A good healthcare executive order for VBID

Via the University of Michigan Value Based Insurance Design (VBID) Center, an update on a recent executive order that actually improves service delivery and insurance incentives:

“The Internal Revenue Service shall update the preventive care safe harbor under Section 223 of the Internal Revenue Code to include services or benefits, including medications, intended to prevent chronic disease progression or complications, for the purpose of helping patients adhere to clinical regimens and thereby reducing costs of healthcare.”

Currently high deductible health plans (HDHP) that have a Health Savings Account (HSA) attached to them will only pay for preventative services with no cost sharing and before the deductible is satisfied. That means an insurer offering an HDHP will pay the claim for a diabetes screening but it is not allowed to pay for testing supplies, insulin or common prescription drugs until the patient pays the entire deductible.

The theory of change on a HDHP is that the first dollar expense will deter people from buying low value or ineffective care and thus lead to lower utilization. This would be a great idea if people are good shoppers for healthcare services. We are not.

VBID attempts to get around this bad shopping problem. It attempts to make it cheap and easy for people to get good, high value and effective services while avoiding ineffective or inefficient services. A pure VBID plan would have no cost sharing on highly cost effective services. The current rules on HDHPs don’t allow for VBID principals to be incorporated into plan design in any coherent or straightforward manner.

This executive order changes that problem. If a person is diagnosed with diabetes, their testing supplies, insulin and any other blood sugar control services or goods to be paid for by the insurer even if the person has not paid their full deductible. The theory of change is that this should increase adherance to best practices by removing a cost barrier which should lead to better overall long term health and fewer acute inpatient stays and ER visits. To me, this sounds reasonable.

I do have one question about this theory of change. Dr. Amelia Haviland had a great NBER working paper in 2015 that looked at the mirror image of this theory of change. She looked to see if the conversion of large firms from traditional, low dollar plans to a HDHP led to an increase in spending in the out years. This is a really important question. [CDHP = Consumer directed health plan which is just a different terminology of HDHP]

At the firm level, we find that CDHP offer is associated with an approximately 5 percent reduction in total health care spending in each of the three years after CDHPs were introduced relative to cost growth observed for non-offering employers. The long term decreases in spending are focused in outpatient care and drugs and there is little impact on inpatient or emergency department spending. If these effects are due only to changes in health care spending among those enrolled in CDHPs, they imply local average treatment effects for those enrolled in CDHPs of an approximately 15 percent reduction in total spending in each the first three years….

This paper shows persistent cost savings of HDHP’s even with the current restrictions on paying for chronic care management services with deductible applicable dollars. This is important for this executive order as it opens up an actuarial question. Does the increase in utilization of chronic disease management services paid for by the insurer lead to lower net costs? Or is this merely a timing issue where deductibles are met at a slightly later point in the year and thus it is effectively a wash? Or is this a transfer from the insurer to the people with chronic conditions for services that they would have paid for anyways.

If the removal of a cost barrier for chronic condition management services leads to lower net costs in the short run (and hopefully but not materially in the long run), insurers will make it easy for these services to be accessed. If it is a wash in the short run, insurers will treat this flexibility like they treat HPV vaccinations today; they’ll pay without too many hassles but they will not aggressively push for people to use these services. And if it is a transfer without internalizable gains through lower claims expenses, insurers will find away to avoid making it easy to use pre-deductible chronic condition management services.

This is an empirical question that I am very curious about. However, this executive order does make a good deal of sense.