Among other misassumptions in medicine, we apply standard economic principles to healthcare and often assume consumer rationality in the utility maximization of health care. So why have we seen so much “market failure” in healthcare? Why are consumers of health care not making “smart” decisions for health care as they do for their choice of hotels and restaurants? Why have we not seen the expected benefits from value-based insurance design such as higher deductible, reduction of copay and preventative care discount? Why have well-intended wellness incentive programs not given us robust results?
It turns out that principles of behavioral economics are at play in such a complex and nontransparent market as health care. Applying knowledge from behavioral economics can help us improve patient engagement, and ultimately improve health and healthcare delivery.
Behavior economics explain the seemingly random and possibly irrational patient behavior such as ignoring the fairly high wellness incentive and letting a hefty reduction in copay slip away by suggesting that these choices are deliberate and nonrandom. Consumers make these biased decisions due to excessive and inconsistent discounting of distant reward, the inability to process large number of options, framing issues such as limits of cognition, as well as the predilection of loss aversion.
Even motivated consumers of health care may be limited by bounded rationality, which means that individuals make decisions limited by their price of the information (often prohibitively high in healthcare due to utter lack of data) and cognitive limitations (how would an average Joe figure out his return on investment for a gym membership or the price of taking time off to see a doctor for an annual physical even if it were free?).
Given the cultural tradition of Western medicine as a delegation of health responsibility to doctors, consumers of health care are often satisfiers instead of optimizers. Faced with a daunting array of benefit design, incentives and choices, patients often end up acting upon their heuristic compass and pick what comes first, or what appears simplest, or base their decision upon one simple dimension of choice. The asymmetry of economic and behavioral impact of a fixed amount of financial incentive in benefit design would often exacerbate the existing socioeconomic disparity in health care where chronic conditions and poor health behavior often co-habitate.
In summary, with understanding of behavior economic principles, future efforts of improving population health should be more nuanced. This should not only include benefit design by insurers, wellness program by employers, but also in the delivery of healthcare in terms of provider behavioral incentive.
As outlined in a Health Affairs article, strategies may include smaller levels of incentives with distinct reward format, staged benefit instead of single threshold and payment (to overcome mental accounting bias), automated hovering and frequent engagement (frequency/recency bias), and enhanced active choice (status quo bias).
Additionally, mirroring such efforts of patient engagement, could we also better engage healthcare providers by leveraging insights from behavior economics? Could we expand physicians’ rationality boundary by providing better performance measurement and pointing out their quality gap? Could we implement continuous feedback, point of care decision support and leverage frequency/recency bias favorably? Could we better frame the quality bonus based on small incremental improvement by providing frequent, small, distinct rewards?
The opportunities for healthcare innovation are limitless in this time of revolution along the continuum of evolution.
Xiaoyan Huang is a cardiologist.
