Money talks: Financial incentives for health

Published: May, 2011

In an ideal world, virtue would be its own reward. In our world, though, virtue often benefits from a little help. Many of us learned to make our beds for a small allowance. As teens, we picked up a few bucks mowing the lawn or shoveling snow for an elderly neighbor. And when we finally joined the work force, we hoped to earn a raise (if not a super-sized bonus) for a job well done.

In an ideal world, medical care would not depend on financial rewards. In our world, though, doctors work hard to earn more and, sad to say, there are cases in which avarice has trumped ethics. And now, third-party payers and government regulators are using monetary incentives to improve care. In so-called pay-for-performance systems, doctors and hospitals have to meet practice guidelines and standards to earn full compensation.

Planners hope that financial incentives (and disincentives) will help improve medical care and control costs. But health is too important to be left to doctors and hospitals. To be truly well, people need to make wise lifestyle choices — but these changes can be hard. In an ideal world, the reward of good health would be enough to motivate prudent behavior, but it often falls short.

Smoking and obesity are two of the most pressing and recalcitrant lifestyle problems in America. Smoking rates have come down, but progress is slowing. And despite lots of attention to the problem, obesity rates continue to grow. Can financial incentives help when common sense and medical advice have failed? Two studies suggest the answer is a qualified yes.


Smoking is the leading preventable cause of death in the U.S., taking about 438,000 lives annually. Even with the availability of counseling, nicotine replacement therapy, and prescription drugs, quitting remains difficult.

To find out if financial incentives can boost quitting rates, researchers studied 878 employees of a large multinational corporation based in the United States. All were active cigarette smokers who had expressed the desire to quit. Half the volunteers were randomly assigned to receive information about smoking cessation programs. The others received the same information plus a series of financial incentives, which included $100 for completing a smoking cessation program, $250 for kicking the habit within six months, and another $400 for staying off cigarettes for an additional six months. The two groups were well matched for age, education, income, general health, number of cigarettes smoked per day, and number of previous attempts to quit. Two-thirds of participants in each group were male. To make sure money didn't induce fibbing, the scientists verified tobacco abstinence by using a urine test for cotinine, a chemical produced when the body metabolizes nicotine.

The results show that paying can pay off. Members of the incentive group were more likely to enroll in a smoking cessation program than members of the information-only group (15.4% versus 5.4%). They were also more likely to quit within six months (20.9% versus 11.8%) and to remain nonsmokers six months after quitting (14.7% versus 5.0%) and 15 to 18 months after quitting (9.4% versus 3.6%).

The financial incentive program cost the employer $750 for each successful participant. Since each employee who quits smoking saves the boss $3,400 a year as a result of increased productivity, decreased absenteeism, and fewer illnesses, that's a bargain. But even though money talks, it does not talk loud enough to solve the smoking problem; for more than 90% of the volunteers, nicotine addiction was stronger than a $750 reward for quitting.


Between 1960 and 2004, the rate of obesity in the U.S. skyrocketed from about 13% to 31%. In all, over two-thirds of Americans are overweight or obese. The consequences include an increased risk of diabetes, hypertension, heart disease, arthritis, depression, and premature death. If present trends continue, obesity and lack of exercise will overtake smoking as the number one preventable cause of death.

A popular TV show uses rewards to induce weight loss. It's called reality television, but will financial rewards motivate weight loss in the real world?

To gauge the impact of economic incentives on weight loss, researchers studied 57 volunteers between the ages of 30 and 70. All were obese, with a body mass index between 30 and 40, but all were otherwise healthy. Ninety-five percent were male. Each of the participants had a one-hour private consultation with a nutritionist at the start of the study, and each was given an accurate scale. The subjects were then randomly assigned to one of three groups: one did not get financial incentives, one participated in a contract program that could pay each person between $0 and $252 a month depending on how much weight they lost, and the third group participated in a lottery program that made each member who lost weight eligible to win up to $100 a day, though most prizes were lower.

By the end of the 16-week trial, the members of the contract and lottery groups had lost significantly more weight (14.0 and 13.1 pounds, respectively) than members of the comparison group (3.9 pounds). The volunteers were left to their own devices after the trial ended, but the scientists kept watch. Deprived of financial incentives, members of the lottery and contract groups gained weight, but at the end of seven months, they had still lost slightly more weight (9.2 and 6.2 pounds, respectively) than the members of the comparison group (4.0 pounds). These differences were not statistically significant, but after 7 months, the members of the two incentive groups weighed significantly less than at the start of the trial, while members of the comparison group did not. Money talks, but people listen only while they're being paid.


Smoking cessation and weight loss are two of the most important lifestyle changes. They are also among the most difficult. These two studies tell us that financial incentives can help some people reach their goals, but monetary rewards alone can't solve difficult health problems any more than money can solve the world's other woes.

The Roman orator Cicero said, "Nothing is so strongly fortified that it cannot be taken by money." Mark Twain wrote, "Virtue has never been as respectable as money." But monetary rewards can only go so far toward achieving good health habits. Perhaps, though, British writer James Allen got it right: "If your real desire is to do good, there is no reason to wait for the money; you can do it now, this very moment, just where you are."

For virtue, for money, or for health itself, lifestyle changes are worth the effort.

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