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Mari Edlin is a frequent contributor to Managed Healthcare Executive. She is based in Sonoma, California.
Dig into the minds of members and you'll find that they don't always make logical choices. Behavioral economics can shed light on their thought process
While behavioral economics might be new to healthcare, it is not a new concept. Economists and psychologists have been studying it since the 1950s. Josh Klapow, clinical psychologist at the University of Alabama at Birmingham, says it is basic "operant conditioning," which says changes in behavior are the result of an individual's response to stimuli that occur in the environment.
"In short, we are studying how we engage populations in changing behavior, and modifying the environment is the most powerful way to influence behavior," he says.
"Applied behavioral economics can help optimize value-based benefit designs," says Emma Hoo, director, Pacific Business Group on Health. "Healthcare decisions can be as much emotionally driven as fact-driven. Financial incentives can help direct individuals to high-quality, cost-effective services such as preventive diagnostic services or treatment-option decision support, but copayments and coinsurance by themselves are relatively blunt instruments. Equally important are how we structure and communicate evidence-based healthcare choices to help people get the right care at the right time."
Cyndy Nayer, founder and president/CEO of the St. Louis-based Center for Health Value Innovation (CHVI), which serves as a collaborative hub for value-based design, acknowledges that VBID ties in with the emerging study of behavioral economics.
"To reduce avoidable waste and future risk and to drive individual competency in managing personal health, we use levers-mechanisms for promoting desired behaviors to optimize performance. These are fundamental components of the behavioral economics scenario."
Nayer describes three important elements of behavioral economics:
Alan Garber, MD, professor of medicine at Stanford University and of economics at the Stanford University Graduate School of Business, believes that social norms are a strong factor in influencing decisions. He also cites the importance of regret and the opt-out choice.
"Social norms are what are expected of us, although they may earn praise or criticism," he says.
Although Dr. Garber says that VBID and behavioral economics intersect-they both take human behavior and benefit design into account in trying to improve health-he believes that VBID relies on incentives while behavioral economics finds other ways to influence decisions, especially by recognizing what motivates a person, which is often, but not always financial gain.
Although looking at it from a psychological point of view, Klapow agrees that assumptions about motivating incentives are not always right.
"Incentives are rarely delivered in a manner that is consistent with behavioral modification," he says. "The challenge is to be able to create an incentive structure in which individuals have the opportunity to choose their own reinforcers, which most employers don't enable. That will increase the power of the system. I'm seeing good intentions with no science to back them up."
While the psychological innerworkings of member behavior are worth exploring, the more practical task is applying behavioral economics to plan design to gain the intended results for plan sponsors and members.