Value-Based Insurance Design in the Medicare Prescription Drug Benefit: An Analysis of Policy Options

Abstract

Summary: Value-based insurance design (VBID) has emerged as a potentially viable approach to promote healthcare value. VBID abandons the traditional approach of uniformly applying cost sharing to health services regardless of their effect on a patient’s health. Instead, VBID tailors cost sharing to the value that the service provides the beneficiary in terms of health gained per dollar spent. The more clinically beneficial the service is to a patient, the lower that individual’s cost sharing for the service. Given the growing need to increase the value of care delivered in the Medicare program and the existing evidence suggesting that VBID can generate cost savings and improve health outcomes, there are clear opportunities to explore how to implement VBID within the Medicare program. This analysis presents options for advancing a VBID approach within Medicare’s prescription drug benefit (Part D), and specifically focuses on differential cost sharing for chronically ill beneficiaries and high-value medications that target chronic conditions.