Pushing Boundaries

Berkeley Haas’ commitment to educating future-oriented leaders demands a constant evolution of our teaching and research. Here, we highlight two new research centers whose work will keep Haas at the forefront of behavioral economics and drive positive healthcare innovations. As well, we feature a new climate solutions dual-degree program and a new fund-based class to prepare students to lead the transition to a more sustainable future.

Leading the Next Wave of Behavioral Economics

By Laura Counts & Mickey Butts

Illustration of a wave made with grids and webs meant to symbolize technology. Dots of various colors spill over the wave.Ever since future Nobel laureates George Akerlof and Daniel Kahneman created a 1987 UC Berkeley course that broke the barrier between psychology and economics, the university has led the way in bringing these disciplines together into the field of behavioral economics.

In the ensuing years, psychology-based behavioral economics has explored the predictable foibles in our thinking, such as decision-making biases, fears of losing out, lack of self-control, and overconfidence. A classic example is Kahneman’s pioneering work with Amos Tversky on loss aversion, which showed that people are willing to take greater risks to avoid a loss than to secure a gain.

Now Haas is poised to lead the next wave, pushing the field beyond psychology and gleaning insights from disciplines as diverse as neuroscience, biology, and medicine with the launch last fall of the Robert G. and Sue Douthit O’Donnell Center for Behavioral Economics.

“Humans are living, breathing organisms affected by their unique life paths,” says Professor Ulrike Malmendier, the O’Donnell Center’s founding faculty director. “We have minds and bodies, and an economic science that describes human behavior needs to account for both.”

Thanks to a philanthropic investment of almost $17 million by Bob O’Donnell, BS 65, MBA 66, and his wife, Sue O’Donnell, the center will advance the next generation of research, extend learning opportunities to students, and position Haas as the preeminent hub for the field. Malmendier aims to bring in leading researchers from a wide range of disciplines for collaboration, conferences, and bootcamps—beyond what has been considered part of the field. The center will also provide fellowships to PhD students and postdoctoral scholars and will host the prestigious Behavioral Economics Annual Meeting (BEAM), co-founded by Malmendier, every three years.

Bob, BS 65, MBA 66 (right), and Sue O’Donnell seated on a bench.
Bob, BS 65, MBA 66, and Sue O’Donnell look forward to the interdisciplinary opportunities the new O’Donnell Center for Behavioral Economics will create for researchers and students alike. “UC Berkeley is dedicated to integrating business education with other disciplines on campus, which is essential in this area,” Bob says. “It should have a center devoted to continuing this work.”

Students will benefit from a curriculum enriched by the foremost thinkers in the field. In early April, for example, the O’Donnell Center co-sponsored a fireside chat with economist and Nobel Laureate Richard Thaler and New York Times writer David Leonhardt. Malmendier has also initiated a weekly reading group with faculty, PhD students, and post-docs to discuss the latest behavioral economics research. Such discussions will deepen the knowledge faculty bring to the classroom. And because of the interdisciplinary nature of the O’Donnell Center, the teaching of behavioral economics and finance will expand to students campuswide.

Breaking new ground

Malmendier’s goal is to open a new frontier in research that will help business leaders and policy makers. “We went from neoclassical economics that considered humans to be perfectly rational to behavioral economics that brought in social psychology,” explains Malmendier, the Cora Jane Flood Professor of Finance.

For example, after Nobelist Thaler and Cass Sunstein developed the concept of the “nudge”—interventions that spur people to act in their own self-interest, such as enrolling them in a retirement savings plan by default—hundreds of “nudge units” were established in governmental and private-sector organizations around the world. Just last spring, a report from the National Academies of Sciences, Engineering, and Medicine called for increased collaboration between behavioral economists and policymakers in part to encourage people to make better decisions.

“Now we want to move the needle further, bringing together the best minds for rigorous research on human behavior from the sciences more broadly, including neuroscience, cognitive science, biology, medicine, epidemiology, and genetics,” Malmendier says.

Pioneering collaborations

For her part, Malmendier will expand her groundbreaking work on “experience effects,” which earned her a Fischer Black Prize in 2013 for the top economist under the age of 40—the only woman to ever win the prize—and a Guggenheim Fellowship in 2017. She has studied how stressful experiences with recessions, layoffs, inflation, housing bubbles, and political repression make consumer and investor behavior more cautious and risk averse for years afterward. She’s also explored how stress can affect our health, careers, education, and other aspects of life in dramatic ways.

