The federal government is expected in tomorrow’s budget to introduce a $6 fee for visits to the doctor.
Rather than focusing on the politics of the situation, let’s instead look at the behavioural implications and what we in business can take from this.
What’s the $6 fee designed to do?
According to the Australian Centre for Health Research (ACHR), who were commissioned to “find savings in the Medicare Benefits Schedule (MBS) that either reduces or significantly slows the growth in MBS outlays”, the “$6 co-payment would be high enough to send a price signal to consumers and deter moral hazard, but not high enough to deter consumers from seeking essential GP services”. In so doing, the fee is expected to generate $750 million over four years.
So there are four behavioural elements mentioned by the ACHR that it’s worth drilling down on:
- Quantum of the fee
- Deterrence of moral hazard
- Price signalling, and
- Not deterring visits for essential services
1. Quantum of the fee
At its face, $6 seems like a trivial amount (at least for those not in financial distress) and advocates have likened it to being “less than the price of two cups of coffee, or a Big Mac with a side of fries” (which regular readers will identify as a use of “framing” to contextualise the number).
But even small values can and do sway behaviour. I’m reminded of the case a few years ago where the Reserve Bank of Australia (RBA) instituted a rule that foreign bank ATMs had to inform customers of the $2 fee prior to them finalising their transactions. Contrary to all expectations this change to how the fee was communicated – bringing it top of mind – saw transactions drop from 50% to 40%. That’s a lot of people cancelling their transaction to instead go looking for their own bank’s ATM.
In a retail setting, the two big supermarket chains have very successfully used petrol discount offers to change shopping behaviour with people driving out of their way to get 4 cents off a litre.
The lesson is to not underestimate the impact of how you communicate even the smallest of fees. It definitely doesn’t mean you should hide them – things like unexpected bank or processing fees can derail a sale and lead to cart abandonment – but you do need to think about how to contextualise the charge.
2. Deterrence of moral hazard
So what’s this moral hazard they are talking about? In effect the fee is intended to impose a point of friction in the decision to visit a GP, “making people think twice about going to the doctor about minor ailments treatable with rest and/or over-the-counter medications”. You’ll remember from last week’s article that adding bursts of complexity can force people to engage in System 2 contemplation rather than System 1 automatic behaviour and that’s exactly what they believe the fee will do.
The fee is also being touted as a way to offer “a simple yet powerful reminder that, as far as possible, we have a responsibility to look after our own health, not simply pass on all the costs of, and the responsibility for, caring for ourselves to fellow taxpayers”. Nice try, appealing to the greater good, but this is a shaky proposition because the mental connection between an individual’s use of a government-funded service and who really paid for it (taxpayers) is weak. We don’t drive on roads while thanking our fellow Australians for funding them, and nor is a fee likely to prompt us to consider how the taxes my neighbour pays subsidises my GP visit.
In sum, if you are looking to introduce a fee it can definitely add friction into the decision-making process. This can be a good thing if you want to trigger System 2 engagement, but more commonly you will want to remove friction and keep your customer in System 1 flow.
3. Price signalling
It is true that when something is free rather than paid it is treated differently – in effect there’s no ‘skin in the game’ when there’s no charge.
This is often the conundrum faced by seminar presenters who want to fill the room with prospects, opting to give away free tickets but then finding that either none of the freebies turn up or they are not the type of people who will pay for services anyway. If you are going to do this make sure you first communicate the retail value of the ticket and explain why they are invited for free (e.g. come as my guest).
But to be an effective price signal the amount has to be meaningful. People in future will associate the expertise of their GP with a $6 cost because they will not see the true total cost funded by the government. In your business be careful about the value you ascribe to services – the “price = quality” rule of thumb is deeply entrenched and you may inadvertently undermine the perception of your business by pricing even one component too low.
4. Not deterring visits
Central to the case for the $6 fee is that it will not “deter consumers from seeking essential GP services”. This is where behaviour gets tricky because while the fee is attempting to knock out those people who “should think twice about going to the doctor about minor ailments treatable with rest and/or over-the-counter medications”the risk is that people who should seek treatment will either defer it or turn to the hospital system for support. As the ATM example showed, people will change their behaviour to avoid fees, small as they may seem.
Again, it is unlikely to be the quantum of the fee that is the key to the consumer’s decision, it’s instead the fact there is one. The fee introduces a very tangible point of pain for people as they hand over their cash, as the act of paying is well known to trigger negative associations. For that reason, businesses are best to minimise this form of pain. Take a cue from Apple, who defer iTunes invoices to encourage people to keep shopping and how ‘pay wave’ point of sale terminals ensure you hardly feel a thing.
Small fees punch above their weight
Small values can and do change behaviour and we should not fall into the trap of relying on traditional economic concepts like affordability to anticipate what our customers will do. It’s all too easy to plug a number into a spreadsheet but (within a psychological tolerance) whether the fee is $5, $6, or $7 is moot. It’s the charge itself that will first and foremost change behaviour – just make sure it changes it in a way you want.
Bri Williams runs People Patterns, a consultancy specialising in the application of behavioural economics to everyday business issues.