Incentives Don’t Work… Right?
Myths Surrounding Incentives & the Regulations that Govern
March 16, 2022

There can be negative associations that accompany the term “incentives”. We shouldn’t have to pay people (or doctors) to do the “right” thing. Or if we do pay them, we shouldn’t have to pay them forever. And we can’t pay them anyway, well, only under certain circumstances. Right? Let’s dig in.

 

Incentives Don’t Work

Many sources discuss the fact that incentives don’t work for one-time behaviors like completing a health risk assessment or going in for an annual check-up with a primary care provider. The people who tend to complete those one-time behaviors would have completed them anyway, even if you weren’t paying them to do so. Any of you reading this who can relate?

 

Emerging studies over the last decade have demonstrated that utilizing financial rewards within behavior change programs can create healthy habits over time. Why? Behavioral Economics. If you haven’t heard the term yet, you will soon, as books like Atomic Habits, Nudge, and Predictably Irrational: The Hidden Forces that Shape our Decisions are becoming bedside favorites of healthcare executives and tech companies alike. Behavioral Economics realizes that people don’t always make the decisions that are “best” for them. Instant gratification, Choice architecture and Loss aversion are some elements of behavioral economics that explain why.

 

Instant Gratification: People prefer what feels best in the present over a delayed benefit 

  • Ex: Sleeping in instead of getting up to go to the gym.

Choice Architecture: How you frame a decision impacts the choice a person will make.

  • Ex: Asking someone where they want to eat versus giving them three restaurant options.

Loss Aversion: People are more likely to want to keep something they already have, rather than gain something new.

  • Ex: A mom tells their kid that they have to clean their room or their video game privileges will be taken away.

 

Programs that build loss aversion into the algorithm (you start each month with $30 and get to keep it if you complete daily check-ins) and instant gratification (see your streaks, unlock levels) creates a combination set to initiate a habit. The gamification of the user experience creates a feeling of mastery and increases user engagement by 48%. Once individuals are successfully ingrained in the habit, the financial reward becomes less important, and in some cases can be removed completely. 

 

OK, Incentives Do Work… Can I Use Them?

Many health plans and providers offices today are utilizing rewards to incentivize behavior. There are some misconceptions around when and how incentives can be used. Let’s set the record straight, speaking specifically in this section about government-sponsored health plans:

 

Medicare Advantage (MA)

Financial incentives are utilized in MA plans today; many are seen as a differentiator in the market. CMS does not allow financial rewards to be paid on Part D medications at this point, however, if a health plan is part of the Value Based Insurance Design (VBID) program, financial rewards can be applied to Part D.

 

Rewards Cards – CMS guidance deems that cards must be restricted (i.e., not for payment on alcohol, lottery, etc) and cannot be considered cash equivalents (i.e., Amazon and Visa cards). Cards can be re-loaded, but rewards programs must run only through the plan year and cannot carry into a new benefit year.

 

Managed Medicaid

Similarly, financial incentives have been used historically in Medicaid Managed Care Organizations (MCOs).  States have utilized rewards in programs especially targeting healthy behaviors such as smoking cessation and health risk assessment (HRA) completion. Just as the Center for Medicare and Medicaid Services (CMS) Value Based Insurance Design (VBID) program has offered a path for MA plans to test benefit design and payment strategies, waivers offer similar strategies for managed Medicaid plans.

 

Health Equity

CMS has made a commitment to offering and expanding more equitable healthcare. Many plans are incorporating race and ethnicity data capture and stratification within programs to satisfy new HEDIS® specifications. Collection of data is the first step. Additionally, plans are offering supplemental benefits to support and promote equity. Financial rewards can be a part of the charge to reduce disparities. Restricted gift cards demonstrate spending on food, transportation and other non-medical needs required for improved health.

Wellth’s program incentivizes patient engagement and over the years, pulled information about how their members are spending their rewards.

Infographic illustrating how Wellth members spend their rewards

Wellth members see long term results of continued adherence such as lower rates of hospital admissions and ED utilization moving the motivation beyond using rewards.

 

Financial Rewards and Incentives can be built into a robust behavior change program that demonstrates healthier habits and improved outcomes that last over time.