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The need for dynamic pricing in healthcare

Consumers need dynamic pricing, where cost can be lowered based on good behavior, for medications and services that are financially out of reach.

Too many Americans, even those with health insurance, are struggling to afford the care they need.

If you look at the back of a standard-issue health benefits card from an insurance company, you will see something that speaks volumes about the problem: printed copay information that informs the member what he or she will pay out-of-pocket for trips to the ER, doctor’s appointments, clinic visits and prescription drugs.

Since the amount fluctuates little, if at all, insurers can print the information right on the card, for convenience sake. That’s the problem.

As long as out-of-pocket costs for consumers are static, medical visits and much-needed medications will remain out of reach for many people. If people continue to forego medical treatment because of cost, we’ll have to resign ourselves to hundreds of thousands of preventable deaths each year and hundreds of billions of dollars in avoidable medical costs.

We can do better than this, but it requires moving beyond the static pricing model represented by printed copays on the backs of insurance cards. It means tearing down and rebuilding the very idea of the coupon, which hasn’t had a significant upgrade in more than 130 years.

The first coupon

In the late 1880s, a Chicago businessman began the process of turning the Coca-Cola Co. from an all but unknown company into a national powerhouse by offering consumers a handwritten ticket that could be redeemed for a free Coke. Fifteen years and 8.5 million free Cokes later, the soda was a household name, and sales were through the roof. 

This is the origin of the coupon, a concept that quickly spread to a variety of other industries and is still utilized to offer consumers a price break on everything from household goods and food to overnight stays at nice hotels. 

The world has changed dramatically since the 1880s, but most coupons are still pieces of paper offering shoppers a one-time discount. And although a range of startup companies have emerged to offer mobile, digital coupons, they have yet to outperform analog, paper coupons like the ones launched in the 1880s in terms of consumer preference and usage.

And most importantly, healthcare is not Coca-Cola.

In addition to being a far more personal experience than food and beverage consumption, healthcare involves more stakeholders than simply a buyer and a seller. The economics consist of a complicated dance between providers, payers, Pharmacy benefit managers and patients. These complexities are just one explanation for why coupons offered by pharma companies to help consumers afford their medications have fallen short of helping significant numbers of people.

What will work?

A number of startup companies are attempting to offer consumers incentives of various kinds for adopting exercise routines, eating healthier diets, quitting smoking or taking medications as directed. 

But as some researchers have pointed out, most of these attempts to “gamify” healthcare leave behavioral economics out of the equation. As a result, few such programs are effective at helping individuals change their behavior and health status. 

Too often, when inserting game mechanics into a complex healthcare landscape, technology companies default to offering the same reward to a wide variety of people in exchange for picking up a healthy habit or ditching an unhealthy one. This is essentially a digital version of  the original soda coupon – an application of static pricing, that doesn’t move us too far beyond what Coca-Cola did long ago.

Consumers want to participate in their healthcare and earn real-world rewards that are specific to their own situation and their own decisions. They need dynamic pricing, where cost can be lowered based on good behavior, for medications and services that are financially out of reach. Long a fixture of the travel industry (where consumers can save money on everything from hotel rooms to flights to car rentals), dynamic pricing is available to healthcare consumers through technology that can adjust prices depending on unique circumstances or actions taken by the consumer. 

Scarcity biasanother fundamental of behavioral economics, also works as a powerful incentive. Consumers are far more likely to take advantage of a discount or other incentive if it is growing more scarce. Incentives offered for a limited time only have been shown to be a far more powerful motivator than those that can be redeemed any time. This ties in with prospect theory, which holds that the fear of losing something is more powerful for people than the anticipation of getting something new. 

Many tech companies have been trying to gamify healthcare. But without behavioral economics, consumers won’t want to play the game. 

Dynamic pricing–underpinned by behavioral economics–is what will work in healthcare. It offers the first significant update the coupon has had since the late 1880s.

Photo: nito100, Getty Images

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