As the health care debate unfolds, it has become clear that if the debate focuses solely on the issue of expanding coverage to the some 45 million Americans who lack it, then health reform will be a significant achievement -- and also a terrible missed opportunity.
Reform also needs to help mitigate unsustainable cost increases and improve quality. These three elements are integrally related to one another.
It is fair to say that virtually every strategy that is thought to have some promise of success at promoting healthy behaviors or containing cost increases has been attempted by employer sponsors of health coverage. But even the successful strategies -- like wellness promotion and chronic disease management -- only go so far, compelling companies to try and find the next big thing. One of the most auspicious avenues for innovation has been the field of behavioral economics; and hopefully as this emerging science continues to show promise in the design and administration of health benefits, it also will be encouraged in the public policy context as well.
The St. Louis-based Center for Cost-Effective Consumerism has devoted a great deal of time and thought to applying behavioral economics to the health benefits setting. At the same time, some of the leading officials in the Obama Administration, including the director of the Office of Management and Budget, Peter Orszag, are enthusiasts, as well. Orszag has touted behavioral economics as "one of the most important intellectual developments of the past several years ... By taking the insights of psychology and observed human behavior into account, we now have a fuller picture of how people actually behave -- instead of just reducing them to the hyper-rational utility-maximizers of Econ 101."
Behavioral science can help to drive better decisions by individuals (and groups of individuals), resulting in better health for less money. Understanding why people make the decisions they do about their health can reveal opportunities to lower costs and improve outcomes. In practice, the goal is to encourage preventive behaviors and adherence to physician recommendations without relying solely on financial incentives.
There are three key principles underpinning behavioral economics, and the Center for Cost-Effective Consumerism is harnessing the growing body of knowledge to help health care consumers make better decisions. The first principle, loss aversion, states that tendency of individuals to avoid potential losses is stronger than the drive to pursue potential gains. In an employee benefits context, for example, messages like "stop wasting money" tend to be more powerful than messages like "start saving money." These kinds of messages have been shown to improve participation in voluntary retirement savings programs like 401(k) plans, for example.
The second principle, social comparison, states that individuals are sensitive to relative success -- that is, success in relation to their peers. Messages to employees that draw comparisons or foster competition among and between social groups are more effective than messages that lack those features. This principle can be effectively applied to promote participation in workplace wellness or preventive care programs. But to do so successfully, it must overcome the final principle -- hyperbolic discounting.
Hyperbolic discounting, or procrastination, suggests that individuals tend to "discount" future outcomes in relation to present consequences. For example, preventive screening for chronic conditions, like diabetes, or acute conditions, comes with a perceived present-day cost (e.g. time, discomfort) that appears to outweigh future benefits (e.g. better health, longevity). Consequently, people tend to postpone such screenings until a time that the benefits are equivalent to the cost. Programs that minimize upfront costs and maximize upfront benefits can be extremely robust drivers of behavior.
Already we have seen the fruits of behavioral economics in relation to the 401(k) automatic enrollment revolution of the past decade. Given the daunting revenue estimates associated with comprehensive health care reform, all stakeholders -- individuals, employers and government -- will need to embrace innovation to keep the cost of health (and health reform) manageable. This next big thing could be the answer to our big trouble.
James A. Klein can be reached via e-mail at info@abcstaff.org.