Now, she aims to further that work by collaborating with neuroscientists, neuropsychiatrists, biologists, medical researchers, and epidemiologists who have studied stress and trauma—insights that could more precisely demonstrate how past experiences shape our actions, such as completing an education, choosing an occupation, and deciding to have a family, today and across generations.

“As we walk through life, our outlook on the world changes, especially if we suffer trauma,” she says. “Neuroscience says our brain gets rewired. There may be a long-term impact of stress on our longevity, on our aging, and on our health.”

In addition to Malmendier, the center will include a host of affiliated researchers from Haas and Berkeley Economics and elsewhere across the university. They include center co-founder Stefano DellaVigna, professor of economics and business; Haas professors Ricardo Perez-Truglia, Ned Augenblick, Don Moore, and Gautam Rao, PhD 14 (who recently joined Haas from Harvard University); as well as Dmitry Taubinsky of Berkeley Economics, and others.

“We want to move the needle further, bringing together the best minds for rigorous research on human behavior from the sciences more broadly, including neuroscience, cognitive science, biology, medicine, epidemiology, and genetics.”

—Prof. Ulrike Malmendier

Shaping transformative leaders

Founding donor Bob O’Donnell says he was inspired by the interdisciplinary promise of behavioral economics at Haas. “UC Berkeley is dedicated to integrating business education with other disciplines on campus, which is essential in this area,” he says. “It should have a center devoted to continuing this work.”

O’Donnell, a retired portfolio manager for a large mutual fund group, often applied insights from behavioral economics during his career. “When combined with existing financial theory, I believe that its insights enhanced results for my clients,” he says.

Yet, during the 17 years O’Donnell taught an investment class in the Berkeley Haas MBA program, he says he sometimes encountered skepticism when introducing ideas from the field. “Indeed, one student asked, ‘Isn’t all this kind of woo-woo?’” he says. “Several years later, that student told me how perspectives from behavioral economics had helped her career in finance.”

O’Donnell envisions his endowed gift as one that will not only define the future of behavioral economics but shape truly transformative leaders. Founding the center, he says, is a start but more investment is needed to enhance curricular offerings and expand the groundbreaking research that will be the hallmark of the O’Donnell Center.

Malmendier is passionate about the potential of behavioral economics to help leaders create better solutions to the most complex and urgent problems of our time, like battling inflation. “If leaders keep in mind people’s emotions, their personal histories, and their psychologies,” Malmendier says, “they can engineer ways to make things more predictable and give people more control over events to help them live better lives. That is our ultimate goal.”

Harnessing AI to Transform Healthcare Outcomes

By Amy Marcott and Laura Counts

Silhouette of the side of a person with a brain illustrated with swirling and intersecting lines and balls meant to represent technology. The person is looking at a butterfly made with the same swirling lines and balls.The U.S. spends almost 20% of its gross domestic product on healthcare—more than any other high-income country. Yet we see a low return on that investment: Americans have poor outcomes across numerous dimensions, including life expectancy.

A big factor in these poor outcomes is a healthcare system that resists easy remedies, says Haas Professor Jonathan Kolstad. Promising innovations and technologies are often dead on arrival due to lack of understanding of the incentives at play.

“There’s a big gap between the kinds of AI and machine learning tools that are being built for healthcare and the realities of the healthcare delivery system, including the complex incentives, how the system functions, who would buy the product, and who would use it,” he says. “Conversely, the healthcare system is behind in terms of the technology, the systems, and the adoption of new AI tools. Right now, there’s a unique opportunity to play massive catch-up.”

The new Center for Healthcare Marketplace Innovation (CHMI), a joint endeavor between Haas and Berkeley’s new College of Computing, Data Science, and Society, aims to bridge that gap with solutions that join AI and data science with behavioral economics and an understanding of the realities of the healthcare system and the vagaries of human behavior.

Launched this spring with a gift from an anonymous donor, the CHMI combines technology development and academic research, giving researchers and partners access to a massive database of healthcare data. In fact, CHMI is believed to be the first applied research center of its kind to merge data, behavioral economics, and artificial intelligence with a focus on technology incubation.

