Behavioral economics poised to educate benefits clients
In the age of big data, analytics and algorithms, an array of behavioral techniques are expected to help employees understand their benefits, crunch the numbers and make smarter decisions.
Nearly 40% of about 200 industry thought leaders who assembled at a recent International Foundation of Employee Benefit Plans gathering said they are interested in using behavioral economics to help employees adhere to medical treatment plans.
Their aim essentially is to remove barriers to better healthcare decision making, explains Julie Stich, associate VP of content at the IFEBP. Two such examples include eliminating copays for prescription drugs related to chronic diseases and auto refills at pharmacies so that people don’t forget to take their medication.
A more proactive approach is seen as necessary to raising baseline results. Craig Lack, a best-selling author who Forbes once described as “the healthcare broker whisperer,” believes that benefits communication “must reflect the fact that behavioral economics is a minimum must-have to be effective.”
Healthcare literacy continues to be a challenge. Despite years of well-intentioned best practices that have produced little measurable results, Lack says employee surveys routinely suggest the average working American has virtually no understanding of medical plan terms like deductible, copayment or coinsurance. As such, his suggestion to employers is that they investigate EdLogics and Quizzify to help educate their workforces.
A convergence between employee expectations in their personal and professional lives that is paving the way for a more analytical or thoughtful approach to choosing and using benefit plans, observes Helen Calvin, chief revenue officer at Jellyvision.
“The ease of behavioral economics and behavioral science is something that employers are starting to recognize can be really fruitful in how they sort of raise themselves up to become marketers,” she says.
Organizations are applying behavioral economics through a variety of methods, according to IFEBP, which has more than 33,000 multiemployer, corporate and public-sector members covering 25 million lives across the U.S. and Canada.
The most popular application by far is disease management (42%). It’s followed by onsite pharmacies that provide easier access to prescriptions (18%), financial incentives or penalties that encourage specific behaviors among employees (18%) and reminder tools such as text messages for workers (17%).
Behavioral economics also can be used at open enrollment to encourage wiser choices by including parenthetical references to the phrase “not recommended,” according to Stich. One popular application would be to provide examples of where having a high-deductible health plan would make the most sense, such as anticipating higher expenses for young children who require vaccinations or sports-related injuries.
“Using behavioral economics terms, you can bring in the idea of loss aversion,” says Stitch.
The concept also can combat inertia on the retirement-savings side. Stich says employers must be careful that 401(k) plan participants don’t linger at a 3% auto deferral rate or try doubling the default amount to 6%.
“Either they just don’t think to change it or they think there is some sort of perceived recommendation that if the employer is putting me in at 3% that must be the percentage I should use, whereas we know that’s not enough,” she adds.
One caveat with regard to the use of behavioral economics or science is to avoid manipulating or cajoling employees to a certain desired outcome. The trick is removing “biases that cloud the information that people need to make good decisions,” Calvin explains.
Rather than conveying the need for employees to max out the health savings account or 401(k) plan, for instance, she says it’s more effective to view those two financial vehicles holistically. Jellyvision’s popular decision-support tool, ALEX, features components to help manage various dollar amounts that are flowing from gross income into an HSA, 401(k) and other benefits.
Behavioral approaches to influencing employee benefit choices should be part of every benefit broker and adviser’s strategic toolkit, Calvin suggests. “We are now in a talent economy,” she says, “and those who learn how to attract, retain and make productive talent in the best way” will thrive more than others.