Medicare to shut down its VBID program
February 25, 2025
Value based insurance design (VBID) allows for lower out of pocket costs for high value medical services, and higher out of pocket costs for low value services. The most visible VBID program in commercial insurance is waiving cost sharing for preventive care services like mammograms, colonoscopy, and preexposure prophylaxis to prevent HIV infection.
The Centers for Medicare and Medicaid Services (CMS) has been running a VBID pilot program within Medicare Advantage (MA) plans since 2017. This program allows the private insurance companies running those plans to reduce member cost sharing for high value services, provide additional benefits such as nutritious food, and provide incentives to members for getting preventive services. About a quarter (23%) of MA plans offered VBID plans in 2023; most of these offered reduced cost sharing for certain medications.
An independent evaluation showed that these plans were associated with better drug adherence and improved quality scores of the participating Medicare Advantage plans. However, the VBID plans were also associated with a statistically significantly higher use of inpatient services. Further, members in these plans had higher risk scores due to more medical encounters, which triggered higher CMS payments to the plans. The VBID plans increased CMS cost by over $2 billion annually in 2022 and 2023, and CMS is required to discontinue any program that is not cost-neutral.
The medical services that were encouraged through these VBID plans were mostly cost-effective, meaning that they provided health benefits for a “reasonable” cost. There are few medical services that are cost-saving, although even health policy experts often mistakenly believe that an investment in better care today will lead to lower costs tomorrow. I call this the “fallacy of future cost savings.” A VBID insurance design that charged higher out of pocket costs for low value care would be more likely to lower total medical costs.
A 2010 study of total medical costs in the commercial population showed that waiving cost sharing on cardiovascular, asthma, and diabetes medications lowered total medical spending. A 2014 study showed that waiving medication among patients with a previous heart attack improved drug adherence and decreased racial disparities. This study also found a statistically significant lower rate of death with waived cost sharing for cardiovascular drugs.
Implications for employers:
● VBID insurance designs can improve drug adherence and improve quality of care. Some have been shown to lower total medical cost, but this was not true of this Medicare program.
● Employers should still consider waiving or lowering cost sharing for the highest value care. However, they should do this to improve quality of care, satisfaction, and productivity, and should not expect VBID plan design to lower future costs.
● Employers with higher turnover rates have the hardest time justifying a plan design that waives cost sharing for high value care. Unlike most employers, Medicare will generally cover its beneficiaries for the rest of their lives.
Tomorrow: The potential impact of tariffs on medical costs