IHP 620 Module 6 Milestone Two Example

Milestone Two: Four Benefit Designs for Granite Peak's Employee Plan

[Student Name]

Southern New Hampshire University

IHP 620: Economic Principles of Healthcare

Module Six Milestone Two

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Milestone Two: Four Benefit Designs for Granite Peak's Employee Plan

Milestone One traced Granite Peak's 8% annual plan growth to its sources, chiefly what outside hospitals and imaging centers charge and what specialty medicines cost, with extra use adding only about 15%. This milestone compares four benefit designs against explicit criteria, using economic evidence on how each changes behavior, spending and health.

Criteria

Each option is judged on four criteria. Savings: how much it would reduce employer costs, separating true spending reductions from cost shifting. Health: whether it would reduce valuable care or improve it. Equity: how its burden falls across wage levels and health status. Feasibility: how difficult it would be to administer and explain. Because the plan exists to keep employees healthy and productive, health and equity are weighted as heavily as savings.

Option A: A $2,500 Deductible

Module Two put the deductible's effect at roughly $19 million less total care and $22.6 million lower employer outlays. Brot-Goldberg et al. (2017) found that such a switch reduced spending through less use rather than price shopping and that employees cut valuable care, including some preventive services and chronic disease medications, along with low-value care. The option scores well on savings but poorly on health and equity, and it targets utilization, the smallest driver of growth.

Option B: Value-Based Insurance Design

Chernew et al. (2007) proposed value-based insurance design, which sets cost-sharing according to the clinical value of a service rather than its price, lowering or eliminating copayments for high-value care such as medications for chronic disease and raising them for services of little value. They argued that uniform cost-sharing discourages valuable and wasteful care alike, and that aligning patient costs with value could improve health without large increases in spending.

Evidence on Value-Based Design

Choudhry et al. (2011) tested the idea in a randomized trial of patients discharged after a heart attack. Eliminating copayments for statins, beta-blockers and blood pressure drugs raised adherence by roughly four to six percentage points. The trial's primary combined outcome did not differ significantly, but rates of major vascular events or revascularization were lower, and total health spending did not rise, because savings from fewer events offset the plan's added drug costs. For Granite Peak, eliminating copays for diabetes, hypertension and asthma medications would cost about $2.1 million a year before offsets, paired with higher cost-sharing for low-value services such as imaging for uncomplicated back pain.

Option C: Reference Pricing

Under reference pricing, the plan pays up to a set amount for a shoppable service, such as a knee replacement or an MRI, and anyone picking a pricier facility covers the gap themselves. Robinson and Brown (2013) studied the California public employees' program for hip and knee replacement and found that patients shifted toward lower-priced hospitals and that several higher-priced hospitals reduced their prices substantially. Because Granite Peak's outside prices for joint replacement and imaging run far above internal rates, reference pricing targets the plan's largest cost driver directly.

Option D: Steering to In-System Care

The plan could lower cost-sharing for care at Granite Peak facilities and raise it for outside care where the system offers the same service. This builds on the Core plan's design and could shift a portion of the 38% of spending that goes outside. The approach is feasible and aligns incentives, but it limits choice, may strain in-system capacity and could raise concerns if employees prefer outside specialists.

Comparing the Options

The table summarizes the comparison. The options differ less in total savings than in how they achieve them.

Table 1. Benefit Design Options Compared

Note. Composite estimates; savings for C and D depend on how many employees change providers.

How Employees Would Experience Each Option

Benefit designs succeed or fail partly on how employees understand them. A high deductible is simple to explain but painful at the moment of care. Value-based design requires employees to know which services are free and which cost more, which can be communicated through the pharmacy benefit and clinician prompts. Reference pricing demands clear, advance information about which providers fall under the reference price, or employees may face unexpected bills. In-system steering is intuitive for employees already using Granite Peak clinicians but frustrating for those with long relationships with outside specialists. Focus groups with nurses, environmental services staff and physicians found strongest support for free chronic disease medications and the most concern about restrictions on specialist choice.

Combining Designs

The options are not mutually exclusive. A combination of value-based design for chronic disease medications, reference pricing for joint replacement, spine surgery and advanced imaging and modest steering toward in-system care would target prices directly, protect high-value care and avoid shifting large costs to lower-wage employees. Estimated combined employer savings are about $12 million to $15 million a year, less than a high deductible but achieved mainly by lowering prices rather than reducing care.

Specialty Drugs

None of the four designs addresses specialty drugs directly, even though they account for about a quarter of cost growth. Two complementary steps are worth pursuing through the pharmacy benefit manager: preferring biosimilars where they are available and clinically appropriate, and using the system's own specialty pharmacy to dispense high-cost drugs at lower acquisition cost. These are not benefit design changes in the strict sense, but they complete the response to the plan's cost drivers.

Risks and Uncertainties

Reference pricing requires clear communication so employees are not surprised by bills, and exceptions for cases where lower-priced providers are not clinically appropriate. Value-based design depends on defining high- and low-value services carefully. In-system steering assumes capacity to absorb more volume. Savings estimates rest on behavior changes observed elsewhere that may not transfer fully.

Conclusion

A high deductible offers the largest immediate savings but works mainly by reducing care, including valuable care, and burdens sicker and lower-paid employees. Value-based design, reference pricing and in-system steering, used together, target the plan's real cost drivers while protecting health. Milestone Three will examine how payment arrangements with providers could extend these gains.

References

Brot-Goldberg, Z. C., Chandra, A., Handel, B. R., & Kolstad, J. T. (2017). What does a deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics. The Quarterly Journal of Economics, 132(3), 1261-1318. https://doi.org/10.1093/qje/qjx013

Chernew, M. E., Rosen, A. B., & Fendrick, A. M. (2007). Value-based insurance design. Health Affairs, 26(2), w195-w203. https://doi.org/10.1377/hlthaff.26.2.w195

Choudhry, N. K., Avorn, J., Glynn, R. J., Antman, E. M., Schneeweiss, S., Toscano, M., Reisman, L., Fernandes, J., Spettell, C., Lee, J. L., Levin, R., Brennan, T., & Shrank, W. H. (2011). Full coverage for preventive medications after myocardial infarction. New England Journal of Medicine, 365(22), 2088-2097. https://doi.org/10.1056/NEJMsa1107913

Robinson, J. C., & Brown, T. T. (2013). Increases in consumer cost sharing redirect patient volumes and reduce hospital prices for orthopedic surgery. Health Affairs, 32(8), 1392-1397. https://doi.org/10.1377/hlthaff.2013.0188