Applied behavioral economics

Previous approaches to healthcare innovation are often too simplistic, Kolstad says, while other technologies have simply aimed to replace doctors. “These are some of the smartest and most highly trained humans making lots of different decisions under complex situations—which machines simply cannot do,” he says. “It’s the interaction of technology and human decision-making where AI is going to meet the market in healthcare.”

Take, for example, helping a radiologist better identify cancer. To do so successfully, Kolstad says, requires understanding the realities of how radiologists work, what they try to do, when cancer is spotted, who’s being screened, what data are available with the right pictures, and even how they’re paid. “All of those layers are critical,” he says.

Kolstad is building a database that he hopes will be one of the largest multimodal healthcare data platforms in the world. This rich data will include health insurance claims as well as medical records, images, electrocardiogram waveforms, and other granular information all linked to longitudinal health outcomes. The platform will be available for both research and R&D. “We want to structure it so that you can use the data to learn and create new insights but also create new solutions that really meet patients where they are,” Kolstad says.

“It’s the interaction of technology and human decision-making where AI is going to meet the market in healthcare.”

—Prof. Jonathan Kolstad

In addition to this novel data platform, CHMI will also offer academic and industry partnerships to facilitate the development of new AI and technology solutions grounded in real-world problems; the incubation of new companies; and academic research on AI, behavioral economics, and economic incentives. The interdisciplinary center will work with researchers throughout UC Berkeley and at UCSF.

The importance of incentives

What’s key to success, Kolstad says, is working within the constraints of a complex, market-driven healthcare system bolstered by governmental incentives. “At the end of the day, you have to understand the incentives in order to create solutions that are going to get to scale and change things,” he says. “We’re facilitating what we think will make that system more effective, more productive, and more efficient, which will lead to better health at a lower cost.” Kolstad himself has done this with the launch of a new company, Healthpilot, to help improve Medicare (see sidebar, “Haas Research Fuels Company Benefiting Medicare Patients”).

“My strong hope for CHMI is that there will be novel technologies that will be positioned to create new startups, nonprofits, or open-source solutions,” says Kolstad, the Henry J. Kaiser Chair. He’s forming relationships with venture funds, big insurers, and government agencies keen to see CHMI innovations—executives who can collapse the time it typically takes to run a pilot and scale. “We’re here to actually change things,” Kolstad says.

Doubling Down on Sustainability

By Kim Girard and Laura Counts

I\illustration of a person hoeing a ground made up of swirling, intersecting lines meant to represent technology. The handle of the hoe transforms into branches with flowers at the end.

Since Dean Ann Harrison assumed leadership of Haas five years ago, she has made sustainability a strategic priority for the school, working to ensure that students are trained to view leadership challenges with a sustainability lens. Undergrads can now minor in sustainability, MBA core courses are being revamped to incorporate thinking about climate change and other sustainability challenges, and Haas launched the Michaels Graduate Certificate in Sustainable Business, to name just a few offerings.

Now, MBA students wishing to deepen their training in the field have two new opportunities available to them: a dual-degree option and a pioneering Climate Solutions Fund class.

Master’s degree in business and climate solutions

Haas and Berkeley’s Rausser College of Natural Resources recently launched the concurrent MBA/Master of Climate Solutions to prepare the next generation of sustainability and climate leaders. The new program, enrolling for fall 2024, will allow students to earn a master’s degree in both business and climate solutions in five semesters, one more than is typically required for the full-time MBA.

Dean Harrison says the degree will teach critical skills and knowledge in climate data science, carbon accounting, and lifecycle analysis as well as technological and nature-based solutions. “Future business leaders will require a depth of training in both business and climate change to work across disciplines and execute competitive strategies,” she says. “This new program will provide a breadth of skill sets, equipping our grads to lead in building a sustainable, low-carbon future.”

Students in the MBA/MCS cohort will spend the first year at Haas completing MBA core coursework—which includes courses in leadership, marketing, management, finance, data analysis, ethics, and macroeconomics, along with sustainability courses—before moving to classes at Rausser.  The MCS core curriculum includes climate and environmental sciences; climate economics and policies; technological, business, and nature-based solutions; training in analytical and quantitative skills; and applied exercises and engagements that emphasize adaptive thinking and problem-solving. MCS courses will translate the fundamental science and groundbreaking discoveries of UC Berkeley experts, enabling professionals to learn how to evaluate technologies, develop just climate strategies, and remove barriers to implementing practical climate solutions.

“Future business leaders will require a depth of training in both business and climate change to work across disciplines and execute competitive strategies.”

