(Benefits Pro) - Three years ago, we considered “behavioral enrollment” in a three-part series. An important inspiration was the work of Nobel prize-winning thinker Professor Richard Thaler and his writing partner Cass R. Sunstein, and their concept of using psychological “nudges” to help humans make appropriate decisions.
This year, the authors released “Nudge, the Final Edition,” an update to their landmark book. Reading the updated book provided plenty of inspiration to reiterate how important the book’s concepts are to our business and especially to voluntary benefit enrollment.
Concepts covered in the book, filtered through the lens of employee benefit enrollment decisions, include:
- Libertarian paternalism – this is the guiding principle of using nudges. It is the authors’ somewhat awkward way of saying that behavioral tricks should be used to help people make good decisions that benefit themselves and their families, as opposed to encouraging purchasing decisions that may be better for the seller than the buyer.
- Choice architecture – the positioning of choices organizing to help guide employees through enrollment decision-making. An example is positioning HSA options and supplemental medical products in a benefit administration system so they follow the employer’s core medical election, which keeps the employee in a mindset of thinking of protection related to health-related losses–and the gaps in core medical coverage.
- Behavioral biases – these are biases employees may bring to the decision process. For example, many employees have a bias towards thinking “it can’t happen to me” when it comes to health-related risks. As a result, younger employees might be biased against disability income protection or critical illness coverage. the use of nudges in this context might include personal stories to make it relatable to the employee.
- Sludge – complex or needless steps in a process which represent barriers to easy enrollment processes. The classic example of sludge in the enrollment process is the complicated forms that may pop up when evidence of insurability is required for a voluntary purchase (Remember, a recent survey found that the open enrollment process was as painful to employees as paying income tax).
Let’s consider some of these principles in light of supplemental medical products: critical illness insurance, accident insurance and hospital indemnity insurance. This trio of benefits serves as a suite of options that can enhance the benefits paid by the employer’s medical plan. Each product answers a different facet of need. When enrolling online, it is beneficial for the employee to see that these products are designed to fill gaps in the protection provided by their core medical plan. In fact, allowing a single election to purchase all three at once eliminates sludge. And offering a single election can be managed on many benefit administration systems.
But packaged purchase of all three benefits may not be the right option for everyone. The package may not be affordable, and in any event, employees should be educated on the why and what of each product: the needs to be met and the benefits that answer them. First, the degree of need is defined by the gaps in the employer’s medical plan payments. There’s a greater need for supplemental medical products whenever the employee has high out-of-pocket costs (and limited resources to cover those costs). If the employer offers an HSA option, that’s a great place to start saving, but it may take years to build up enough money to cover the need.
Nudges can be designed to educate on each of these products and can be built around various forms of evidence. Facts about the products, statistics, and examples of use of the product are all used to nudge action; but in my opinion, personal stories relating to losses due to accidents, critical illnesses, or hospitalizations often work best.
Finally, I urge everyone to read “Nudge, the Final Edition.” This brief summary of concepts does little justice to the brilliance of the book.
