Behavioral Economics, Please Meet Employer Wellness

December 03, 2014

A recent article in the Harvard Business Review challenges the conventional wisdom that wellness programs can rely on education and financial incentives to encourage employees to be good stewards of their health.  The article points out that education and financial incentives, although effective to a certain extent, produce better, not optimal results.  For example, the “landmark MI FREEE study, which made medications free after a heart attack, increased medication adherence from a disappointing 39% at baseline to 44% — better, but still disappointing.”

To optimize results, the authors suggest combining key tenets of behavioral economics to traditional education and incentives methods.  Below are two examples of how behavior economics can enhance the outcomes in wellness programs.

Example 1HBR-logo
“Let’s say you want to improve medication adherence among your employees, the members of your pharmacy benefit plan, or your patient population (depending upon whether you are an employer, an insurer, or a provider). You start by offering an automatic prescription-refill program, but instead of a traditional opt-in program, present a required choice: (1) the inconvenience of refilling prescriptions manually each time or (2) having the refills sent automatically. This changes the architecture of the selection to that of an enhanced active choice: It highlights the disadvantages of the lesser alternative while retaining individuals’ freedom to decide. When we tried this approach with CVS Caremark members, the number of people choosing automatic refills more than doubled.”

Example 2
“Consider an employer who is unhappy with the completion rate for employee health-risk assessments (HRAs). Instead of merely doubling the incentive from $25 to $50, use existing groupings within the workforce and randomly pick one group each week to win at each worksite. Anyone within that group who has completed his or her HRA wins $100; if more than 80% of group members complete the HRA, each member of the group gets a $25 bonus. The odds can be structured to yield the same overall cost as the basic doubled-incentive approach, but the design harnesses the strong effects of social norms and avoidance of regret. People hate the idea that their team might be selected, other members of the team get a prize, and yet they themselves lose out because of something they didn’t do that was easily within reach. The result: The HRA completion rate rose from 40% to 64%, compared with the 40% to 44% increase yielded by merely doubling the incentive.”

A key lesson from behavioral economics is that the size of an incentive matters far less than how it is framed and messaged, how it travels along existing pathways of social networks, and how it connects to individuals emotionally. Here are some specific suggestions for implementation:

  • Aversion to Loss – Give rewards to employees in an account they can see or a gift card that is not activated, and take it away if a given outcome is not achieved. People work harder to retain something than to earn it.
  • Tangible Rewards – “Use separate checks or gift cards to deliver benefits that would normally be buried in a paystub. In short, make the smaller incentives easier to see and, therefore, more influential.”
  • Teams Work (When Done Correctly) – Design and implement team dynamics in a way that convert individual efforts to group achievements. By enlisting social norms, you capitalize on the most powerful of human motivators.

Topics: Rewards and Incentives

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