secretary Azar to halt Medicare payments for services deemed low-value or harmful by the USPSTF.
As offices and hospitals reopen with unprecedented clinical unmet needs, we have a unique opportunity to rebuild a flawed system. Payment policies should drive incentives to improve individual and population health, not the volume of services delivered. We emphasize that no given service is inherently high- or low-value, but that it depends heavily on the individual context. Thus, the implementation of new financial incentives for providers and patients needs to be nuanced and flexible to allow for patient-level variability. The added expenditures required for higher reimbursement rates for highly valuable services can be fully paid for by reducing the use of and reimbursement for low-value services.
The delivery of evidence-based care should be the foundation of the new normal. We all agree that there is more than enough money in U.S. health care; it’s time that we start spending it on services that will make us a healthier nation.
High-deductible health plans (HDHPs) covered more than 30 percent of enrollees in employer-sponsored plans in the United States in 2019, up from 4 percent in 2006. In 2020, the Internal Revenue Service defines HDHP as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) cannot be more than $6,900 for an individual or $13,800 for a family. However, this limit does not apply to out-of-network services.
The growth of HDHPs is driven by the pursuit of reduced health care spending and premiums for both employees and employers through channeling elements of consumerism and managed care. Often, HDHPs are offered along with a savings option (health savings account or health reimbursement arrangement) in a consumer-directed health plan.
Recently, however, there have been concerns about the out-of-pocket cost burdens imposed on patients by HDHPs and other plans. Reducing these costs has been the focus of major policy proposals, including prescription drug bills from both the House and the Senate; forthcoming plans for the Center for Medicare and Medicaid Innovation to test value-based insurance models following the president’s executive order 13890 on Protecting and Improving Medicare for Our Nation’s Seniors; and H.R. 2774, the Primary Care Patient Protection Act of 2019, which would create a primary care benefit for all HDHP holders, allowing for up to two deductible-free primary care office visits each year.
It is becoming increasingly clear that HDHPs’ indiscriminate reductions in care usage may not be the best way to contain health care costs. In this post, we suggest that combining the principles of HDHPs and value-based insurance design (VBID), by offering deductible exemptions for high-value services, could provide nuanced incentives with potential to preserve access to the most important services while reducing use of only more wasteful care.
Why Did HDHPs Fail To Deliver Their Intended Consequences?
The intended premise of HDHPs is that beneficiaries facing the full costs of health care services during the deductible phase will engage in price shopping and subsequently choose care commensurate with expected benefits of that care. The hope is that the combination of lower prices and a different mix of services could increase the value of health care used while also reducing costs. Unfortunately, evaluations of HDHPs suggest that consumers neither price shop nor can they discriminate between high- and low-value care when facing high deductibles; accordingly, they reduce use of both essential and inessential services. Not only is this behavior likely to lead to worse health for beneficiaries, but short-term savings for both the beneficiary and the insurer may be offset by increased long-term spending associated with preventable adverse health events. The lack of the hoped-for response to HDHPs (price shopping and reduction in unnecessary care only) may stem from a lack of price transparency, inability to pay for essential care during the deductible phase, or inadequate information about the value of alternate health care services and technologies.
The evidence on HDHPs should not be surprising. It matches older evidence from the RAND Health Insurance Experiment, where cost sharing caused people to reduce consumption of both appropriate and inappropriate care. The RAND experiment demonstrated that consumers may not have enough information available freely to them to address uncertainty and make rational choices about which services to purchase and which to forgo. For this reason, we suggest a variation on VBID, in which deductible exemptions for established high-value services would inform and incentivize beneficiaries to use the most valuable care, while disincentivizing low-value options. Such recommendations have been made in different forms in the literature but have not been widely adopted.
Tying-In Value Conversations Within HDHPs
VBIDs have developed over the past 15 years on the premise that when everyone is required to pay the same out-of-pocket amount for health care services whose benefits depend on patient characteristics, there is enormous potential for both underuse and overuse of care. It is also true that health services can be underused and overused when there are differential health-related returns across services, but patients are unaware of the differences. VBIDs have been used by insurers as a mechanism to address this information problem, by signaling the value of alternative health care technologies to consumers through variable cost sharing.
To date, most applications of VBID have focused on applying such designs to copays but not to deductibles. Moreover, most applications have applied reduced cost sharing for targeted high-value drugs, and only a few have also implemented concomitant increased cost sharing for low-value drugs. This means that the cost differences that the consumers faced between high- and low-value products continued to be small. Consequently, results of such applications show the promise of VBID, but to a limited scale, owing to the relative inelasticity of demand for care related to small copay variation. Tying value-based cost sharing within deductibles could generate a bigger “nudge” to align use with value.
