How Employers Can Control Costs with Episode-Based Benefit Plans

As employers strive to help members lower costs, they can leverage episode-based benefit plans to guide their employees toward value-based care decision-making, according to a report from Manatt Health.

“At the foundation of the Episode-based Benefit Plan is each episode of care and the comprehensive payments for them that plans pay to providers,” the report explained. “A single episode of care comprises all care for a health event, such as maternity and childbirth or a knee replacement, or maintenance care for a chronic condition such as back pain or diabetes.”

An episode-based benefit plan involves a trigger that alerts the employer that a member is in need of a covered episode of care. The episode of care must be mapped out in detail, including the length of time that the episode should take and which services the plan will consider part of the episode.

The length of time for one episode of care will vary depending on the health condition. An episode of care that includes a surgical procedure may last for a few months to encompass not only the surgery but also any preparatory care and post-discharge care. For a constant care need, such as chronic disease management, the episode may be a year in length.

While pricing for an episode-based benefit plan can be fixed in advance, some episodes will require tweaking for individual cases based on the patient’s risk factors.

Episode-based benefit plans use cost-sharing to guide members toward high-value providers and away from low-value care.

According to the report, there are three ways that employers can use cost-sharing to align members with value-based care goals.

First, employers can adjust cost-sharing within the episode of care. By increasing out-of-pocket cost-sharing for low-value services through deductibles, copays, and other cost-sharing variables, employers can incentivize members to use high-value care.

Second, apart from the general cost-sharing elements in any episode of care, each episode may have its own cost-sharing factors that employers can use to incentivize greater alignment with value-based care.

For example, the “maximum allowable” on an episode—or the most that a health plan will pay for an episode of care—could adjust to reflect the positive or negative decisions that a member makes. Shifting stop-loss thresholds can also incentivize members to use high-value care.

The episode budget is another episode-specific cost-sharing factor. The report defines the episode budget as:

“A preset budget for each episode of care toward which enrollees can accumulate costs at preferential cost sharing.”

Employers can shift these cost-sharing elements for a specific episode of care in order to move the member toward lower, more appropriate spending.

Third, employers can also use rewards to promote value-based care goals in episode-based benefit plans. These rewards can be direct, financial payments, but they could also be another form of value or savings. When using this approach, employers can offer funds to members when they choose an in-network provider who is appropriate for that episode of care.

Historically, incentive payments have been particularly popular for benefits such as wellness programming, although a separate report indicated that fewer employers will be taking this approach to incentivizing wellness program participation in 2021.

Across these three ways to leverage cost-sharing in episode-based benefit plans, an employer can use a tiered approach in order to increase members’ financial responsibility for their healthcare decision-making. 

In the first tier, members will see low cost-sharing—potentially even zero spending—for decisions that align with value-based care and the episode-based health plan’s design. In the third and final tier, the member shoulders the bulk of the healthcare costs. At that point, the member has likely exceeded her health plan’s maximum allowable coverage for that episode.

Episode-based payment models and benefit designs are only one of many payment models—including population-based payment models—that employers can use to help members align with value-based care priorities and achieve lower healthcare spending.