Behavioral Economics and Work Site Wellness Program Financial Incentives

Give that lady some money!

Even though this New England Journal article by Kevin Volpp, David Asch, Robert Galvin and George Loewenstein on the interesting topic of behavioral economics opens with a retread of many of the arguments against the use of financial incentives in worksite wellness programs, it offers some interesting insights on how these dollars can be used for maximum impact. 

The Disease Management Care Blog figures the message here is that they don't like it, but, hey... if you must......

1.  Participants place more value in the present than in the future, even if both are of the same value.

This is why the hassle and cost of taking pills today outweighs the future benefit of fewer complications or a lower risk of death tomorrow.  One way to leverage this in a wellness program is to give tangible rewards at the time of participation (for example, something of monetary value) instead of a future reward (for example a year-end reduction in a health insurance premium or a lower co-pay for a clinic visit).

2. Participants use "mental accounting" to judge the value of any reward.

In other words, participants tend to "allocate" financial rewards into categories and, if the result leads to the incentives being bundled into another pool of money, the impact can be diluted.  $50 going into a larger  health savings account is not as attractive as a separate check for $50.  This is an important issue, since employers may be tempted to use existing payroll mechanisms instead of cutting a check.  It can also get complicated because of existing tax regulations.

3. Penalties appeal to notions of efficiency and fairness, while rewards may appeal to a sense of community.

One way to think of this is to consider financial incentives to combat tobacco abuse: should everyone who doesn't smoke be rewarded, or should those who do smoke be hit with a penalty?  The authors note there is little formal research that helps sort this out, so this may ultimately have to be determined based on the company's culture.

The good news in all of this is that the Affordable Care Act has given employers considerable leeway in fashioning financial incentives to support worksite wellness programs.  Hopefully they'll pay close attention to what is - and isn't - known about boosting employee participation.  The DMCB also hopes that they'll write down and describe what happens, so that the rest of us can learn.