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It's All About Value...Based Benefit Design

What if the way you structured your company’s health benefits could encourage employees to make better health care choices?

Americans have (at least) two big problems when it comes to health care: they get too much, and they get too little. Often, we insist on inappropriate care, as in the case of a sympathetic parent pleading with a physician to prescribe an antibiotic for a child with a cold. But far more often, people skip essential screenings or treatments due to cost or inconvenience. The bottom line: Americans receive only about 55 percent of recommended care, while at the same time, “as much as $700 billion a year in health care services are delivered in the United States that do not improve health outcomes.”1 That is, to understate the matter, A LOT of underuse and A LOT of overuse.

Nowhere do employers have a better opportunity to address both overuse and underuse of health care than when designing their health benefits program. Thoughtfully designed benefits with the right mix of incentives and disincentives can discourage employees from seeking unneeded tests, point them to quality providers, and help them better manage chronic conditions.

IMPORTED: __media_E40CE90FE588469AA45317F4BA153461_w_200_h_200_as_1.jpg Using incentives to encourage employees to make choices (among treatments, tests, physicians) based on value is broadly referred to as value-based benefit design. The way it works is simple: useful interventions or tests, as well as doctors who have demonstrated high quality, cost less for the employee; unnecessary interventions and unproven providers cost more. For instance, thinking of getting a flu shot? It’s on the house. Considering a generic alternative to an expensive prescription? You’ll save a bundle. But if you want an MRI to diagnose a routine backache, it’ll cost a small fortune.

While value-based benefit design makes intuitive sense, the real question is, “does it work?” According to dozens of employers that have already embraced the concept, the answer is yes. A few examples:

Gulfstream Aerospace Corp., located in Savannah, Georgia, dropped its copay for flu shots and generic drugs for certain chronic diseases to zero. Overall, pharmaceutical costs dropped significantly as the effort yielded a 98.4 percent generic substitution rate.

Pitney Bowes, a Stamford, Connecticut–based manufacturer of mailing and shipping software and hardware, established a three-tier pharmacy benefit designed to steer employees toward generics and needed, high-value medications for diabetes, asthma, and hypertension. Not only did net pharmacy costs decline, but among diabetics, emergency room visits declined 35 percent and overall medical costs decreased 6 percent.

Colorado Springs School District 11, with 3,400 employees, made an aggressive push to discourage open surgery when minimally invasive (laparoscopic) alternatives were available. The district targeted five common surgeries and provided incentives to members that opted for laparoscopic vs. open surgery. Employees responded enthusiastically and the district saved at least $1 million on hospital and surgical costs. Continued savings of about 2 percent of overall medical costs continue to accrue.

Dozens of complete case studies and additional details on some of the examples above are available at the Center for Health Value Innovation. The Center also offers a useful roadmap for adopting a healthy culture and implementing wellness programs.

1 McGlynn et al., "The Quality of Health Care Delivered to Adults in the U.S.," New England Journal of Medicine, June 2003 348(26): 2635–45; Orszag, The Underuse, Overuse, and Misuse of Health Care, Testimony before the Senate Committee on Finance, July 2008.


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