—Haas Dean Ann Harrison

Michele de Nevers, executive director of Haas’ Office of Sustainability and Climate Change, says the dual-degree’s focus on early-career professionals promises quick dividends. “These professional students are clearly positioned to make an immediate impact and will serve a critical role as translators of academic insights and enacting these insights in the world,” she says.

All MBA/MCS students will participate in a semester-long capstone program that gives them the opportunity to partner with organizations operating across the business, government, and nonprofit sectors. A unique leadership course on organizational, political, and societal change for climate solutions will prepare students to be change agents anywhere they work. Students will also complete two summer internships, which will allow for deep immersion in different disciplines and more time to build relationships.

James Sallee, a professor in the Department of Agricultural and Resource Economics and faculty director of the MCS program, says that while new research on climate solutions is still critical, many of the things needed to address the climate challenge are already known. “What we really need are people spread throughout society and the economy who are in a position to take action on climate and who are equipped with the tools to make the right choices. Educating those students is the vision of the MCS program,” he says.

New Climate Solutions Fund

Financing the climate transition requires a diverse and technical tool kit: An estimated $4 trillion to $5 trillion per year will be needed to reshape global energy, transportation, food, and waste infrastructure and to help companies reinvent supply chains and integrate new technologies, says Professor Adair Morse.

To equip future leaders with the financial know-how to accelerate the transition to a low-carbon economy, Haas is launching the student-led Climate Solutions Fund in fall 2024—the first such course at a major business school.

MBA students in the course will serve as investment managers for the $2.37 million fund, learning how to structure financing in complex private markets by investing in real-world deals focused on solutions to climate change.

It was conceived of by Morse, co-founder of the Sustainable and Impact Finance Center (SAIF). “As the world moves toward a goal of net-zero carbon emissions by 2050, we need financial leaders with the skills to navigate the economic revolution we are facing,” she says. “This economic revolution will be staggeringly disruptive yet will also be a source of more business opportunities across all parts of the country than we’ve seen in 250 years.”

The Climate Solutions Fund curriculum will teach students new designs and uses of finance not traditionally taught in mainstream finance courses, including public-private partnerships with federal and state programs, identifying the underlying technologies to fuel the low-carbon transition, and envisioning new financial products. Morse saw the need for this financial expertise while serving as deputy assistant secretary of capital access in the U.S. Department of the Treasury from 2021 to 2023.

“As the world moves toward a goal of net-zero carbon emissions by 2050, we need financial leaders with the skills to navigate the economic revolution we are facing.”

—Prof. Adair Morse

“This level of reinvestment [in the climate transition] will require every finance tool available, including designing financial structures to mobilize government programs and work with community and industry partners,” she says. “Our goal is to expand how we teach students to provide the leadership and expertise that corporations, financial entities, startups, governments, and philanthropies will need to navigate this transition.”

Students in the course will assess investment opportunities in U.S.–based for-profit companies, working with outside investment partners to structure deals. Following a pitch competition, student managers will select one finalist to co-invest $100,000 to $300,000 annually. The fund is intended to generate positive returns over time so that future students can build off the capital.

The Climate Solutions Fund was made possible by a lead gift from Allan Holt, MBA 76, along with generous founding donations from Larry Johnson, BS 72; Charlie Michaels, BS 78, and his wife, Doris; Scott Pinkus; and Professor Laura D. Tyson, former Haas dean and co-founder of SAIF.

What’s age got to do with it? 76-year-old MBA student “having the time of my life”

MBA student holding microphone
Neurologist Peter Fung came to Haas for an MBA to gain new leadership skills and financial expertise.

At a time of life when many of his peers are well into retirement, Peter C. Fung is having “the time of his life” as a student in the Berkeley Haas Executive MBA Program

But for Fung, 76, a retired neurologist and self-proclaimed lifelong learner, retirement was never an option. It’s the reason he wanted to earn an MBA and why he connected immediately to Students Always, one of the four Haas Defining Leadership Principles (DLP).

“Age is not important,” said Fung, EMBA 24, who sits on the El Camino Health District Board of Directors and for a decade led the hospital’s stroke program, which is named after him. “When we’re using our brains in thinking or learning new information, neuronal pathways from neuron to neuron are formed. This is the best anti-aging therapy. Just like an old car, you have to keep it running to keep it from rusting.”

