How can Medicaid agencies use behavioral economics to encourage healthier behaviors on the part of beneficiaries? Financial incentives offer a potentially valuable tool for Medicaid programs to encourage individuals to choose healthy behaviors, such as exercise, smoking cessation, disease prevention, and health screenings. Programs serving non-Medicaid populations have demonstrated that financial incentives can help influence healthy behaviors, enhance long-term health outcomes, and reduce health care costs. In fact, several states are considering incentive strategies within new Medicaid expansion programs.

This brief, made possible through support from the Robert Wood Johnson Foundation’s State Health Reform Assistance Network Program, explores how behavioral economics concepts can be used to influence healthy behaviors. It reports on findings from past Medicaid healthy behavior incentive programs; highlights current Medicaid incentive approaches, including New Mexico’s model; and offers recommendations for states that are establishing or modifying programs to encourage healthy behaviors in Medicaid populations.