Do incentives work? The great thing about incentives is that you don’t write the check until someone does what you want them to do. That being said, incentives work when the right dollar values are aligned to the right behaviors. The specical sauce comes in optimization – how do you optimize incentive dollars by aligning them to the behaviors that produce actual return on investment in the form of increased engagement, behavior change and reduced costs.
Even Al Lewis, who has come to be known to be a “little” skeptical of wellness results, was once motivated by a short-term incentive. “I have to say one worked for me. I started a fitness contest at my last company. I also participated in it, by riding my bicycle to work, about 12 miles each way. That was all to win $100 and it was 20 years ago but now I rarely drive into Boston except at night or in the rain, all because that incentive got me going. Ill probably end up regretting saying this and no doubt it will be taken out of context or selectively interpreted like the RAND study, but the bottom line is that it worked for me.”
But would everyone be motivated by $100 to drive 12 miles a day? And if they were, would that produce cost savings?
Often you hear the question whether “incentive programs work.” We would argue that they work if they are designed well. Questions arise such as “what total amount and type of incentive do we need to drive a certain level of participation or cost savings?” We think that is the wrong question. The question should be “what are the right dollar values of incentives for each behavior” that results in the levels of response desired for the program as a whole” Give away $1,000 per individual in one design versus the same $1,000 per individual in another design, and we should expect a different result. So how do we optimize?
I would suggestion that “optimizing” has two key elements:
- Shorter-term ROI: instead of thinking only about longer-term change, let’s also think about immediate and intermediate ROI. Behaviors such as selecting a lower cost MRI, using a preferred network physician and a telehealth visit versus the emergency room can all produce immediate ROI. If we balance this with a series of preventative actions such as medication adherence, preventative screenings, primary care visits and other items that can head off cost, we have the opportuntiy to generate intermediate savings. Couple this with driving longer-term impacts on exercise, nurtrion and smoking. This “Trifecta” of immediate, intermediate and long-term ROI might just allow us to put points on the board in the short-term as a means to fund the long term.
- Theory of Relativity: the correct amount of financial incentive for a behavior is based in large part on how that value is “relative” to several items:
- Level of effort of the behavior
- Individual’s income level
- Incentive value for other behaviors in the program
- Incentive value given in previous year’s programs
- Individual’s contribution to their healthcare costs (e.g., employee contribution)
Fundamentally, individuals perform a mental cost/benefit analysis when deciding whether to act. Is it worth it for me to engage in a health related behavior? After all, we all know that many individuals should be engaging in these behaviors without financial incentives but fail to do so. With this mental calculus in play, how can this theory serve to optimize incentive values?
To fully realize the potential to drive behavior with incentives, incentive program design must transition from a collection of unrelated tactics to a sophisticated science which carefully considers the space and time relationships of those incentives. Maybe if done right even Al Lewis might agree.