Only one study evaluated the application of VBID on cost sharing within an HDHP plan. This research analyzed Kaiser Permanente of Northern California, where patients were switched to HDHPs, but some of them were offered free chronic disease medications. Resulting improvements in adherence due to zero cost sharing for chronic disease medications were shown to offset the HDHP-associated adherence reduction, especially for patients with poor adherence at the start. Importantly, adherence improvements did not occur for more clinically complex patients, or patients living in poorer neighborhoods. The inclusion of active counseling in VBID plans has potential to address these limitations.
In another example of VBID, a not-for-profit health plan in the Pacific Northwest implemented a formulary that tied drug copays to cost-effectiveness. Researchers found larger shifts in demand within drug classes in which copays were simultaneously reduced for high-value treatments and increased for low-value treatments, compared to drug classes in which the copays only moved in one direction. The overall effect of the VBID implementation was welfare-increasing but small, perhaps because the price dispersion faced by the patient between high-value and low-value alternatives was still too low to alter demand.
Other applications of VBID, where cost sharing was removed for primary care visits, were found to reduce total spending, mainly due to reductions in use of emergency department (ED) and other outpatient services. A plan that bundled copays for back pain physical therapy found reductions in ED use, in addition to eventual reductions in primary care use, and better adherence to care guidelines.
Value-Based High-Deductible Plans
We suggest that value-based high-deductible plans (VHDP), which combine the principles of HDHPs and VBID, and have been suggested as “a natural evolution of health plans,” could provide a robust alternative in insurance markets and achieve the goals of both low costs and high value of health care delivery. Our enthusiasm for such designs stems from the dispersion of price-elasticities observed when a value-based system was implemented on copayments. We expect such dispersion can be expanded substantially when VBID is applied to develop VHDPs. Specifically, VHDPs would nudge consumers toward high-value technologies (for example, preventive medications) by exempting their costs from the deductibles, while also providing consumers with transparency on the full costs of low-value services (for example, MRI for back pain or headache), and disincentivizing their use. This would generate a more elastic demand for low-value services, which in turn could move the markets for insured health care services toward more efficient outcomes.
In health care, where we know that both quality and value are at least partially unobservable to the patient, efficient outcomes are typically not attainable, especially when cost sharing indiscriminately alters prices. A VHDP would provide nuanced cost sharing to influence behavior in a manner similar to prices in traditional markets, therefore resolving information asymmetries for low-value services, reducing distortions, and increasing social welfare. In addition, such a policy could improve equity by ensuring that all beneficiaries have access to the highest-value services, even in the deductible phase of a benefit package. Such plans are certainly in line with the spirit of the recent bipartisan legislation (signed by President Donald Trump under executive order 13877) that allows health savings account eligible high-deductible health plans the flexibility to cover essential medications and services used to treat chronic diseases prior to meeting the plan deductible.
Challenges To Adoption Of Value-Based HDHPs
While value-based pricing improves beneficiaries’ ability to observe value, and therefore reduces the information asymmetries inherent in health care markets, the definition of “value” is an open question. Current legislative options being considered by both political parties in Congress aim to regulate and reduce drug pricing. While these efforts are important, and reduced prices would likely factor into premiums and out-of-pocket costs for consumers, these policy proposals do not necessarily tie price reductions to the value of drugs. That is, they are not tied to any specifically desired outcome of care. As mentioned, earlier VBID applications have been designed to impact health outcomes by using cost-effectiveness in formulary design to signal value. However, many other attributes of care, in addition to cost-effectiveness, should be considered by payers (both public and private) in determination of deductible-exemption status in a VHDP. These attributes include if a service has positive externalities (such as vaccinations) and if a service is unlikely to have moral hazard consumption (such as trauma care or chemotherapy). These, and other elements of value, could be included in decisions about which services should be exempt from the deductible. The decision of which elements to consider in this decision will depend on the stakeholders and perspectives (for example, payer, health system, employer, societal).
A potential downside of VHDPs is plan complexity, but improved communication (perhaps through health plan stewards) could address this limitation; active counseling has already been effective for this purpose in VBID. It would be relatively straightforward to incorporate the cost-sharing design of VHDPs to a value-based tiering system, now widely used in cost sharing.
Qualitative studies of VBID have identified additional barriers to VBID implementation. For example, patients are skeptical of value-based tradeoffs, do not necessarily trust the information provided by their plan, and may resist changes in care delivery. Payers tend to be skeptical of the clinical significance of adherence improvements from VBID and have expressed concern over low return on investment and administrative and information technology hurdles. Finally, providers are concerned about changes to patient behavior that puts their practice at financial risk.
These concerns are important, but potentially addressable with education and carefully planned implementation, to allow VHDPs to strike a nuanced balance between reducing moral hazard consumption of care and adequate risk protection. Such a balance is critical to controlling health spending while maintaining access to the highest-value services and reducing financial uncertainty.