The Definition of Value Based Insurance

Health insurance has been a controversial topic in recent years, given the health care reforms that were adopted by the federal government of the United States in 2010 and the debates surrounding that legislation. Value based insurance is a unique take on health insurance in which the cost of health services to the insured is directly related to the perceived value of those services.

Basic Concept of Value Based Insurance

• The basic idea of value based insurance is to align an insured individual's out of pocket health care costs with the value of the services for which they are receiving. For example, payments for a gym membership might be covered by a health care plan, while the cost of an MRI, which is commonly overused, would be entirely out of pocket.

Rationale

• The basic rationale for value based insurance is economic. In a traditional insurance system, costs aren't well aligned with the overall benefit, meaning that the medical decisions made by many individuals are not efficient from an economic standpoint. On the other hand if less useful procedures are more expensive for those choosing to undergo those procedures, they will be less likely to make that decision.

Results

• The results of value based insurance have generally been positive. For example, Pitney Bowes, a Fortune 500 company, found that it saved $1 million from reduced complications and the corresponding costs of those complications among its employees when it reduced co-payments for medication designed for asthma and diabetes patients.

Use by Employers

• After witnessing the demonstrated success of the implementation of value based insurance by companies such as Pitney Bowes, many other companies have adopted similar insurance policies for their own employees. A Mercer study conducted a 2007 survey of large employers with over 10,000 employees and found that 80 percent of them were interested in implementing some sort of value based insurance program within five years.