Health Incentives Might Work Better When They’re Framed in Terms of Losses

The behavioral business model for health insurance consists of three tiers: track, earn, and enjoy. Simply sync your wearable health device to the healthcare provider’s app to earn points and rewards. 

This points-based system is already commonplace in commerce. I’m sure many of you have multiple loyalty cards that allow you to collect, say, frequent flier miles or Amex points. 

The Vitality Active Rewards programme is an example of gamification: the process of adding games or game-like elements to a task so as to encourage behavior change. The more active you are, the more points you gain. These points can earn you rewards like free weekly coffees, free cinema tickets, and discounts on your gym membership, and can sometimes be used to pay for goods. As you gain more points you can progress from bronze to silver to gold level healthy living status, increasing your potential rewards with each level reached. I must admit I have become slightly obsessed with my step count since I signed up.

Using rewards to incentivize healthy habits seems like a no-brainer. In our culture, external incentives are one of the main levers we use to encourage behavior change: we reward our kids for being well-behaved in public, we reward ourselves for hitting our exercise goals, and so on. 

But just slapping an incentive on something doesn’t always work to change people’s behavior. In some cases, it can actually backfire. Not all incentives are created equal, and the particulars of how an incentive program is structured or presented to participants can make all the difference.

Framing is just one aspect of behavior change incentives that can impact outcomes. In brief, the way that a potential incentive is described or distributed to recipients can change the way they respond to it, even if the value of the incentive otherwise remains the same. 

One aspect of framing that researchers have taken an interest in is gain framing versus loss framing. As their name would suggest, gain-framed incentives are presented to participants in a way that emphasizes the things they stand to gain. 

For example, let’s say you were developing a program to incentivize employees to walk more every day. A gain-framed wellness program might offer participants a free coffee every time they hit their target step count for the week.

Another way you could approach this same situation would be to use loss-framed incentives, which are constructed to emphasize participants’ potential losses if they fall short of the desired behavior change. 

To use our coffee example from above, a loss-framed version of this program might have participants start off with a certain number of free coffees for the month (only redeemable once per week, to prevent them from cashing them all in at once). Every time a participant failed to meet their step target for the week, they might lose one free coffee.

Both types of framing capitalize on the cognitive biases underlying our decision-making. Gain-framed incentives often harness hyperbolic discounting — our tendency to favor even small short-term gains over long-term ones — to keep participants invested. Breaking down the big-picture goal of “getting healthy” into smaller pieces (like getting enough steps in to earn your free coffee) can help people stay on track. 

Loss-framed incentives, meanwhile, capitalize on loss aversion: the fact that the pain of losing is psychologically twice as powerful as the pleasure of gaining. It hurts to have your week’s free coffee taken away from you — more so than failing to win the free coffee in the first place.

In behavioral science, there are no one-size-fits-all solutions. Before implementing any kind of behavior change incentive, it’s important that it first be validated with rigorous behavioral research, in order to explore what works best in the specific context at hand.

Discovery, a multi-national insurance group based in South Africa, has conducted extensive user research to understand how incentives work in the health insurance context. They offer two types of incentives to their customers, under a program called Vitality. 

In the Vitality Active Rewards program, customers are rewarded for consistently tracking their behavior and for reaching certain activity thresholds. In other words, this is a gain-framed incentive. 

But there’s also a loss-framed version of this program: the Apple Watch benefit program. In this program, in addition to the usual Vitality rewards, eligible customers can purchase an Apple Watch at a heavily discounted upfront price. Here’s the catch: customers have to make monthly repayments, determined by their physical activity. The further away they are from the month’s activity threshold, the greater the payment. If customers reach their activity targets, they don’t have to pay anything back. In other words, the more you exercise, the less you pay!  

In 2018, Vitality partnered with non-for-profit research institute, RAND Europe, to assess the association between Vitality’s Active Rewards with Apple Watch benefit and sustained physical activity improvements.² The study was conducted over a 3-year period and involved over 400,000 participants in 3 different countries (the U.S., the U.K., and South Africa). 

Using a quasi-experimental approach, researchers compared data from participants in the regular Active Rewards program (gain framing) and participants also enrolled in the Apple Watch benefit program (loss framing). The study found that people in the loss-framed program were 34% more active than those in the gain-framed group. That’s equivalent to an extra 4.8 activity days per month. 

Another key finding from this study was that not only did participants in the loss-framed program exercise more, but they also exercised more intensely. The study split physical activity into three levels: light, standard and advanced. Researchers found that the largest relative increase occurred in advanced activity type. 

Finally, a sub-group analysis revealed that participants who were generally less active at the start of the program experienced the biggest average increase in tracked activity levels. This may indicate that loss-framed incentives are especially powerful for individuals who are at risk of negative health outcomes relative to inactivity. However, the sample size for this group was smaller than for others in the study, so these findings should be interpreted with caution. 

Users of the Active Rewards program are healthier and more satisfied with their cover. Insurers have less claims to pay out to their healthier clientele, and have reduced costs to pay by encouraging regular checkups that catch illnesses early. Could it be too good to be true? 

As powerful as these incentive programs can be for encouraging healthy behavior change, we still need to be mindful of the risks of sharing so much personal data with profit-driven companies. It’s one thing to offer behavioral incentives within a program that participants can voluntarily opt out of. But we should bear in mind that without regulation, private corporations could soon be using this same data to penalize “negative” behavior. That could have hugely negative consequences for consumers. In health and life insurance, for instance, individuals who fall short of living a perfectly healthy lifestyle — or those who do not wish to share their personal health data — could be charged a higher premium. 

A similar shift is taking place in auto insurance.³ Drivers can opt for a tracking device to be installed in their car or smartphone that monitors their driving habits and determines their level of risk. Drivers deemed safe are then charged lower insurance rates. While the financial and road safety benefits are obvious, it can also be seen as an infringement of personal privacy in yet another area of our lives. As behavioral data comes to play a bigger role in health care and insurance, we need policy to evolve to protect consumers and their data privacy.

Behavioral science has a powerful role to play in encouraging people to live healthier and more active lives. Using research around gamification, hyperbolic discounting, the framing effect, and loss aversion, health insurers have developed a preventative rather than treatment based model of health insurance. 

The model is simple — the more active you are, the more points you earn to exchange for rewards. As the study conducted by RAND Europe using Vitality’s Active Rewards data confirmed, loss-framed incentives can significantly increase healthy behaviors. Incentivizing healthy behavior will of course have hugely beneficial impacts at an individual and societal level. 

However, I encourage you to proceed with caution and share your data wisely. A new currency is emerging here, and I’m not referring to the likes of Bitcoin or Ethereum. Your steps are your currency! What would you spend them on?