Rafi Mohammed

How Price Can Help You Succeed with Your New Year's Resolution

Posted on January 4th, 2012 (3 Comments)

It’s that time of the year again my friends - this year I am really determined to drop a few pounds.

A new iPhone app, Gym-Pact.com, is trying to use money as a motivator to get us to the gym regularly. The app works as follows: you commit to going to the gym a specific number of times a week and if you don’t, you pay a minimum penalty of $5 per missed workout. If you do keep to your workout schedule (required to “check-in” via your smartphone at a health club), you get a cash bonus.

Every week Gym-Pact collects all of the penalties, skims 3% off the top, and then distributes the remainder as bonuses to those who kept their workout commitments. Individual bonus “congratulations, you did it” payments are presumably made based on factors such as number of workouts and the penalty amount ($5 - $10 – even more) that each user commits to. So far, these bonus payments seem minimal – approximately 50 cents per workout.

Gym-Pact’s strategy is in line with the recent advice of Stefano DellaVigna, an economics professor who recently suggested to the New York Times that gyms charge higher membership fees and then rebate customers $10 - $20 when they workout 2 or more times a week.

I acknowledge that I am indeed a cynic (I’m an economist after all) – but I simply don’t think that a lot of people are going to pay a “fine” if they miss their workouts (or commit to higher gym membership fees that provide bonuses for meeting goals).

That said, I do have an idea about how price can be used to incentivize us to be healthier. Insurance companies tend to benefit (lower medical costs) when we get healthier (lower weight). I think that health insurance companies should offer customized rebates to people for lowering their weight. By customized, I mean that the rebate can be higher per pound for those who are severely overweight compared to those who are merely overweight. Similarly, patients who currently have medical ailments related to weight can earn an even higher rebate per pound. This strategy is a win for the health insurer, win for the dieter strategy. My hunch is that health care savings can be significant, thus enabling rebates to be meaningful.

Since insurance companies have detailed data on each of us, they can offer person-specific rebates as well as measure progress. As an added bonus, state regulators would love insurers that offer such incentives.

So what do you think? Can price help you meet your New Year’s goals? I’d love to hear from you! Here’s to a great, happy, and profitable 2012!

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Readers' Comments on This Blog Entry

From Sam on January 4th, 2012
I think this is a very interesting idea. I wonder how easy it would be to set up - probably much less expensive than paying all those extra claims. Happy New Year
From Kurt on January 4th, 2012
Insurance companies are in the business to profit from your poor health. Example, the worst your health, the more the premium. Employers are in the best position to do what you mentioned. In fact many are doing it now through wellness programs. We are just seeing the begining of these types of incentives. High cost for any product or service drives behaviors! Gone are the days of low cost health insurance. The future is here, Consumer Driven Health Care CDHC.
From Bubby on January 11th, 2012
It's a great idea to provide an incentive for pounds lost, however creating a healthier person is deeper than just pounds. If we want this theory to work, insurance companies need truly healthy people. It's just hard to create these healthy people this time of year as the incentive to buy a flat screen and sit on your couch grows in January as well!