The Goldilocks Plan: Getting Benefit Design “Just Right” for Insurance Exchanges

Today the journal Health Affairs has published an article I co-wrote with CHIR colleague Christine Monahan and colleagues Dave Downs and Barbara Yondorf, both affiliated with Engaged Public in Denver, Colorado. In it, we examine a policy conundrum for health exchange planners. On one hand, politicians and policymakers have promised consumers that the new exchanges will enable them to make “apples to apples” comparisons among their health plan options, streamlining and simplifying their shopping experience.  To fulfill that promise requires some standardization of benefit design, so that consumers can effectively compare such elements as deductibles, co-payments for doctor and emergency room visits, hospital stays, and prescription drugs. This was the experience within the Massachusetts Health Connector, as the state moved from a broad set of choices to a smaller, standardized set of options, in response to consumer feedback. And consumer advocates in a number of states have encouraged their exchange leadership to require insurers to submit standardized benefit designs.

On the other hand, exchange planners must confront the desire to allow insurers to innovate, and to offer products that appeal to consumers and small business purchasers alike. One type of benefit design that has shown increasing appeal, at least among employer purchasers, is “value-based insurance design” (VBID). Proponents of VBID argue – and early evidence suggests – that it can make people healthier by reducing cost barriers to high-value services that have been shown to improve health, while generating savings by increasing consumer cost sharing for services that are deemed—based on available evidence—to be of uncertain value.

Thus, while traditional benefit design might assign a $20 co-payment for all doctors’ visits, a VBID plan might reduce or eliminate that co-payment for a diabetic foot exam. Or, conversely, while a traditional plan may charge a standard 10% coinsurance to enrollees for an outpatient surgery, a VBID plan might impose an additional $500 charge for knee arthroscopy, a service that has been shown to be of questionable value for most patients. VBID is inherently more complex than traditional benefit designs, making it difficult for many consumers to understand the financial implications and compare it against other plans options.

So what’s an exchange planner to do? It will be of utmost importance to offer consumers a streamlined, simple shopping experience and avoid “choice overload,” which can cause many to give up or make bad choices. On the other hand, VBID plans could offer consumers an important, more value oriented alternative. In our research we found that a number of exchanges are attempting to strike a balance between a limited, standardized set of plans and unfettered innovation. For example:

  • Insurers participating in Oregon’s exchange will be required to offer a standardized “cookie cutter” plan at the bronze, silver, and gold coverage levels, with benefits and cost-sharing determined by the insurance department. But insurers may, at their option, offer two additional plans at each coverage level “that demonstrate innovation through the use of networks, wellness programs, or other options.” State officials have observed that insurers could use this option to offer VBID plans.
  • California is requiring the standardization of “major cost-sharing components of benefit plans,” but will also allow insurers to submit one additional, non standardized plan and offer the Exchange’s standardized Health Savings Account-eligible (HSA) design. A discussion draft summarizing proposed standardized benefit plan designs is available here. In considering their options, exchange staff noted the importance of allowing the kind of innovation required by VBID, and recommended allowing VBID plans that lower out-of-pocket expenses or provide financial rewards.
  • Vermont’s exchange planners are also balancing standardization with innovation by requiring insurers to offer a set of state-specified plan designs  while giving them the option to offer  “non-standardized ‘innovative’ plan designs” at the discretion of the Commissioner of the Department of Vermont Health Access. Specifically, insurers will be permitted to submit up to two non-standardized plans at each the bronze, silver, and gold coverage levels for approval.
  • Connecticut issued a solicitation in December asking insurers interested in participating in their exchange to submit one standard plan at the bronze, silver, and gold coverage levels.  Insurers are also allowed to submit a standard plan for the platinum level and encouraged to submit a non-standard plan at each level.  Proposed benefit design standards are currently under review.
  • Just last week, New York also issued an invitation for insurers to participate in its exchange.  Like the other states, New York is requiring insurers to offer one standard product at each metal level while permitting insurers to also offer up to three “non-standard” products at any metal level.  Non-standard products are limited in the extent they can diverge from the standard design, however.  A description of the standard benefit design is available here.
  • Even Massachusetts, which moved to a set of nine standardized plan designs after consumers complained that the offerings were confusing and too numerous, is now poised to allow insurers to offer additional plan designs that incorporate VBID. Connector officials have cited the need to offer products that have more “market appeal,” particularly for small business owners.

These and other exchange officials recognize that VBID can offer a more nuanced alternative to traditional benefit design, and these products could have enormous appeal to many purchasers, particularly if they can offer good coverage at a better price. However, VBID’s inherent complexity can be challenging to explain to consumers in a way that ensures they fully understand their financial exposure. This complexity runs at cross-purposes to health reform’s vision of a reformed marketplace in which consumers are empowered to make apples-to-apples comparisons among plans.

As policymakers and exchange planners attempt to find the right balance between standardization and innovation, we recommend that they pay critical attention to the new web-based tools consumers will be using, and design them so they can fully understand and compare their health plan options. They must also ensure transparency regarding benefits and cost-sharing, and require uniform definitions and descriptions about design attributes – in plain English. In addition, exchanges should consider exercising market leverage – perhaps in collaboration with other large health insurance purchasers in the state – to ensure VBID plans are truly improving access to high value primary care, while also covering services appropriate to each person’s clinical needs, preferences, and values.

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