The Behavioral Economics Behind the Individual Mandate

Thanks to analyses like these, the Disease Management Care Blog is coming down with a tiresome case of individual mandatosis complicated by penaltyalgia.

Former CBO Director Douglas Holtz-Eakin's American Action Forum just posted that erudite and well-referenced article. It contrasts the simple cost of a) paying for subsidized insurance with "silver "and "bronze" high out-of-pocket costs vs. b) foregoing insurance, paying the penalty and paying retail for health care.  News outlets are reporting that the average person with average utilization will come out ahead with option B.  By implication, therefore, the penalty attached to the individual mandate is too small to make a difference.

"That's not the point," says the conservative DMCB.

The mandate was originally developed as a smaller part in a grand national experiment in behavioral economics.   It was long since departed White House Advisor Peter Orszag who betted that Obamacare's new "social norm" would nudge citizens toward doing right by buying health insurance.  The mandate was never intended to tip the financial scales, but act as a gentle reminder that could symbolically promote greater civic duty like voting or using seat belts.

The fundamental problem with the mandate isn't that the penalty is too small to change buying behavior.  The problem is that this building block of health reform remains an experiment.  It will be years before we can assess Orszag's bet on the impact of these behavioral penalties attached to the mandate.

The DMCB also remains wary of "average" outcomes.  While a typical silver or bronze buyer would come out ahead by being wary of the famous nine words about government "help," there is a small segment of individuals who would be protected from bankruptcy.  The purpose of insurance is to monetize risk and transfer it. That's a real cost for everyone, except the unlucky few who need it.

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Behavioral Economics and Influenza Immunization

On occasion, the Disease Management Care Blog fights the northeast's dreary weekend winter evenings with a dram of spirituous liquor like Macallan 12. Unlocked with a small splash of water and a single ice cube, a generous ounce of that pungent cinnamon leathery elixir turns the cold into cozy.

So naturally, the DMCB relies on the spouse to help keep a therapeutic stock available.  Both the DMCB and the spouse run errands and it shouldn't be too hard for either to be proactive by periodically checking supplies, buying some Macallan when necessary and avoiding the unhappiness of a dispirited and cold DMCB.

Unfortunately, the DMCB spouse doesn't always see it that way.

Welcome to the complicated world of behavioral economics. It tells us that it's difficult for persons to expend effort today to reduce the tomorrow's risk of an unlikely event. It's why many persons chose to not take or pay for medications today to reduce the distant likelihood of disability or early death.  There's more on the topic here.

This also explains why persons don't do a good job getting a flu shot for themselves or their loved ones. Check out this interesting information from athenahealth. According to their pooled electronic health record (EHR) data, 2.5% of children without a flu shot came down with the flu, versus only 0.9% of those who got the shot.  While getting a shot reduced the relative risk of coming down with the disease by approximately two thirds, the vast majority of kids who went without immunization (97.5%) did OK.  Data from the CDC in adults reflects the same kind of numbers: 80% of persons in the U.S. do not come down with the flu in the course of the year.

How can the population health and care management community leverage behavioral economics to increase immunization rates? 

Well, don't follow the DMCB approach described above.  Rather.....

1. Neutralize the reluctance to work today to lower an ephemeral concept of future risk with cognitive bias. Rewarding people today for today provides instant gratification.  That could include raffles, coupons and monetary rewards.  Why not, says the DMCB, since flu shots are one of the few interventions that truly reduce health care costs?

2. Appeal to the sense of community by pointing out that getting immunized decreases your chance of infecting others.  That's one of the reasons hotels appeal to a collective sense of environmentalism, not laundry costs, by asking you to reuse your towels.

The DMCB pledges to reward the DMCB spouse (one idea is a one month subscription to Netflix?) and point out how much we'd both benefit from its coziness.  It will update readers on the success of this splendidly scientific approach at a future date.

Coda: Speaking of the flu, the DMCB's January 15 twitter alert that national flu activity seemed to be decreasing ....

Good evidence that the #flu epidemic is waning. Is the @CDCFlu being scooped by commercial data mining? http://bit.ly/W42x8S  #EHR

.... appears to have correctly anticipated the Feb 1 CDC FluView report.

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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.