September 19th, 2014
The quest for value dominates contemporary health policy. Value, properly defined, is not about cost-savings but about the balance of costs and health benefits — improving the average cost-effectiveness of health interventions. In choosing which care is funded, insurers are a crucial but commonly neglected driver of health system value.
Insurers can increase health system value by covering fewer cost-ineffective interventions or covering more cost-effective interventions. Perhaps the earliest attempt to reform insurance, managed care, attempted to pursue both goals, but by the time it was implemented it widely focused (or was perceived to focus) on cost-containment.
A recent insurance reform proposal, known as Relative Value Health Insurance (RVHI), received considerable attention, for instance, in The Upshot, The Incidental Economist, and Forbes. RVHI enables insurers to reduce their contractual obligation to cover “usual and customary” care. This and similar earlier proposals rely on the insurers’ natural incentive to cut costs. Less well-covered, however, are proposals to alter the very incentives of insurers to improve health, which we will call “pay-for-performance-for-insurers” (P4P4I).Read the rest of this entry »