Insights on employers ready for VBC

Achieving value-based care (VBC) in the commercial sector is a hot topic, but successful implementation won’t be possible without employers. As healthcare purchasers, employers want the benefits that VBC offers ─ reduced healthcare spending and improved quality of care for their employees. According to a 2022 survey of large employers, almost 70% are prioritizing improving healthcare affordability over the next three to five years, with 36% of those surveyed considering VBC strategies as a way to do so.

Yet even with this growing interest in healthcare affordability, VBC may not be worth the investment for many employers. This is due to several reasons. For one, smaller employers may not have the scale necessary for success in VBC. Their lack of covered lives means that not only are there less opportunities for cost savings, but employers may also lack bargaining power when looking for potential industry partners. Additionally, VBC is a long game, and employers with high turnover will likely not see sufficient ROI. Lastly, healthcare is complex. For this reason, many employers may be inclined to rely on other channels, like their health plan or broker, to make benefits decisions for them.

With these barriers in mind, it’s apparent that not every employer is ready for VBC. But which ones are? And how? Our research revealed there are two levels of criteria useful to discern which employers are ready ─ and which strategies they should pursue.

Level 1: Monopoly factors

Without meeting the two criteria below, an employer should not “pass go” and participate in VBC:

• Large population: They must have a large number of employees (>500) to have sufficient lives to scale population health management strategies.
• Self-insured: Self-insured employers pay employees’ claims and control benefit design and provider network composition. They have the flexibility and incentive to pursue VBC strategies, as compared to their fully insured counterparts who delegate decisions on these strategies to their health plan.

Even once an employer has opted to pursue VBC, their VBC potential will vary. And because of this, there is no one-size-fits-all strategy when it comes to VBC benefits strategies. The next level of factors illustrates the qualities that will dictate employers’ best suited strategies for success.

Level 2: VBC archetype defining factors

For large, self-insured employers, there are two major factors that inform their approach to VBC:

• Employee turnover: VBC takes significant up-front investment and requires time to see return on investment. Turnover dictates an employer’s time horizon, which determines whether an employer will take a short-term or a longer-term approach.
• Geographic concentration: Healthcare is local. Employers need scale to achieve ROI, as well as the ability to exert market influence. Only those employers with a sufficient concentration of employees in one or more markets can successfully partner with different healthcare organizations.

Intersecting the above two factors creates four employer archetypes that will determine their potential for success in value-based care. In this article, we will examine the three that matter most, their defining characteristics, and the best-suited strategies for each one. In understanding these different employer types and their associated strategies, other industry players ─ like providers, plans, and third-party vendors ─ can tailor their support and partnership goals to the employers best-suited for their business models.