Kevin Volpp: Pay people cash to stay healthy

The key to using incentives to get people to go to the gym frequently is to do it long enough to create a healthy habit.

With the Tony Abbott Government expressing concern about the growing health budget and emphasising personal responsibility, perhaps it's time to consider some creative ways of curbing what Australia spends on ill health.

One solution is to pay people to either get well or avoid becoming unwell in the first instance.

Britain is already doing this kind of thing with a trial of giving mothers from disadvantaged suburbs A$340 ($365) worth of food vouchers for breastfeeding newborn babies. And from January 1 this year, employers in the United States can provide increasingly significant rewards to employees for having better health outcomes, as part of the Affordable Care Act.

But should people really be paid to make healthy choices? Shouldn't they be motivated to improve their health on their own anyway? People don't do what's in their best interest in the long term for many reasons. When making decisions we tend to take mental shortcuts; we allow the desires and distractions of the moment to get in the way of pursuing what's best.

One such "irrationality" is our tendency to focus on the immediate benefits or costs of a situation while undervaluing future consequences. Known as present bias, this is evident every time you hit the snooze button instead of going for a morning jog.

Researchers have found effective incentive programmes can offset present bias by providing rewards that make it more attractive to make the healthy choice in the present.

Research conducted in US workplaces, for instance, found people who were given US$750 ($890) to quit smoking were three times more successful than those who weren't given any incentives.

Even after the incentive was removed for six months, there was still a quit rate ratio of 2.6 between the incentive and control groups - 9.4 per cent of the incentive group stayed cigarette-free versus only 3.6 per cent of the control group.

Still, while research on using financial incentives to encourage healthy behaviours is promising, it isn't as straightforward as doling out cash in exchange for good behaviour.

Standard economic theory posits that the higher the reward, the bigger the impact - but this is only one ingredient in success. Behavioural economics shows that when and how you distribute incentives can determine the success of the programme.

Here are a few basic principles to consider. First, small rewards can have a big impact on behaviour if they're provided frequently and soon after the healthy choice is made. We've found this to be true in the context of weight-loss programmes, medication adherence, and even quitting use of drugs such as cocaine.

Games of chance are an effective way of distributing rewards as research has found people tend to focus on the value of the reward rather than their chance of winning the prize. Many people think that a 0.0001 and a 0.0000001 chance of winning a prize are roughly equivalent even though in reality they are vastly different probabilities.

Finally, people are more influenced by the prospect of losses than gains. Studies show people put much greater weight on losing something than gaining something of a similar value.

In one weight-loss experiment, for instance, participants were asked to place money into a deposit account. If they didn't achieve their weight goals, the money would be forfeited, but if they were successful, the initial deposit would be doubled and theirs to keep.

Reluctant to lose their deposits, participants in the deposit group lost over three times more weight than the control group, who were simply weighed each month.

Incentives are particularly effective at changing one-time behaviours, such as encouraging vaccination or attendance at health screenings. But with increasing rates of obesity and other lifestyle-related diseases, we need to focus on how incentives can be used to achieve habit formation and long-term sustained weight loss.

We know financial incentives can increase gym usage and positively impact weight, waist size and pulse rate but how to sustain gym use after the incentive is removed? The key may be to use incentives to achieve a high frequency of attendance for long enough to create a healthy habit.

We also need to consider how we can leverage social incentives, such as peer support and recognition, together with new technologies to maximise the impact of incentive-based programmes.

Innovative solutions, like paying people to encourage the right health choices, may help to reduce both the health and economic impact of Australia's growing burden of disease.

Kevin Volpp is professor of medicine, Perelman School of Medicine and Health Care Management, Wharton School at the University of Pennsylvania.