The incentive illusion
Enrollment incentives inflate top-of-funnel numbers while raising CAC and churn — here's what the data shows and what to do instead.
Leaders consistently push enrollment incentives as a silver bullet, but practitioner experience tells a more nuanced story. Incentives inflate top-of-funnel numbers while increasing CAC and driving churn from users who never intended to engage. Here's what the data actually shows — and what to do instead.
The Silver Bullet That Never Was
At some point in every health benefit company's life, someone in leadership proposes incentives as the answer to sluggish enrollment. It's an understandable instinct: people like free things, enrollment numbers go up, and the story is clean. The problem is the story usually stops before the part about what happens next. As one member quipped: “If I had a dollar for every silver bullet someone hypothesized, I could buy this group a round of drinks or two.”
The hypothesis tends to appear after a rough enrollment season, or when a competitor offers gift cards, or when a large client asks what you're doing to drive adoption. The pressure is real, but the solution usually isn't. Practitioners who've actually tested incentives — run experiments, tracked cohorts, measured downstream engagement — largely reach the same conclusion: incentives are kind of a bust for driving meaningful membership.
What Incentives Actually Do to Your Funnel
The mechanics are counterintuitive when you only look at enrollment numbers. Incentives do increase top-of-funnel conversion — offer a $25 gift card and more people enroll. But two things happen underneath that metric. First, your customer acquisition cost goes up: you're now paying for enrollments you wouldn't have gotten otherwise, from people who responded to the incentive, not the product. You've bought their registration, not their attention.
Second, those incentive-driven registrations churn at higher rates and show little engagement. As one practitioner observed: “Incentives increased the conversion rate but also increased the CAC. We then saw a lot of those folks drawn in by the incentive churn and not use the product.” That's not enrollment — that's list inflation, and depending on how your outcomes are measured, it can create real problems downstream.
Where Incentives Do Work
The case against enrollment incentives is not a case against incentives in general. There's a meaningful distinction between incentivizing the decision to register and incentivizing behaviors that signal genuine engagement. Incentives for referrals, social sharing, and word-of-mouth among existing users are a different category entirely — small gifts or swag for people already using the program and comfortable sharing their experience. That's amplifying advocacy from engaged members, a fundamentally different population from people who enrolled for a gift card. There's also a reasonable case in high-noise benefit seasons where awareness is genuinely the barrier.
The Alternative: Milestone Rewards for Active Users
The most promising model circulating among practitioners is the milestone-reward approach: instead of rewarding registration, reward progression through the patient journey. Complete your intake assessment, get a branded gift. Finish your first care session, receive recognition. As one team described their pilot: “We're awarding people with branded gifts after completing certain milestones in their patient journey.”
This model works with your funnel rather than against it — you only spend incentive budget on people already demonstrating intent, reinforcing a behavior rather than manufacturing one. The operational complexity is higher (you need data infrastructure to trigger rewards at the right points), but the signal quality of your member base stays intact, which is worth protecting.
How to Make the Case to Leadership
The harder challenge is making this case internally when leadership is excited about the tactic. Three framings that land: First, lead with CAC — if incentive-driven enrollments cost more and churn faster, you have a direct cost argument, and the enrollment rate going up doesn't matter if cost-per-engaged-member is worse. Second, reframe the objective away from silver bullets and toward raising the water level through marginal improvements across many strategies. Third, propose the milestone model as a constructive alternative — it's easier to say yes to a refined version of the idea than to a flat rejection.
Key Takeaways
Top-of-funnel incentives reliably inflate registrations while raising CAC and generating members who churn without engaging. The problem is selection: incentives attract people motivated by the reward, not the product. Incentives for referrals and advocacy among engaged members work differently — they amplify real intent. Milestone-reward models are the most promising alternative being piloted. And to make the case internally, lead with CAC, reframe the goal, and offer the milestone model. There is no silver bullet — anyone who says otherwise owes the group a round of drinks.