If you paid any attention to the news and debates surrounding health care reform, you might have come away with this bottom line: the system is broken. Our annual bill is growing—over two and a half trillion dollars last year—as our chronic health ills pile up. Of particular concern are weight gain and tobacco use, leading to diabetes, hypertension, and other cardiovascular and preventable diseases. The current administration is trying to be deal with these issues, and one option on the table is using financial incentives to get people to live healthier lives.
There are many factors influencing one’s health, including varying degrees of access to high-quality health care, to affordable insurance and services, and to practitioners and opportunities for healthy living. Essential, too, are our habits and behaviors regarding the things we choose to ingest and the actions we (do not) take over time. The extent to which standard incentives can succeed is unclear.
Enter both consumer-directed health care (CDHC) and the Patient Protection and Accountable Care Act (PPACA), the national health policy reform legislation signed on March 23, 2010, and dubbed ‘Obamacare’ by some pundits. The former describes a general trend among employers, insurers, and policymakers seeking to increase personal responsibility and engagement during decision-making related to one’s health.
The Act incorporates some aspects of CDHC from both institutional and individual perspectives. One key provision allows an increase in the maximum incentive amount that an employer-sponsored wellness program may offer a worker. Previously this amount was capped at 20 percent of his or her health plan cost, but now the threshold will rise to 30 (or eventually up to 50) percent of cost. With annual health insurance premiums topping $5,400 and $15,000 in 2011 for single and family coverage, respectively, there is real money as stake.
Industry and academic reports are mixed on the effectiveness and the efficiency of such incentives. While employees seem to respond in the short-term by acting healthier, most revert to their normal behaviors within a few months or a year. For all their good intentions, the new rules ignore what we know about how humans deviate from truly rational agents. For instance, we generally place too much weight on low-probability events, which contributes to the popularity of lotteries and could be harnessed by employers offering health incentives. In addition, the Act is mute on best practices for providing information and distributing payments, an area where we know that framing matters. Research shows that people choose differently when options are presented in terms of gains versus losses, health versus financial implications, and even calorie counts versus an exercise equivalency needed to burn them off. The saliency, timing, frequency, and bundling of rewards or penalties are all key components in driving behavior change. Optimizing the use of health incentives will require consideration of our biases for the present and the status quo, our limited attention and self-control, and our aversions to losses, ambiguity, and regret.
Despite its (and CDHC’s) overall assumption of rationality among health care consumers, PPACA does take advantage of some of the systematic decision errors and heuristics that have been illuminated by behavioral economists. Larger firms will be required to automatically enroll employees into health insurance coverage; they may opt-out, but evidence ranging from retirement planning to organ donor registration shows that people overwhelmingly tend to stick with a default. For Medicare insurance, copayments must be waived for screenings and other preventive services. The Act also requires chain restaurants to label standard menu items with their caloric content. These last two are cases where changes in the decision environment are designed to guide or nudge people toward healthier choices.
If PPACA survives the Supreme Court and the 2012 presidential election, the conversation might benefit from more discussion about the attributes of wellness incentives rather than only their magnitudes.