Incentivizing Mental Health: A Case Study on the Implementation and Impact of Mental Health Incentives in Life Insurance

open_access
Open Access
Author:
Kircher, Sarah
Area of Honors:
Actuarial Science
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
Nan Zhu, Thesis Supervisor
Amanda W Hammell, Thesis Honors Advisor
Diane Marie Henderson, Faculty Reader
Keywords:
Actuarial Science
Mental Health
Life Insurance
Health Incentive Programs
Profit Analysis
Mortality
Statistical Modeling
Abstract:
Mental health plays a crucial role in overall well-being, yet it remains underprioritized in many healthcare systems and insurance companies. This study examines the financial impact of mental health incentive programs from an insurer’s perspective, assessing whether such programs can be both cost-effective and profitable. Using actuarial modeling techniques, this research evaluates the expected present value of premiums, death benefits, and overall profitability under two models: a baseline model with standard mortality rates and an incentives model that applies targeted mental health interventions. By comparing these models, the study identifies which interventions generate financial gains for insurers and which lead to net losses. The results indicate that while some mental health interventions, such as “holistic stress reduction” and “well-being apps”, yield strong returns on investment, others, including “telemedicine” and “mental health support” programs, result in financial losses due to higher costs. Further analysis by demographic group reveals that older adults, non-smokers, and males produce the greatest financial benefits for insurers from specific interventions. While mental health programs can enhance profitability, their success depends on careful selection and targeted implementation. Despite providing meaningful insights, this study has limitations, including reliance on assumed intervention effectiveness and exclusion of broader societal impacts. Future research should incorporate real-world data, explore behavioral responses to incentives, and refine demographic breakdowns to improve accuracy. Ultimately, this research highlights the potential for life insurers to integrate mental health programs into their policies while maintaining financial sustainability.