Newtown, CT – August 2, 2013
A free ride is never free to the person who bears its cost, but it is to the person who hitches the ride– and therein lies the dilemma for most employers who are trying to manage the demand side of healthcare. For many employees, health care insurance gets close to a free ride. While some employees exercise, control their body weight, eat healthy foods, others do the opposite, and the former pay the same premium as the latter. Why is that? After all, it doesn't work that way for auto insurance. The driver with traffic violations and accidents pays a higher premium than the safe driver. Similarly, a home with a security system gets a break compared to one without. And it seems that, finally, some employers have decided to adopt the same principles for health insurance. The announcement this week from Penn State is encouraging because it lays the groundwork for enforcing compliance through premiums. In this instance, failing to comply with a set of requirements that include filling out a health risk assessment, having a physical, and submitting biometrics, leads to a $1,200 a year premium penalty. The framing, of course, is interesting. Penn State could have chosen to say that all premiums were going to rise by $1,200 a year, but that those who comply with these steps could avoid the increase. Instead, the penalty creates a clear association between inaction and penalty.
What this means to you – several studies published recently in Psychological Science show that inertia and information biases are powerful forces that require nudges to overcome. And while another study points to the potential dissatisfaction of employees when penalties are used instead of rewards, there's no doubting the greater power of the former over the latter in curbing negative behaviors. And that's because people have a tendency to overvalue losses to gains, even when the net monetary effect is the same. Of course, none of this means it will work. Drivers with traffic violations can simply decide to purchase radar detectors and continue speeding. Much like Penn State employees can comply with their new insurance requirements and never change their actual behaviors. Ultimately, this is about motivation, not just carrot and sticks, and we must collectively recognize that some people are motivated to hitch a ride on someone else's carriage and some people are naturally motivated to pull the carriage. The former probably deserve a few sticks while the former don't need carrots. Understanding that motivation is likely the key to solving the free ride problem.