Developing leadership skills

As a physician, Fung, an advocate for health, wellness, and disease prevention, has spent more than 35 years improving health care quality and access. Now, he’s running for an open seat on the Santa Clara Board of Supervisors, where he hopes to tap what he’s learned at Haas on the journey.

In the EMBA program, Fung said he’s developed leadership skills that he believes will help him stand out as a political candidate. He’s also gained new expertise in economics and data analysis—and a deeper understanding of organizational finance that he hopes to apply to overseeing the county’s budget and tackling the deficit.

group of MBA students in a classroom
Peter C. Fung (middle) said he is impressed that his classmates—busy with careers and young families—are all still learning new skills, pivoting to new jobs, starting companies, and helping each other.

He said he is impressed that his classmates—busy with careers and young families—are all committed to learning new skills, pivoting to new jobs, starting companies, and helping each other. 

“The cohort has been treating me as one of their own,” he said. “I was terrible with the computer, especially with Excel, when I started the program. But I was finally able to master this very powerful tool. I actually did quite well on my finals. I have enjoyed the challenge. It was a thrill.” 

Fung believes he brings something unique to the program. His classmates agree.

Abdus Sattar, EMBA 24, collaborated with Fung during a recent business policy immersion trip the cohort took to Washington D.C.  Their paper on “Medicare Drug Price Negotiation, “offered me an opportunity to delve into crucial healthcare topics,” said Sattar, who holds a PhD in electrical engineering. 

Saya Honda, EMBA 24, said that Fung “pushes us and encourages us to challenge ourselves.” She said Fung embodies all four of the Haas Defining Leadership Principles: He questions the status quo by being unafraid to ask questions; he shows confidence without attitude by using humor in public speaking; he’s a student always as the oldest person in the cohort and as someone who believes in the importance of education; and he’s questioning the status quo by running for county supervisor. 

A passion for learning

Originally from China and having grown up in Hong Kong, Fung came to the United States to study at the University of Michigan Medical School, where he became board-certified in internal medicine and neurology and also earned a master’s degree in neurochemistry and neuropharmacology. 

doctor at the hospital standing in lobby
Dr. Fung sits on on the El Camino Health District Board of Directors and for a decade led the hospital’s stroke program, which is named after him.

“His passion for learning is not only impressive but also infectious,” said Elizabeth Stanners, executive director of the Haas Executive MBA program.

When a professor recommended a PhD program, Fung’s wife, who missed living in Asia and warmer weather, balked. “She said, ‘We’re going to move to California.’ he said. “That pretty much was an ultimatum. So we came to San Jose, where I was the only neurologist in my area of the city.” 

For Fung, 1996 proved a turning point in life after his mother had a devastating stroke that left her paralyzed on one side and unable to speak. Fung managed to consult with the chief of the stroke program at Stanford about a new drug called tPA, which his mother received. “The next day, she asked, ‘Why am I here?’ Her arm was no longer paralyzed, and she was speaking fluently,” Fung recalled.

Running for supervisor

After that experience, Fung decided to study strokes, immersing himself in articles and at conferences for a decade. Along the way, he became the first physician in the Bay Area to be board-certified in stroke neurology. “I thought I would work as a stroke and vascular neurologist for the rest of my life,” he said. “But then, I started thinking about what else I could do.” 

Running for office was part of that plan, to expand his commitment to improving access to care for everyone. Earlier in his career, Fung served as co-director of the El Camino Health Chinese Health Initiative, to provide education and access to the Asian community. The initiative is now the largest nonprofit organization catering to Chinese patients in California. 

In 2014, he ran for the El Camino Healthcare District, which manages the budget for the district’s hospitals. The Santa Clara Board of Supervisors is the next step, where his work would have impact on a larger population.

If elected, he said he’d tap into the DLPs to help with decision making in critical areas that are top of mind for constituents: crime, safety, healthcare, inflation, education, and housing. “After thorough research and analysis, I would delve deeply into the issues at hand, engaging with fellow political leaders to gain diverse perspectives, and to develop well-informed and practical solutions,” he said.

Meanwhile, Fung is looking forward to adding an MBA to a long list of accomplishments.

“If I’m the oldest student to graduate successfully from Haas, and I go on to make a meaningful life after graduation, that will be something to write about,” he said. “That’s my goal.”

