Can member incentives lower health plan costs?
Debunking and demystifying incentives to explore how rewarding members can actually help reduce costs for health plans.
February 13, 2023

It’s the time of year when Medicare Advantage plans welcome new members throughout the open enrollment period and prep their benefits bid packages for next year. At the same time, these health plans are facing increased pressure from CMS and NCQA to improve the quality of care, member satisfaction, and member engagement—all while keeping care costs under control. 

Why should health plans turn to incentive programs when they are looking to cut costs? Because incentivizing members can save health plans from overspending on preventable high-cost utilization.

Conversations around using member incentives in healthcare can be dizzying and often leaves people wondering, “Do incentives work or not?” and “Are we allowed to use them?”

The short answer is yes; incentives do work. The long answer is that not all incentive programs are created equal. 

The science of incentives

Why do some incentive programs see great success while others flounder? One key reason is motivation. What influences us to do what we do? Behavioral economics analyzes the psychology of human behavior and how it relates to decision-making. People know at any given time what they should be doing. “I should get up and exercise instead of sleeping in.” “I should make myself a healthy breakfast instead of stopping for a donut on the way to work.” But we don’t, because we face an intent-to-behavior gap: at that moment, more sleep is all we could hope for and that donut is too delicious to pass up. And closing that gap requires a little motivation. 

“Incentives are a foot-in-the-door technique. They help us take the first step to healthier behaviors by creating the activation energy necessary to prioritize our future selves before we can see any meaningful change.”
- Dr. Sarah Watters, Behavioral Scientist at Wellth.

An incentive program built on behavioral economics can optimize how to time the reward, the amount awarded, and the framing of the incentive in order to yield the best possible results. For example, Wellth leverages a concept known as the endowment effect to frame the incentive: when you endow someone with a reward up front, they will try harder to keep it than they might to earn it. This creates motivation. 

Using incentives helps people overcome the present biases that prevent them from doing something they know they should be doing. As it relates to one’s health, that could be checking their blood sugar, taking their medications, attending preventative care visits, and closing care gaps. These integral actions, when not done regularly, cost people their health and wellbeing; they also cost health plans in potentially avoidable admissions, emergency care, and missed quality of care markers (and the bonuses associated). 

Over the past few years, studies have shown the average cost for readmission per person is $15,500, the average price of inpatient utilization for Medicare Advantage members is $2566 per day, and the average emergency department visit for medicare beneficiaries is $660 per visit. Incentivizing healthy behaviors, like monitoring glucose and blood pressure, effectively reduces preventable readmissions and emergency department utilization. Therefore, investing in members with a proven-program can bring health plans a return on investment.

Viewing incentives as investments

By engaging with a behavioral science based rewards program, members are more likely to follow through on important health behaviors, effectively boosting their own health outcomes and quality of life, while lowering the risk of complex costly care. 

Another benefit of rewarding members is its effect on social determinants of health and health equity. Members are able to use their rewards for things they truly need, and it may enable them to afford items that better their health, like nutritious foods. This has been observed in Wellth’s program populations, where typically more than half of Wellth member rewards are spent on food and groceries, while the rest go to transportation, household needs, clothing, personal care items, and connecting with friends and family.  

“Since Wellth, my health is better all around. The rewards help too. I live paycheck to paycheck with disability income. Last month, I was short on cash, and I paid for my gas with my rewards.”
- Sheryl, Wellth Member.

Lowering health care costs by utilizing incentives: A Partnership Insight

In November 2020, Wellth partnered with a health plan in Michigan to improve key health outcomes in their Medicare Advantage population and address the health inequities that those living with chronic conditions may face. 

The health plan sought to take action through Wellth’s innovative program, leveraging motivation and behavioral economics to complete daily and weekly health tasks (like eating a healthy meal, checking in on their glucose levels, and taking their blood pressure readings). Members who enrolled in the program received a $30 reward for joining; however, each day they missed a “check-in,” $2 was removed from that endowment. Each month on the program, members were rewarded another $30 endowment to motivate them to maintain their daily check-ins.

In only 6 months post-enrollment, the data illustrates member improvements in A1c, blood pressure control, and medication adherence, even though medication check-ins were not incentivized. 

The health plan also saw improvements in readmissions, inpatient utilization, and in emergency department utilization compared to members not enrolled in the Wellth program. 

“This program really works because my A1C was off the roof, 11 and higher, and now it’s down to 7 because I’ve been taking my medicine. The program helps to remind you to take your medicine. You win when you let the program help you. If you let the program work for you, I guarantee you that you will be better off because you’ll be taking your medicine.“ -Robert, Wellth Member

From these initial results, the health plan has continued to expand its partnership with Wellth and build programs for other populations. The health plan also recently received Five Stars in its 2023 Medicare Star Ratings. 

Demystifying CMS guidelines and use of incentives

In the Medicare Communications and Marketing Guidelines released February 9, 2022, CMS set forth guidelines for “nominal gifts” or “cash equivalents” used within Medicare Advantage plans to align with the Office of the Inspector General’s interpretation, which caused confusion for health plans and vendors alike on what that meant for incentive programs. 

Common concerns regarding the rule are:

  • What exactly constitutes a cash equivalent?
  • Why should a plan use incentives if the types of purchases are limited?
  • How can health plans incentivize member engagement while remaining mindful of Medicare Advantage restrictions?

What exactly constitutes a cash equivalent?

CMS outlines a “cash equivalent” as any item that is convertible to cash or used as cash without restrictions (Visa gift cards) or a gift card for retailers that sell various consumer products. 

Rewards or gift cards that can only be redeemed for specific categories of items and services or restricted to particular chains are not considered cash equivalents. Therefore tokens for specific tangible items or gift cards for certain spending categories like fuel and cards with purchasing and withdrawal restrictions are all in-line with CMS guidelines as written. 

Why should a plan use incentives if the types of purchases are limited?

The benefits of using flexible rewards that restrict certain purchases go beyond providing instant gratification to members. A flexible rewards system:

  • Provides autonomy while guiding members to make purchases that offset social determinants of health.
  • Motivates members to be proactive in receiving and maintaining these rewards because they can use them on things they actually need. 
  • Regular engagement builds trust between beneficiaries and their health plan and utilizes incentives as investments into members’ health and overall wellness.

How can health plans incentivize member engagement while remaining mindful of Medicare Advantage restrictions?

According to CMS, health plans cannot incentivize members to take their medication; however, as outlined previously, incentives can be used to encourage other care tasks such as glucose monitoring and blood pressure readings. By using a behavioral economics framework, when these tasks are coupled with non-incentivized tasks–like medication adherence– they create a flywheel effect of habit-building

Incentives can be an incredible tool to motivate members, improve quality metrics, and ultimately reduce health plan costs. 

Would you like to learn more about how incentives can help health plans hit metrics and budget goals for 2023 and beyond? We’d love to chat!