Healthcare’s Value Problem Part Three: Getting More Health, Not More Health Care

Part One of our three part series shared that a family of four in 2016 pays $25,826 a year on average for healthcare  – a three-fold increase over 2001 when it was $8,414.  And it argued that we must do more than simply inventory the seemingly countless number of issues that contribute to the problem: we must carefully distinguish between results and causes.

Part Two did just that, segregating high-level from mid-level causes and, in turn, mid-level from “root causes.  We identified two primary root causes, each of which exacerbate the other:

  1. Surrogate purchasing (e.g., paying for premiums through a third party rather than directly purchasing health care based on overall value).
  2. Undifferentiated benefit designs (e.g., providing the same benefit for low-value care as for high value care).

Finally, we suggested two basic strategies for employers who want to get more health for their employees, NOT more health care:

  1. Proactively purchasing health care by replacing surrogate purchasing with Value-Based Purchasing (VBP).
  2. Providing benefit designs that encourage the use of high value services and discourage the use of lower value services through a Value-Based Insurance Design (V-BID).

The case for Value-Based Purchasing.  Here, then is our argument for Value-Based Purchasing….

  • The problem with surrogates. First, to be clear, insurers and third party administrators play an important role in health care.  They perform vital functions that employers do not and should not be expected to perform.  But relying on third parties to purchase care without employer involvement causes four major problems:
    1. It creates a buyer-seller disconnect. It places the value-proposition for the third party (the surrogate) above the value-proposition for the employer and user.
    2. It ignores quality. Historically, both health plans have emphasized price discounting price and largely ignored quality – despite the fact that quality is the underlying problem.
    3. It promotes the wrong strategies. A prime example:  high-deductible health plans.  Once in such plans, research has shown that consumers postpone or avoid high value care as much as they do lower value care.  Ultimately, chronic diseases end up costing significantly more.
    4. It distorts market incentives. The emphasis on discounts and narrow networks simply creates incentives for providers to consolidate into bigger and bigger systems – not to realize economies of scale, but to better negotiate contracts.
  • Defining V-Based Purchasing. The National Business Coalition on Health (NBCH) “Value-Based Purchasing Guide” defines value-based purchasing (VBP) as “a demand-side strategy to measure, report, and reward excellence in health care delivery, taking into consideration access, price, quality, efficiency, and alignment of incentives.”   VBP means that employer reward (directly or through an intermediary) high performing health care providers through:
    1. Transparency and employee reporting.
    2. Enhanced payments through differential reimbursements.
    3. Increased market share through purchaser, payer, and/or consumer selection.

Why Value-Based Insurance Design is Crucial

  • The problem with Undifferentiated Benefit Designs . We know that some services – particularly preventative care and primary care – offer high value.  And we know that other services – such as those on the “Choosing Wisely” either offer limited or no value.  So here’s what happens when we offer benefits that don’t differentiate between the two:  We under-utilize and undervalue the most beneficial services and we overvalue and we overutilize services that either don’t help or may actually harm patients.
  • About VBID. The University of Michigan established V-BID “on the principle of lowering or removing financial barriers to essential, high-value clinical services. V-BID plans align patients’ out-of-pocket costs, such as copayments, with the value of services.”  It intends to recognize two “tenets of clinical nuance:”
    1. Medical services differ in the amount of health produced,
    2. The clinical benefit derived from a specific service depends on the consumer using it, as well as when and where the service is provided.
  • The role of benefit design in promoting value. All sorts of health plans have benefitted – clinically and financially – from implementing V-BID, including:
    1. Public Employee Health Plans.
    2. High Deductible Health Plans.
    3. Medicaid Programs.


Because employers who wish to improve the value-proposition of health care for both their employees and themselves must address both the supply and the demand variables in the equation, Value-Based Purchasing and Value-Based Insurance Design are essential.

By Robert Smith/Associate Director of CBGH


“The theory is that only the surrogates have enough knowledge to control excess care, enough market power to discipline rising prices, and enough vested interest in our health to drive greater safety and quality.  But the past 50 years suggests the theory is wrong: the surrogates them-selves create many of the incentives for bad behavior in health care.”


  • David Goldhill, Catastrophic Care: Why Everything We Think We Know About Health Care is Wrong