Amy Finney, MBA 20
COO, Bicycle Health

Amy Finney, MBA 20.During her 12-year career at One Medical, Amy Finney held many leadership positions. But her most consequential role came in February 2020, when she led One Medical’s emergency response to the COVID-19 pandemic.

“Those first few weeks in February and early March, a small group of us worked around the clock researching and scripting guidelines for our clinical and administrative staff,” says Finney. “We were on call 24 hours.”

Finney and her incident response team created up-to-date clinical logistics and COVID-19 testing protocols to meet the needs and specific guidelines for One Medical’s 200+ clinics nationwide.

Finney was later promoted to vice president of operations and named one of San Francisco Business Times’ 2022 Women of Influence for her work—though leading a national emergency response was a departure from her original career goals.

Inspired by her sister’s complex health journey, Finney had planned to attend medical school. But with every new opportunity, her work at One Medical became more meaningful. In 2017, Finney enrolled in Haas’ evening and weekend program, which ultimately put her on the fast track to lead One Medical’s operations. Finney has since moved on and is now COO of Bicycle Health, a telehealth company that provides online treatment to people for opioid use disorder.

“I’m very grateful that I had Haas to help me expand my perspective and confidence,” says Finney. “I hope that other women in their careers can make the same steps that I feel I’ve been able to make.”

linkedin.com/in/amy-finney

How Berkeley Haas research fueled a company that could save Medicare patients from costly mistakes  

Choosing a Medicare plan is both complicated and consequential. Berkeley Haas research has fueled a new company that simplifies the process, promising to save money and improve health for millions of people.

Photo of a woman with gray hair in a ponytail smiling as she looks at a laptop screen showing the Healthpilot website.
Photo courtesy of Healthpilot

It’s Medicare open enrollment season, and the tens of millions of retirees who rely on the government program for health care are grappling with an abundance of options, a dearth of information, and no good way to personalize or compare plans.

“It is not a well-functioning market,” says Jon Kolstad, an associate professor at UC Berkeley’s Haas School of Business who studies the economics of health care. “And yet the choices people make have high financial stakes—consumers are typically on fixed incomes—and critical health implications.”

Kolstad has been studying this challenge since he was in graduate school and, with several academic collaborators, recently helped turn a broad foundation of research into a company centered on helping people make better decisions when choosing a Medicare plan. Healthpilot, which launched in late 2020, uses machine learning to compare Medicare plans and suggest options that are personalized to each person’s current circumstances, projected health needs, and risk tolerance. It’s also free to use.

“We recognized the power of this highly predictive algorithm developed to solve a critical unmet healthcare need for seniors who are evaluating Medicare plans,” says Healthpilot CEO Seth Teich. “We believe that Healthpilot’s platform is a transformative technology that empowers consumers to easily navigate through the complexity of plan choices to find, and enroll in, their best coverage option.”

A desperate need for innovation

People with questions about Medicare enrollment have long relied on phone calls to private agents who walk them through the decision. But there’s a problem: “In reality, these brokers, who are supposed to be experts, do no better at selecting a plan than the average person,” Kolstad says.

In a 2021 paper, Kolstad and several colleagues, including UC Berkeley economist Ben Handel, demonstrated that brokers are prone to the same flawed judgment as everyone else. For instance, they place too much weight on a plan’s premium while overlooking other costs, such as out-of-pocket expenses. The result is that consumers working with brokers pay $1,260 more per year on average than they would if they enrolled in the best plan.

This is not the result of brokers’ bad intentions but simply because solving which plan is best for which person “is a very complex computational problem,” Kolstad says. In fact, the 2021 paper found that when brokers were provided with an AI assistant to help them suggest a plan, they saved consumers about $300 per year. (This is a conservative estimate.)

Healthpilot’s promise lies with its ability to use AI to properly weight the many fixed and projected costs of every available plan, sifting carefully—and impartially—through these multidimensional relationships. The algorithm operates by comparing every Medicare enrollee with millions of similar people and then forecasting the likelihood of different medical complications. By pairing this forecast with known information—including, with users’ permission, secure access to the medications people take and the doctors they see, along with information they provide directly—Healthpilot then determines which plan is ideal and ranks the alternatives.

The algorithm also considers individual appetites for risk. “Some people have very little risk aversion, and they would rather have low payments now and gamble on how they fare,” Kolstad says. “The plan that gets recommended to this kind of person should be different than the plan that gets recommended to someone who is very risk averse, who wants a high premium now in order to know that they’ll be covered.”

