Social and Behavioral Sciences Commons^™

What Is The Optimal Subsidy For Exercise? Informing Health Insurance Companies' Fitness Reimbursement Programs, Molly E. Frean

Economics Honors Projects

Health care costs account for 17% of US GDP and many programs and policies seek to reduce these costs. This paper focuses on exercise as preventive care due to its immense physiological benefits. I model the profit-maximizing choice of health insurance companies to subsidize exercise and the utility-maximizing choice of individuals to engage in exercise using a traditional principal-agent framework. I then use principles from behavioral economics and psychology to critique these models and provide further insight into understanding our underconsumption of such preventive services. I end with an evaluation of current programs and suggestions for improvement using empirical findings.