Health Policy$ense

Can Behavioral Economics Help Fulfill The Promise of Managed Care?

Some Thoughts on the Potential Synergy

I recently attended the AcademyHealth Annual Research Meeting (ARM) thanks to the support of the Alice S. Hersh Scholarship  and the Leonard Davis Institute (LDI). At the ARM, two themes stood out for me: the re-emergence of managed care as a vehicle for replacing volume with value, and behavioral economics.  


Giffin Daughtridge is a 3rd Year Medical Student, University of Pennsylvania.

At first glance, the themes seem somewhat unrelated. The latest forms of managed care involve a paradigm shift in the way that providers and health care systems nationwide approach patient care, and a mandate  from the Secretary of Health and Human Services. On the other hand, behavioral economics is a research field that has shown promise in motivating patient and physician behavior, but it remains unproven on a large scale. As I attended many sessions and talks on these separate themes, I was struck by the dichotomy, but I also began to see a potential synergy.

A lot of optimism
I heard a lot of optimism that the current iteration of managed care can be successful where earlier models failed. Speakers noted that improved health IT tools and data may produce more actionable information for patients and providers; that increased financial pressure of premiums and national health expenditure may force change; and that a renewed focus on cost control through improving quality, rather than just shrinking networks, can make the transition more palatable for stakeholders.

I would like to add behavioral economics to this list. Insights from this field could play a significant role by ushering in and maintaining the success of higher-value managed care, especially around incentivizing provider behavior. LDI faculty and leaders in the field, including Drs. Kevin Volpp, David Asch, and Mitesh Patel, shared these observations:

  1. The size of the incentive is not as important as the form in which it is delivered – people respond more to an increase from $0 to $10 than they do from $1,000 to $1,010.  Giving people an incentive in the form of a check rather than deducting it from premiums or adding it to paychecks is significantly more powerful in producing behavioral change.
  2.  Aversion to regret/loss is stronger than motivation for gains – incentives have traditionally focused on bonuses for making high-quality, low-cost decisions, but penalties for not making these decisions may be an even more powerful driver. Though a penalty will never be as popular as a bonus, a balance of the two could optimize effectiveness while still being amenable to the user. 
  3. Shared incentives between patient and provider are more effective than either independently – the purpose of incentivizing physician behavior is to improve the quality of care for patients at a lower cost. Since both the provider and patient are interested in achieving this high-value goal, why not incentivize them as a team instead of only focusing on the physician incentive? This could be particularly useful for medication adherence or meeting data-driven goals like A1C levels. 
  4. Feedback is more effective when delivered immediately –  peer comparison assessments can be a powerful motivator to change provider behavior, since no one wants to deliver care perceived as lacking in quality. For this type of program to be most effective, the data need to be produced and presented in as close to real time as possible.
  5. Default framing – People are more likely to select an option and less likely to switch from that option when it is presented as the default. For example, a study by Mitesh Patel found an increased use of generic medications over more expensive brand alternatives when the generics are the default selection.


During one of the panels, David Asch said, “Once you are willing to admit that people are irrational, you are in a better position to help them.” With the appreciation of irrationality, and a better understanding of the power of behavioral economics to incentivize the high-value care that our health care system needs, I am optimistic that this field can serve as a powerful tool to help physicians usher in our newest effort at managed care.