Recently my employer, Duke University, announced it would be charging $10 more per month to offer health insurance to smokers (see story here). Duke’s policy has a couple motivations. Smokers get sick you see, and those smoking related illnesses cost Duke money. So it’s only fair to pass some of those expenses on to those people who choose to smoke. In addition, that $10 fee could be the key to encouraging people to kick the habit—dare I describe the surcharge as the straw that broke Joe Camel’s back?
Whatever you think about this plan—whether or not you think it unfairly picks on low income smokers who are addicted to a legal product—I expect you would hope that if this plan is enacted, it works. But is $10 per month going to change anyone’s behavior? Given the cost of smoking, the $10 surcharge looks like chump change. And yet, strangely enough, even small fees can have disproportionately large effects on people’s behavior. For instance, in part because of the health insurance mandate in Massachusetts, 98% of that state’s residents buy health insurance, even though the size of the fee for not getting insurance pales in comparison to the cost of purchasing such insurance. Fees and penalties are unpleasant things, with normative and emotional significance that augments their impact. So even though the $10 surcharge isn’t a whole lot of money, it might motivate people more than you’d otherwise imagine.
That said, I expect Duke could have tweaked its health insurance plan in a way that would have had an even bigger impact on smokers. It could have described this plan as a $120 a year surcharge. That amount of cash would cause anyone to take notice. And even though $120 per year is the same amount of money as $10 per month, those two figures won’t feel the same to people. In my research for instance, I’ve learned that people are more wary of a pill with 120/1,000 risk of a specific side effect than one with a 12/100 risk of the same side effect (see study here).
As I have noted in previous posts, changing behavior requires thinking beyond simple monetary math, where 10 x 12 = 120. Policy makers and HR departments need to consider the quirks of human nature that make some incentives feel much more powerful than others.