John Hancock, a life insurer, is changing their business strategy per this Reuters article:
John Hancock, one of the oldest and largest North American life insurers, will stop underwriting traditional life insurance and instead sell only interactive policies that track fitness and health data through wearable devices and smartphones, the company said on Wednesday….
Policyholders score premium discounts for hitting exercise targets tracked on wearable devices such as a Fitbit or Apple Watch and get gift cards for retail stores and other perks by logging their workouts and healthy food purchases in an app.
data it has collected so far about customers’ activities suggest that it will, Tingle said, as Vitality policyholders worldwide live 13 to 21 years longer than the rest of the insured population.
From a social policy perspective, the question is whether or not the use of wearable exercise tracking devices are causative of improved mortality or merely correlated with underlying characteristics of a population that has longer lifespans than the rest of the population. From a business perspective, there is a market niche for being the life insurer that covers low risk, long lifespan individuals. This niche could be very profitable if the insurer has an expertise in being a superior hedge fund.
When I am thinking about this, I think of two things. The first is Centene; they are a Medicaid managed care insurer that is doing well to very well on the ACA exchanges. They have a deliberate business strategy to cover the lower risk cohort of a deliberately smaller market segment by compressing the Silver Spread. It is a profitable strategy as they can compress average state wide premium which allows them to under-compensate other insurers that cover the high cost risk. John Hancock may be doing the same thing.
The other thing I think about is this recent paper by Damon Jones, David Molitor and Julian Rief that looked at wellness programs. Aaron Carrol at the New York Times Upshot does a great job of digging into the niftiness of this paper.
Perhaps the greatest strength of the randomized controlled trial is in combating what’s known as selection bias. That occurs when groups being studied (intervention and control) are already significantly different after they are “selected” to be in the intervention or not. One of the most elegant examples of why we need such trials came recently in an examination of employer-sponsored wellness programs…
Almost all of those analyses are observational, though. They look at programs in a company and compare people who participate with those who don’t. When those who participate do better, we tend to think that wellness programs are associated with better outcomes. Some of us start to believe they’re causing better outcomes.
The most common concern with such studies is that those who participate are different from those who don’t in ways unrelated to the program itself. …The results were disappointing. There seemed to be no causal effects.
Here’s the nerdy fun part, though. In addition to this analysis, the researchers also took the time to analyze the data as if it were an observational trial. In other words, they took the 3,300 who were offered the wellness program, then analyzed them the way a typical observational trial would, comparing those who participated with those who didn’t….
Wellness programs for health insurance purposes seem to be mainly a screening/cherry picking (choose your word based on your tolerable level of cynicism) exercise. They offer rewards to people who have underlying characteristics that predict low healthcare expenditures and they can punish either directly through surcharges or time sinks or indirectly by the non-receipt of rewards people with underlying characteristics that predict not low medical costs.
We have to ask ourselves if there are characteristics of people who use consumer wearables have fundamentally different characteristics that are relevant to mortality and morbidity compared to people who aren’t using or attracted to use wearables?
I would bet that someone with a Fitbit or an Apple Watch are likely to have higher incomes and higher net worth than people who don’t have one of those devices. I would bet that someone who has or is likely to buy a Fitbit already has some interest in physical activity and is (probably more importantly) in a social mileau that values physical activity or at least the body type that hints at a moderate level of physical activity. I would bet that people who can do a consistent 11,000 steps a day are likely to be younger than people who can’t do 11,000 steps a day. I would bet that people who can do a consistent 11,000 steps a day or at least see that as a reasonable goal, are in better physical condition than folks who look at a 5,000 step goal as a mountain to climb.
Maybe the presence of wearables and small incentives will meaningfully change behaviors and health outcomes. Or more likely, it is a trendy way for a life insurer to cherry pick their likely customer base while gracefully off-loading some of their bad risk to another insurer.