Tucked away within Section 2705 of the Patient Protection and Affordable Care Act (ACA) are provisions for outcome based wellness incentives that deserve more attention. Beginning in 2014, employers can use up to 30% of the employees’ total health insurance premiums toward this end. These incentives can be “in the form of a discount or rebate of a premium or contribution, a waiver of all or part of a cost-sharing mechanism (such as deductibles, copayments, or co-insurance), the absence of a surcharge, or the value of a benefit that would otherwise not be provided under the plan.” There is a great opportunity here for employers to encourage improved health behaviors among employees.
The provision enables employers to use financial incentives to be able to encourage good health related behaviors and discourage unhealthy ones. Employees can be penalized or rewarded. For example, if someone completed a smoking cessation program, then they may be eligible for a reduction in their co-pays, or a check for $500, or some other reward. They may also be penalized unless they stop smoking by having higher premiums, co-pays or other costs. The converse can occur with those that have good health habits, and receive rewards in the form of discounts or payments for those habits of appropriate BMI, exercise, etc.
In this week’s New England Journal of Medicine, Drs. Volpp, Asch, Galvin and Loewenstein discuss the behavioral economics of this approach. They focus on three main issues that may present challenges to employers from a behavioral economics standpoint:
- immediate penalty or reward
- monetary form
- reward v. penalty
I would agree that there needs to be an immediate reward or penalty attached to the action that is being incentivized, but believe that rewards work better than penalties. Free is an option that can work well in these cases. As consumers we have a difficult time refusing free things, regardless of whether they are good for us or not. If there are monetary rewards to be offered, employers should consider a reward that is as close to cash as possible. Cash is truly king in these circumstances. Getting a check is better than a reduction in payments which one is less likely to appreciate spread out in one’s paycheck.
There are a few other concepts from behavioral economists that should be considered in setting up the circumstances for successful incentive programs. First, everything is relative. People will constantly measure what they are getting against other like things and perhaps against what they are giving up. There will be an inherent competition to get the most out of the system by both the people with good health behaviors and bad health behaviors. Second, setting the correct pre-conditions and expectations is critical for success. Clearly marketing the benefit to each group (good and bad health behaviors) will facilitate greater engagement for each group. Third, prevent procrastination. Set parameters, deadlines, timeframes for rewards and achievements rather than leave it to one’s own timeline. Send reminders in various forms to encourage the behaviors.
Using behavioral economics tools can be very helpful in encouraging employees to improve their health behaviors. Technology can support these efforts. For example, there are many great new developments from apps to IVR technologies that can be leveraged. If the tools work, regardless of the form they take, employees and employers both win.