Code Red: Two Economists Examine the U.S. Healthcare System

October 19, 2009

Save the Health Economy: Be Like Barack!

Filed under: Health insurance,Health Reform,Health spending — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 5:51 pm

Here is an offer you may have never received before: Suppose someone is willing to give you an extra $1000 a year for the rest of your life. On top of that, you get to live 10 more years. There is just one catch; you have to give up your favorite vice. Sounds tempting. Our health policy experts hope that it is very tempting, because this is precisely the kind of deal that they are offering as a way to lower health care spending.

Under several of the proposals on Capitol Hill, including the Baucus bill, insurers can offer discounts of hundreds of dollars or more to nonsmokers and others who engage in good health behaviors. Some employers have already gone this route, although enforcement is proving to be difficult as monitoring of smokers is largely on the honor system. Through such discounts, policy makers hope to encourage Americans to make healthy lifestyle choices (so we can all be as trim and fit as Barack and Michele!)

The economist in me can’t understand why this should work. Consider that there is an important branch of the health economics literature that puts the dollar value of a year of live at $100,000 or more. If this is true, then bad health behaviors can cost individuals the equivalent of a million dollars.  If individuals are willing to forego this much just to enjoy their favorite vices, then why would a paltry $1000 a year get them to behave differently?  Either economists have this valuation thing all wrong, or the use of financial incentives to change health behaviors hasn’t got a chance.

I am betting against the economists. I fully expect people to take better care of themselves in order to save a few bucks.  But this kind of saddens me.  Is it too much to expect people to take care of their health because, well, health is kind of an important thing?   Do we really have to bribe people to make sensible choices?   And if so, can we really say that our lives are so precious?

This new policy of paying for good health behaviors raises many other issues.  Should we financially punish those who by dint of genetics are at risk for obesity or alcohol abuse? And do we really want our government and our employers to become behavior cops, deciding how much exercise we should have, how many drinks we can imbibe, and, horror of horrors, how much chocolate is too much?

Yes, we all pay when one of us requires expensive medical care.  But smokers, heavy drinkers, and chocolate addicts* already pay a steep enough price for their unhealthy behaviors.  Do we need to rely on them to prop up the health economy?

*I am fully aware that dark chocolate is that rarest of rarities — something that is sinfully delicious and good for you!


  1. “If individuals are willing to forego this much just to enjoy their favorite vices, then why would a paltry $1000 a year get them to behave differently?”

    What about behavioral economics? A dollar a day was enough to keep teenage mothers from having another child (NPR article here:

    Comment by Jess — October 28, 2009 @ 4:19 pm

    • Jess,

      I agree. My point is that $1000 does matter a lot, which suggests that mainstream economics gets this whole valuation thing wrong. Or at least there is some inconsistency that is not easy to explain.

      Comment by dranove — October 30, 2009 @ 5:05 pm

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