Sometimes we meet or even exceed our goals, and sometimes we fall short. For example, we might set out to write 100 consecutive monthly articles and nail it, or plan on 100 push-ups a day and achieve on-again, off-again compliance.
Goal-setting theory, developed by Edwin Locke and Gary Latham, helps to explain how our goals impact our performance. Goal-setting theory includes 5 principles: clarity, challenge, commitment, feedback, and task complexity. Compared with vague and easy goals, clear (specific) and challenging goals yield higher levels of performance. Commitment to achieving a goal and feedback on progress toward it help to improve performance. And a goal involving complex tasks may come with a learning curve that delays enhancements of performance.
SMART goals, first proposed by George Doran, are Specific, Measurable, Achievable or Attainable, Relevant, and Time-bound. SMART goals and goal-setting theory are quite similar. Both frameworks call for specific goals. Feedback necessitates measurable goals, and challenging goals suggests that goals should be achievable. A commitment to goals seems related to relevant goals, as it would be difficult to commit to less-relevant goals. And while it does not rise to one of goal-setting theory’s 5 principles, Locke and Latham observed that time-bound goals result in people working harder or faster.
There is, however, an important difference between goal-setting theory and SMART goals. SMART goals do not speak to the complexity of the task, whereas goal-setting theory wisely does. Task complexity often helps explain success.
Payers’ premiums serve an array of organizational goals. The goal of this post is to take a fresh look at payers’ premiums by leveraging insights from goal-setting theory and SMART goals.
Clear, specific goals
Posting 100 consecutive monthly articles on a blog is a specific goal. The superordinate goals (or higher-order goals) for posting 100 articles may be to demonstrate thought leadership, attract eyeballs, and foster lifelong learning.
There’s nothing unclear about an insurance premium — the amount charged per month and per year is not at all vague. And the actuarial goal of premiums is clear: to ensure that rates are adequate to cover expected claims and expenses during the policy period. But the superordinate goals of premiums often compete with one another. Payers may want to use premiums to grow enrollment, which, in turn, makes the risk pool larger and more stable. Payers may also want to use premiums to offer additional benefits, fewer restrictions, or reduce cost sharing, or to maintain or increase revenue and/or profit margins. Self-insured employers may want to use premiums to help to attract and retain employees.
Feedback on measurable goals
Delivery of monthly articles is easily measured, but feedback on the related superordinate goals may be much more challenging. LinkedIn reports vague feedback called “impressions” (the number of times a post is displayed on screen — an estimate that may not be precise). Other reported measures are more precise, including reactions, comments, and reposts. And related engagement (questions, comments, praise) through other communications is most rewarding.
Purchasers (employers and government programs) may push back against or reject payers’ bids. Regulators may question proposed rates and request or require further justification or adjustments. Once approved by purchasers (and, when applicable, regulators), premiums are transactional. In that sense, attainment of these goals is easily measured. But feedback on the higher-order goals often lags. For example, consumer dissatisfaction may be expressed through surveys or, indirectly, by switching plans during open enrollment. Further, the drivers of negative feedback may be difficult to disentangle.
Challenging yet attainable goals
Delivering 100 consecutive monthly articles is somewhat challenging but demonstrably achievable.
Developing premiums that achieve actuarial goals is challenging, and developing premiums that help achieve superordinate goals is extremely challenging. Premiums that are set too high or too low may fail to meet payers’ higher-order goals such as profitability and market share.
Commitment to relevant goals
Committing to write 100 consecutive monthly articles requires grit. Angela Duckworth, et al., defined grit as perseverance and passion for long-term goals. The more relevant the higher-order goals, the easier it is to commit to a specific goal. One hundred articles is just a nice round number and is not relevant without the context of superordinate goals that motivates the task.
Premiums are extremely relevant to payers, and payers contractually commit to premiums for only one year. Surprisingly, a commitment to this short-term goal can be both wasteful and inflationary. Successfully managing premium-supported costs could be a disincentive to developing new approaches that lower costs (e.g., predictive analytics that identify high-risk patients for targeted interventions). This apathy could be inflationary if premiums continue to rise, at least in part, simply because they have been rising. Without a higher-order goal to bend the cost curve, likely coupled with an absence of an incentive (e.g., competition between payers) or requirement to do so, premium increases based on inflation can help to perpetuate inflation.
Time-bound goals
One article per month is more attainable than one per week because there is sufficient time to adjust to the ebb and flow of work and life responsibilities.
Premiums are set to cover the costs during the coverage period. This short-term focus is rational when member churn is high but myopic when churn is low. Payers often avoid making investments in health when the return takes longer than the average length of member coverage. Too often, payers are neither externally incented nor internally motivated to make long-term investments that lower costs.
Task complexity
Developing a good blog article is complex. Selecting topics that interest both the author and readers introduces some complexity right out of the gates. Many topics are complicated and require good thinking to unpack. The writing process is not linear — it is messy and iterative. And successfully pairing the writing with a catchy title and an original visual is no simple task.
Premium setting is extraordinarily complex. The actuarial science requires a rigorous analysis of big data to trend utilization and costs and make assumptions. Proposed adjustments reflect the expected difference in costs between the most recent experience year and the pricing plan year, and the most recent experience year is often two years prior to the pricing plan year. But a lot of unexpected things can happen over the course of two years, and innovation and disruptive technologies are difficult to predict. Take GLP-1 agonists, for instance: past utilization is not a predictor of future costs.
The goals of other stakeholders add to the complexity of premium setting. Regulators may want to ensure that premiums are adequate and fair (i.e., nondiscriminatory). And policymakers may want to ensure premiums are affordable. Purchasers or policymakers may limit premium growth (e.g., not to exceed general inflation) and, in response, payers may constrain costs through aggressive utilization management (e.g., tighter prior authorization criteria, limited provider networks) and cost-sharing increases that purchasers and consumers find undesirable. Even worse, more aggressive utilization management and cost sharing in response to downward pressure on premiums can limit access, and result in unintended consequences like poorer outcomes or higher costs.
Premium setting to achieve higher-order goals is an art that attempts to account for strategic objectives and market dynamics, including competition, regulatory changes, economic conditions, innovation, and preferences held by multiple stakeholders. The complexity of the task makes premium maximizing (i.e., finding the best solution) an elusive goal, but premium satisficing (i.e., finding a satisfactory solution) is much more pragmatic.
Goal attainment
Payers use premiums to attain goals, and smart payers set SMART goals when setting premiums. But the task complexity of premium setting, overlooked by SMART goals, limits payers’ goal attainment.
This is Currant’s 100th consecutive monthly article. Having attained that goal, our new goal is 120 articles — a continuous monthly stream over 10 years. Self-efficacy to reach that goal is extremely high, given past performance. The 100 daily push-ups, however, remain an ongoing struggle.
Hopefully, this article met its goal to deliver a fresh look at payers’ premiums. And in the spirit of goal-setting theory, we hope readers will provide feedback on it.
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