Benefiting individuals and the marketplace at large

The financial benefits for individuals are straightforward: Choosing the right Medicare plan generally means better coverage and less expense. These savings also accrue to the federal government, which finances Medicare.

A subtler benefit are gains in well-being and even lower mortality rates. One working paper co-authored by Kolstad found that people who have to pay more out of pocket cut back on important health care services. A related paper, co-authored by Ziad Obermeyer of Berkeley Public Health with researchers at Stanford and Harvard, found that a $100 bump in per-month cost-sharing for drugs—exactly the kind of mistake people make without good guidance—increases mortality by 13.4%, as people forego essential drugs such as blood pressure medication.

Healthpilot is able to deliver these financial and health-related benefits to consumers for free because of the structure of the Medicare market. Since Medicare is a valuable source of revenue for insurance companies, the companies pay commissions to brokers for each person that they enroll. If Healthpilot sends someone to Humana, Humana pays; if instead the enrollee goes to Blue Cross-Blue Shield, then Blue Cross-Blue Shield pays.

That’s a crucial point: Because these commission amounts may vary by carrier, human agents may be biased in their plan recommendation based on the commission they are paid. Healthpilot’s algorithm does not factor commissions into its recommendations and does not steer people toward any particular plan or company based on financial incentives. “There’s no distortion in the platform or plan recommendation, which is unique in the industry,” Kolstad says.

This also has the potential to inspire greater innovation and efficiency in the insurance market as a whole—one of Kolstad’s main interests. As a point of comparison, consider the tech market: When a company like Apple creates a product that people like, they buy it; when it creates a product people don’t like, they don’t buy it. This is quickly reflected in the company’s revenue and share price.

Because insurance products are so much more complicated, consumer decisions rarely reflect clear notions about quality; people often enroll, and stay enrolled, in plans that don’t deliver value. Healthpilot, by sorting people into plans that genuinely benefit them, could bring much greater transparency into the marketplace and produce meaningful information for companies to build better plans, Kolstad says.

“For better or worse, we rely on competing private plans in Medicare. That’s the approach we’ve taken because we believe that a private market will offer innovation,” Kolstad says. “Giving customers a greater ability to match with plans that give them the coverage they want and need will reward innovators. That means Healthpilot isn’t just a digital enrollment solution for consumers but can be a tool to make the whole market function more as it should.”

Health Check

Management strategy influences medical treatment 

Woman with both hands on her pregnant belly.

In today’s healthcare landscape, physicians generally have the option to keep running their own practice, sell to a hospital and become a salaried employee of that facility, or sell to a physician practice management company (PPMC). For doctors, it can seem like a no-brainer: Management experts, often private equity firms, offer to handle the logistical and financial drudgery of their practices, leaving the doctors to focus on patient care.

However, Assistant Professor Ambar La Forgia has found that even PPMCs claiming to preserve physician autonomy can alter clinical outcomes for better or worse.

C-sections are more profitable than vaginal births because insurance companies typically pay out more in reimbursements.

The study, published in Management Science, examined the strategies adopted by PPMC-owned obstetrician and gynecologist practices and found they influenced rates of cesarean sections for low-risk patients.

La Forgia tracked three PPMC-owned practices that together accounted for more than 40% of Florida’s OB-GYNs between 2006 and 2014. One PPMC focused on attracting “value”-based contracts, which link payment to clinical performance by providing clinical management services, while two focused on raising revenue by providing financial management services and negotiating higher-paying, fee-for-service contracts, which link payment to quantity of services.

C-sections are more profitable than vaginal births because insurance companies typically pay out more in reimbursements. But unnecessary C-sections can increase risks for both mother and infant, so a rise in C-sections performed on mothers at low risk for childbirth complications can raise suspicions.

La Forgia found that the OB-GYN practice focusing on clinical management cut C-sections for low-risk women by 22%. Those that focused on financial management showed a 10% to 11% rise in C-sections.

Notably, the two financially managed PPMCs performed more C-sections on privately insured patients than those insured by Medicaid, the government insurance program that typically covers people with lower incomes. Florida, La Forgia notes, is one of the few states where Medicaid reimburses physicians at the same rate for C-sections and vaginal births.

“Even though PPMCs say they preserve physician autonomy, managerial changes do appear to influence physician treatment choices,” says La Forgia.