Internalize and Trade

Health care providers incorporate a variety of incentive methods to encourage healthy behavior.  Many HMO’s will pay $25/mo toward a gym membership fee if their member goes to workout twelve times in a month. In effect they are internalizing the externalities of poor future health by inducing members to live a healthier lifestyle. The numbers must indicate that $25 is both enough to change behavior and in doing so avoid future medical procedures.

This transaction all occurs within the same group, those covered by an HMO’s policy. The trade of cash towards a gym fee benefits the same people who will then incur fewer medical costs in the future.  But what about a hybrid trade that included beneficiaries outside the group?

Obesity in the US has been on the rise for a number of years. It is becoming a leading public health crisis as rates of obesity among Americans are running above 40% in all age groups. The CDC outlines a number of health effects that stem from carrying around excessive weight.

One remedy is weight-loss (bariatric) surgery.  There are several procedures that help you lose weight which lowers your risk of medical problems associated with obesity. The cost of weight loss surgeries can range from $14,000 to $23,000 and are being covered more frequently by health insurance.

Since there are also downsides to surgery in general, what if the HMO tried an incentive program to get the member to a healthy weight? Say the cost was determined to be $20,000 for the surgery, and the member was considered to be 80 pounds overweight. Say the sum of the surgery could be divided up over a five year time span where the member received a portion for every 20 pounds lost, the HMO retained a portion and, a single mom in a third world country received food subsidies for a year.

A recent contest found that the most compelling argument that resulted in the highest philanthropic donations was a scenario structured in a similar fashion. I describe this structure in the post Philosophy and Philanthropy. Perhaps a late middle aged mom has served her family diligently, and in the process lost site of her own needs. Perhaps she has gained a bunch of weight that she can’t seem to shake, at least not for herself. But if you gave her the option to feed a single mom with five kids, maybe she would see her way to bringing her own weight in line.

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