Employers are increasingly using principles of behavioral economics to craft health benefits that can save employees from their own bad health-care decisions.
Bob Nease, chief scientist for pharmacy benefits manager Express Scripts, knows that many employees at companies that offer mail-order pharmacy benefits never sign up for the service, even though they regularly need to take medicine. As a result, he says, they are less likely to adhere to their drug regimen.
In March, Express Scripts announced a program to automatically enroll patients in its mail-order pharmacy service. More than two dozen employers, including home improvement retailer Lowe’s, are participating in the program, called Select Home Delivery. Employees at these firms must now choose to opt out of the mail-order pharmacy if they want to get their drugs at a retail pharmacy instead. Since the program started, the number of Lowe’s employees enrolled in mail order has doubled, the company said.
Lowe’s embrace of this opt-out strategy is one of the latest examples of how employers are taking into account the way people actually behave—rather than how employers wished people acted—when designing benefit programs. These lessons from the field of behavioral economics, which looks at the psychological side of economic decisions, are helping to shape health benefits. The Express Scripts program is one of the first to apply principles of behavioral economics to health benefit design.
To apply these principles to health care, Express Scripts created the Center for Cost Effective Consumerism. Many employers already apply ideas from behavioral economics, especially the use of defaults, to health benefits. For example, some employers automatically enroll employees in a health plan, while others schedule annual flu shots at their work sites.
Many companies also use financial incentives to get people to make smarter decisions about their health, though research in this area is less conclusive than with opt-out options. People are particularly moved by the idea of “free” or “the power of zero.” When something is free, people forget the downside, which might explain why it’s hard to pass up free refills of soda. Companies have used this tendency in designing health benefits. Some employers, such as Giant Eagle supermarkets, provide diabetic employees with free maintenance drugs.
Whether incentives always work is a subject of debate. What researchers do know is that health and benefits education alone is often ineffective. That’s because, as behavioral economists are quick to point out, one of the great myths of human behavior is that knowledge alone can change people’s deep-rooted habits.
—“People-Proof Your Health Benefits,” by Jeremy Smerd, Workforce Management online, May 2009.
