Understanding Benefit Design Options

Categories Benefit Design, Tool Library

Why Should Employers Care About Benefit Designs?

Benefit designs that leverage cost-sharing are financial mechanisms used by employers, other purchasers of health care, and health plans to encourage consumers to make value-based decisions about their care. These benefit designs can incentivize consumers either to seek or avoid certain health care providers or services. Examples include, value-based insurance design, high deductible health plans, tiered networks, narrow networks, reference pricing, centers of excellence, and benefit designs for alternative sites of care.

However, a single benefit design does not exist in a vacuum. There is a larger context of other benefit designs, provider payment methods, and market forces at work, affecting the benefit design’s ability to impact consumer behavior. Understanding the context in which benefit designs are implemented, how the incentives work, and the operational issues that stakeholders may encounter, can help employers and other health care purchasers package and design consumer benefits to get better value for the care they finance.

What Issues Can Affect the Success of Benefit Designs?

Analyses of benefit designs often lack understanding of the inherent nuances of each method—the context in which it is implemented, the design of the incentives and their impact, and the operational issues that implementers may encounter.

Context: In a market where one provider system has the greatest market share and the clout and leverage to demand inclusion in the provider network, a benefit and provider network design meant to steer patients to high value providers may not succeed. This is particularly true if including the system in the network is necessary to ensure that consumers have adequate access to providers. Including the dominant provider system may erase any savings that the benefit and provider network design were intended to generate.

Design of the Incentives (Cost-Sharing Amounts): A benefit design with significant cost differentials may be more successful at encouraging consumers to seek care from high-value providers or seek high-value services. For example, a consumer needing a hip replacement has a 10% co-insurance for care from a high-value provider, or a 60% co-insurance for care from a low-value provider. If the hip replacement is $20,000, the consumer may prefer to seek care from the high-value provider, with a cost differential of $2,000 versus $12,000 out-of-pocket. However, if cost differentials were less significant—20 percent versus 40 percent—the consumer may be less likely to seek care from the high-value provider, particularly if she already has a relationship with the other provider.

Operational Challenges: A benefit design that is implemented in one circumstance may not be operationally feasible in another. For example, value-based insurance design (V-BID) has readily been implemented in pharmacy to create cost differentials based on the effectiveness or ineffectiveness of a drug. This requires some difficult judgments, and the difficulty may be further amplified in applying this approach to medical services. The benefit of certain medical services also will differ for each patient in the amount of health they produce, which could vary even further with when and where patients receive them.

Understanding the Nuances Makes a Difference

Understanding the positives and negatives of each approach listed above, and how to mitigate the negative aspects that may be inherent in each approach, can help employers and other health care purchasers and payers ensure that benefit designs have the desired effect. Moreover, because no method exists in isolation, understanding how benefit designs work with each other, with payment reform, and within the market context can help purchasers create designs that drive consumers to high-value care.