People-Proof Your Health Benefits

For most patients with chronic illnesses, the decision to get their medicine delivered to them through the mail is a no-brainer.

Mail-order drugs generally cost less than orders filled at retail pharmacies, and, in addition to convenience, patients generally receive 90 days’ worth of medicine at a time rather than the usual 30 days’ supply.

Prescriptions, when doctors provide refills, are automatically filled and delivered so patients are less likely to run out of medicine.

Yet many employees at companies that offer mail-order pharmacy benefits never sign up for the service, even though they regularly need to take medicine, says Bob Nease, chief scientist for pharmacy benefits manager Express Scripts. As a result, he says, they are less likely to adhere to their drug regimen.

“We think part of that reason has to do with procrastination,” Nease says. “Patients have problems with adherence not because they forget to take pills, but when supply runs low they don’t get around to getting a refill.”

Now, Express Scripts is saving patients from their own bad decisions—including the decision to do nothing.

In March, the St. Louis company announced a program to automatically enroll patients in its mail-order pharmacy service. More than two dozen employers, including Mooresville, North Carolina-based 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.

Unlike classical economists, behavioral economists believe that people often act in irrational but predictable ways. This predictability, if properly understood, can help executives better design health benefits and wellness programs.

“You would think people would want to take care of their health because it’s so important,” says Dan Ariely, a behavioral economist at Duke University and author of Predictably Irrational. “But businesses know people need an additional push.”

The Express Scripts program is one of the first to apply principles of behavioral economics to health benefit design and is based on the research into 401(k) plans by economist David Laibson, the Robert I. Goldman Professor of Economics at Harvard University.

In his research, Laibson concluded what seems obvious: People procrastinate. Put another way, people have trouble making a short-term sacrifice when the payoff is not immediate. Cases in point: investing in retirement or one’s long-term health.

Researchers call this tendency “hyperbolic discounting.” To get around people’s inclination to put off today what they can do tomorrow, Laibson wanted to make it easier for people to make the right decision. He created a so-called default option: Employees were automatically enrolled in their company’s 401(k) plan. As a result, plan participation increased to 90 percent from 40 percent, he says.

Such defaults turn a person’s laziness, ostensibly a bad quality, into something that helps them. By doing nothing, they invest in their retirement.

“We use defaults when we feel people might make a bad decision,” Laibson says, adding: “I think we are drastically under-using defaults in the health care domain.”

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, most employers automatically enroll employees in a health plan. Some companies schedule annual flu shots at their work sites.

Researchers say new applications could include automatically scheduling an employee’s annual physical or automatically scheduling prostate exams for men over 50.

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.

Companies, on the whole, prefer financial incentives to financial penalties. But researchers say there is no evidence suggesting financial incentives work better than financial penalties. Some people respond more to losing money than gaining it—what people call loss aversion. Sometimes a company must pay a lot of money—$300 for a health risk assessment—to get people to make small changes that may have only a short-term benefit.

The prospect of losing something, like one’s good health, may in fact work more effectively to motivate diabetics to take their medicine, Nease says.

“We may want to talk about therapy adherence not in terms of improving people’s health,” Nease says, “but in terms of preventing disease.”

Ariely, who, like Laibson, is also on the advisory board of the Center for Cost Effective Consumerism, says people are particularly moved by the idea of “free,” or what he calls “the power of zero.”

“Zero is an emotional hot button,” he writes in his best-selling book, “a source of irrational excitement.”

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 in Pittsburgh, provide diabetic employees with free maintenance drugs.

Whether incentives always work is a subject of debate. Some companies have reported that when they stop paying people an incentive—for instance, to get an annual physical—patients revert back to their old, unhealthy habits.

“Psychologists believe external payments are a bad idea because they kill internal motivation,” Laibson says. “Economists are more favorable to pay for performance.”

Ariely says irrational decision-making is particularly common when it comes to a person’s health. One experiment chronicled in his book showed that people believe more expensive drugs are more effective. Participants said they felt better taking a pain pill that costs $2.50 than one that cost 10 cents, even though the pill in both cases was simply Vitamin C. Tiered co-pays are one way to combat this proclivity toward more expensive medications when generic alternatives are available and cost less.

Peer pressure seems like a powerful tool to change people’s behavior, but—much like with incentives—researchers are less certain about its effectiveness.

Some companies have experimented with Weight Watchers programs, which use peer groups to help individuals develop better eating habits. Other companies have embraced health scorecards as a way to pressure people into improving their health. Know Your Number, a scorecard that rates a person’s health against an average, is one tool used by such companies as Abbott Laboratories, a pharmaceutical company in Abbott Park, Illinois.

The company that created Know Your Number, BioSignia of Durham, North Carolina, designed the scorecard believing that a simple visual comparison could pressure people to change their behavior. The scorecard also measures a person’s risk for disease and offers a baseline that can be used to evaluate a person’s health over time.

“Once you have your number score and you look at your peers, that becomes very powerful,” says Tim Smith, president of BioSignia.

But peer pressure can also anger employees.

“Unlike an 8-year-old, an adult is aware that peer pressure is being used,” Laibson says. “He may not view these peers as friends, and therefore they won’t have the ability to influence him.”

The weight of social norms can also have negative effects. Ariely says patients don’t ask doctors for second opinions nearly as much as they should. The reason is simple: Most believe getting a second opinion is an act of betrayal against their doctor, a person whom they trust and implicitly look up to.

“If we get people to care less about the physician or we get people to think of themselves as an outsider, people might make much better decisions,” Ariely says.

Knowing that people have a hard time asking for second opinions, employers including Boston-based EMC have turned to companies such as Best Doctors when patients face serious—and usually expensive—health care decisions. Based in Boston, Best Doctors supplies patients with second opinions by having experts in their specialties review patient medical data collected from doctors, labs, hospitals and pharmacies.

Though the use of incentives and peer pressure is quite common, researchers say not enough information exists outside the lab to confirm definitively whether peer pressure or incentives work. Researchers say they would like large companies to subject their plan designs to greater independent testing.

“Companies don’t tell us what they’re doing or how effective they are” at doing it, Ariely says. As a result, they are “not sure what works better and under what conditions.”

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.

“I don’t want to suggest education is useless,” Laibson says. “If I’m a newly diagnosed diabetic, a nurse explaining the disease is going to be helpful. But our culture is full of information that being overweight is bad. It’s not a deficit of knowledge, it’s a deficit of self-control … or a decision not to value health and trade off a shorter life for more immediate pleasure.”