Incentives to care

11 Sep

A lot of people have their lives cut short because they eat too much and exercise too little. Worse, the quality of their shortened lives is typically much lower as a result of `avoidable’ illnesses that stem from `bad behavior.’ And that isn’t all. People who are not feeling great are unlikely to be as productive as those who are. Ill-health also imposes a significant psychological cost on loved ones. The net social cost is likely enormous.

One way to reduce such costly avoidable misery is to invest upfront. Teach people good habits and psychological skills early on, and they will be less likely to ‘self-harm.’

So why do we invest so little up front? Especially when we know that people are ill-informed (about consequences of their actions) and myopic.

Part of the answer is that there are few incentives for anyone else to care. Health insurance companies don’t make their profits by caring. They make them by investing wisely. And by minimizing ‘avoidable’ short-term costs. If a member is unlikely to stick with a health plan for life, why invest in their long-term welfare? Or work to minimize negative externalities that may affect the next generation?

One way to make health insurance care is to rate them on estimated quality-adjusted years saved due to interventions they sponsored. That needs good interventions and good data science. And that is an opportunity. Another way is to get the government to invest heavily early on to address this market failure. Another version would be to get the government to subsidize care that reduces long-term costs.