Giving people discounted coffees and flights may not seem like an obvious strategy for helping people live longer, healthier lives, but this is exactly what South African health insurer Discovery does.
Like governments, health insurers must pay up when things aren’t going so well for their customers. This creates incentives to invest in the short term to save money over the long run — though governments often find it easier to cut, even if this means bigger bills down the track.
It’s this trade off that drives Discovery to pay for discounts on over one million flights and several million cups of coffee per year for its customers — all in the name of getting them fit so they make fewer claims.
And of course it’s not hot drinks and plane tickets themselves that make people fit, but what they’re willing to do to get them.
The crux of the system is the behavioural economics insight that most people are terrible at resisting instant gratification, even when it would mean larger benefits over the long term. This is a big driver behind the modern prevalence of chronic disease and the huge costs it incurs.
According to what is known as the 3-4-50 framework, three behaviours — tobacco use, poor diet and sedentary lifestyle — elevate the risk of four conditions — lung disease, heart disease, cancer and diabetes — which account for more than 50% of deaths. Changing these habits will reduce chronic disease burden and save lives and money for both governments and private health insurance companies.
“If people live longer, or healthier, we make more profit,” Discovery CEO Adrian Gore told the Shared Value conference in Melbourne last week.
Quirks of psychology
Discovery turns the instant gratification problem on its head, using our poor self control to incentivise customers to do more exercise and eat more healthily.“Studies suggest we feel loss much more strongly than gain.”
Under its Vitality membership program, customers set goals for healthy behaviour, and when they’re met, the customer is rewarded through discounts on their fees, as well as goodies like movie tickets, mobile phone credit and internet access — and Starbucks vouchers.
The system also reinforces healthy choices through its benefits setup. The company offers cashback discounts to those who buy healthy food and sportsgear, and customers can trade points for health checks.
Vitality takes advantage of another quirk of psychology — our natural aversion of loss. Studies suggest we feel loss much more strongly than gain. Vitality gives customers an Apple Watch with no upfront cost to be repaid it over 24 months. Meet the highest goal every month and you’ll end up paying nothing for it — but leave it sitting on the table and it’ll cost you. Discovery also pays for members’ health club memberships, but only if they visit three times a month.
Framing the cost of the watch and the gym membership as punishment for not following your exercise regime means customers will experience the cost more keenly and will thus make more of an effort to avoid falling behind, or so the theory goes.
A cost saver
This meeting of mutual interest in making people healthier appears to have had positive impacts for both customer and company, Gore argued.
Customers engaged in the program have increased physical activity rates and live longer, he explained. Gym usage among Vitality members increased by 22% over a five year period in one company analysis.
Improved health has financial benefits. Typical engaged customers have 10-20% lower healthcare costs, while for chronic conditions, risk-adjusted hospital costs are as much as 30% lower. A Discovery fitness study showed that hospital admission rates are 10% lower and length of stay in hospital is 25% lower for highly-engaged Vitality members.
The company enjoys higher customer retention than before the program’s introduction and has grown to assume over 50% market share, with revenue higher than its next ten competitors combined.
The Vitality points system is so popular the insurer has even had to deal with an attempt to hack in and steal points.
Like other behavioural interventions that have broad potential to bring social and financial benefit by changing citizens’ preferences, adapting such ideas for government invites debate about the proper role of government. Certainly, the private sector is leading where government has dared not — or has not yet thought to — tread, but not everyone has private health insurance.
Would we accept government rewarding exercise and healthy eating with discount coffees if it meant citizens were healthier and the budget benefited?