Understanding Value Based Insurance Design: What Does It Mean for People with Medicare?

Health care is full of confusing jargon. It includes terms like fee-for-service, accountable care organization, dual eligibles, and bundled payments—to name only a few.

Add one more to the list: VBID, which stands for value based insurance design. Particularly for people with Medicare private plans (known as Medicare Advantage or MA plans), it might be worth understanding this acronym now being tossed around. While people with MA plans may not know what it means now, they could soon start hearing the term more.

VBID is a way of structuring health insurance policies. Under this approach, insurers use financial incentives and targeted benefits to nudge enrollees toward using health care services that are most likely to deliver the best health results and are also cost-efficient (thus called high-value services).

In theory, VBID’s goal is to improve people’s health while at the same time reducing overall health care costs. For example, under a VBID approach, enrollees with chronic conditions might have lower or even no out-of-pocket costs (such as copays or deductibles) for certain insurance benefits that help them better manage their health conditions and avert more costly treatments down the road (e.g., no cost sharing for hypertension medications that help reduce future risks of heart attack or failure). Or insurers might offer additional benefits targeted to enrollees with certain health conditions (e.g., a tobacco cessation program for enrollees with chronic obstructive pulmonary disease).

While VBID has long been common in other private insurance markets, MA is a relative newcomer to the approach. That may be about to change, and in fact, to some extent, it already has.  

Medicare Advantage is Testing the VBID Approach

MA insurers have generally been required to offer plans with the same out-of-pocket costs and benefits for all enrollees. But this is no longer always the case. One of the ways things are changing is through a test of the VBID approach in Medicare Advantage. This model test, which started in 2017 and is run by the Center for Medicare & Medicaid Innovation (CMMI), could have far-reaching implications. If it shows improvements in MA enrollees’ health outcomes and reduces spending, VBID could become a bigger part of MA.    

While only a small number of plans have participated in MA’s VBID model test so far, the Bipartisan Budget Act of 2018 expanded the program to all 50 states starting next year—a big jump from the 7 states initially authorized to participate. The expansion reflects VBID’s popularity with many policymakers, despite the fact that formal evaluations of the model have only just begun to come in.

Meanwhile, the scope of MA’s VBID test program has already expanded significantly. Initially, CMMI allowed MA insurers participating in the initiative to lower out-of-pocket costs or add health care services only for enrollees with the following chronic conditions: diabetes, chronic obstructive pulmonary disease, congestive heart failure, past stroke, hypertension, coronary artery disease, mood disorders, rheumatoid arthritis, and dementia. Starting this year, however, MA’s VBID insurers have the flexibility to focus on any chronic condition.

New in 2020: Even More Flexibility for MA’s VBID Plans

Next year will usher in even greater changes to MA’s VBID initiative—a result of new rules governing the program. First, VBID plans will be allowed to customize cost-sharing and extra benefits for low-income enrollees in addition to focusing on people with chronic conditions—potentially even offering benefits that are not primarily related to health care, such as transportation. Also, the new policies require all MA VBID plans to offer wellness and health care planning programs. With these changes, insurers could have better tools to address social determinants of health and provide some enrollees with greater care coordination.

Another 2020 update could be especially relevant for enrollees living in remote areas. MA VBID plans will be able to offer more telehealth services to satisfy Medicare’s requirement that enrollees not have to travel unreasonably far to see a clinician—allowing the program to evaluate the efficacy of such remote health care in the process. Lastly, the new rules allow MA VBID plans to increase enrollee financial incentives to encourage healthy behaviors.  It remains to be seen whether these changes will prove beneficial to consumers.

Keeping an Eye on the Ball

Carefully watching Medicare’s VBID program will continue to be important. While the model has expanded quickly, insurers and policymakers should not lose sight of the project’s main goal: to test and learn which VBID approaches are most effective in improving consumers’ health. Now is an important time to keep a close eye on what these new flexibilities for insurers will really mean for consumers. The expanded MA VBID program, could potentially mean that insurers have better tools to help enrollees improve their health or stay healthy. However, it could also add more complexity to MA enrollees’ coverage options and further complicate the already confusing task of selecting an MA plan and choosing between Medicare enrollment options.

Moreover, policymakers should remember that MA enrollees only account for about one-third of the Medicare population. To improve care for all Medicare beneficiaries, policymakers should also test innovations that lead to better health outcomes, address chronic health conditions and reduce health care costs in traditional Medicare, where most Medicare beneficiaries receive their coverage.

Jane Sung is a senior strategic policy advisor at the AARP Public Policy Institute. Her areas of expertise include private health insurance, health insurance market reforms, Medicare Advantage, and Medicare supplemental insurance.

Claire Noel-Miller is a senior strategic policy advisor at the AARP Public Policy Institute. Her areas of expertise include traditional Medicare, Medicare Advantage and quantitative research methods applied to health policy issues.