AUDIO: Knowledge@Wharton:Kevin Volpp on How Behavioral Economics Could Solve America’s Health Care Woes

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UPenn PRC Director Kevin Volpp, MD, PhD, appeared on Knowledge@Wharton with Dan Loney to discuss health care reform and how behavioral economics help explain the challenges of insuring the largest number of people possible. Dr. Volpp and Dartmouth professor Jonathan Skinner addressed these issues in a JAMA Viewpoint “Replacing the Affordable Care Act: Lessons from Behavioral Economics

“I think a big part of the Affordable Care Act, in terms of increasing coverage, was to think about the underlying incentives of why people are not buying coverage,” said Volpp. “For many people, it frankly just comes down to weighing the expected costs and benefits in the short term, and concluding that the short-term benefits to people who weren’t buying coverage were less than what their coverage would have cost.”

“The way the Affordable Care Act tried to deal with that was by subsidizing the cost of coverage by providing people who are low income with fairly generous subsidies. That’s a carrot-type incentive. In addition, they included a stick-type incentive in the form of an individual mandate, whereby people were required to buy insurance. If they didn’t buy insurance, they’d have to pay a financial penalty. One thing we could critique is that this mandate probably wasn’t strong enough. It started out at about $200. Eventually it became about $700. That’s much less than the cost of the cheapest plan. An individual could quite rationally conclude, “I’m willing to pay a $700 penalty. I’m not willing to pay $4,000 or more for my coverage.”

Volpp added,”There’s generally an acknowledgement that subsidies alone may not be enough to get people to sign up. There’s a well-documented literature in behavioral economics that carrots are weaker than sticks. People tend to be very loss-averse. Subsidies alone probably will not work in terms of getting sufficient people to enroll in these marketplaces.”