Safeway CEO on free-market health care solutions

Not everyone is running to embrace President Obama’s single-payer socialized health care plan. On the contrary, some corporations have made great strides in cutting health care costs by implementing free-market, capitalist solutions in this area.

Steven Burd, the CEO of Safeway supermarket stores, wrote a great Op-Ed piece on this topic:

Effective health-care reform must meet two objectives: 1) It must secure coverage for all Americans, and 2) it must dramatically lower the cost of health care. Health-care spending has outpaced the rise in all other consumer spending by nearly a factor of three since 1980, increasing to 18% of GDP in 2009 from 9% of GDP. This disturbing trend will not change regardless of who pays these costs — government or the private sector — unless we can find a way to improve the health of our citizens. Failure to do so will make American companies less competitive in the global marketplace, increase taxes, and undermine our economy.

At Safeway we believe that well-designed health-care reform, utilizing market-based solutions, can ultimately reduce our nation’s health-care bill by 40%. The key to achieving these savings is health-care plans that reward healthy behavior. As a self-insured employer, Safeway designed just such a plan in 2005 and has made continuous improvements each year. The results have been remarkable. During this four-year period, we have kept our per capita health-care costs flat (that includes both the employee and the employer portion), while most American companies’ costs have increased 38% over the same four years.

That right there is the bottom line. People clamor about the costs of health care and then pretend that if the government pays it, that means the costs are being reduced. That is a total like as it simply shifts the cost from the private sector to the taxpayers.

Safeway’s plan capitalizes on two key insights gained in 2005. The first is that 70% of all health-care costs are the direct result of behavior. The second insight, which is well understood by the providers of health care, is that 74% of all costs are confined to four chronic conditions (cardiovascular disease, cancer, diabetes and obesity). Furthermore, 80% of cardiovascular disease and diabetes is preventable, 60% of cancers are preventable, and more than 90% of obesity is preventable.

As much as we would like to take credit for being a health-care innovator, Safeway has done nothing more than borrow from the well-tested automobile insurance model. For decades, driving behavior has been correlated with accident risk and has therefore translated into premium differences among drivers. Stated somewhat differently, the auto-insurance industry has long recognized the role of personal responsibility. As a result, bad behaviors (like speeding, tickets for failure to follow the rules of the road, and frequency of accidents) are considered when establishing insurance premiums. Bad driver premiums are not subsidized by the good driver premiums.

As with most employers, Safeway’s employees pay a portion of their own health care through premiums, co-pays and deductibles. The big difference between Safeway and most employers is that we have pronounced differences in premiums that reflect each covered member’s behaviors. Our plan utilizes a provision in the 1996 Health Insurance Portability and Accountability Act that permits employers to differentiate premiums based on behaviors. Currently we are focused on tobacco usage, healthy weight, blood pressure and cholesterol levels.

Safeway’s Healthy Measures program is completely voluntary and currently covers 74% of the insured nonunion work force. Employees are tested for the four measures cited above and receive premium discounts off a “base level” premium for each test they pass. Data is collected by outside parties and not shared with company management. If they pass all four tests, annual premiums are reduced $780 for individuals and $1,560 for families. Should they fail any or all tests, they can be tested again in 12 months. If they pass or have made appropriate progress on something like obesity, the company provides a refund equal to the premium differences established at the beginning of the plan year.

How shockingly simple is this to implement? Just like auto insurance where high-risk drivers pay higher premiums, high-risk health insurance recipients pay more as well. This prevents healthy people paying the costs for smokers, drinkers, skydivers etc… The healthier you are, the lower your premium. Just like the safer driver you are, the lower your car insurance premium. That way individuals are being rewarded for their work, not some collectivist notion of “fairness” in which everyone is hosed for someone else’s bad decisions.

This is one of many solutions and approaches to reducing health care costs yet the progressives in government are bent on turning health care into a government subsidized enterprise. Why won’t congress and President Obama even consider alternative solutions and intelligent legislation instead of nationalization? My short answer is that President Obama, and other progressives, want their power consolidated and they want more and more people dependent on government programs and under government control. There is little evidence to the contrary considering the plethora of working, free-market solutions which are constantly being ignored.

11 comments to Safeway CEO on free-market health care solutions

  • That makes a bit of sense though education and depression play a major role in cardiovascular health, cholesterol, obesity, and diabetes. Also heredity plays a major role in in three of those things as well. Cost of healthy foods versus cost of unhealthy foods likely play a role in what people can afford to, and are willing to purchase.

    I agree with this idea overall but I still say education is an important factor here. our lame educational system here is severely lacking in impressing upon children and young adults the importance of living healthy. Plus depression seems to be on the rise and leads to all sorts of eating disorders and other unhealthy acts such as drug abuse, unprotected sex, and risky lifestyles.

    Simply rewarding people for living healthy will not help unhealthy people become healthy. To simply throw unhealthy people in a pit is not going to make our country any better. Perhaps it will help healthy people be less affected by unhealthy people, but it wont help make the nation a nation of healthy people.

  • I’d like to find out more about “health care reform alternatives.” This alternative also doesn’t help to bring health insurance to those who currently don’t have it do to cost and employers who do not offer health insurance benefits.

  • Bill Hedges

    “That makes a bit of sense though education and depression play a major role in cardiovascular health, cholesterol, obesity, and diabetes. Also heredity plays a major role in in three of those things as well. Cost of healthy foods versus cost of unhealthy foods likely play a role in what people can afford to, and are willing to purchase.”

    Although Nate’s article did not mention education, from Safeway’s approach it seems logical it is in their program. My Doctor provided me with depression medicine. It is normal procedure for those with very high blood pressure. Thanks to job change, that medicine is no longer needed.

    Heredity give weaknesses to our body that give us tendencies for different disorders. Knowledge gives us and our doctors means to combat those problems. I can safety say this also is part of this seemly sound heath plan as well.

    Eating properly surely does help and bet is part of plan.

    Best part of plan is choices are YOURS to make. Freedom always comes with price. Which this plan puts in savings or increase cost.

    “Simply rewarding people for living healthy will not help unhealthy people become healthy. To simply throw unhealthy people in a pit is not going to make our country any better. Perhaps it will help healthy people be less affected by unhealthy people, but it wont help make the nation a nation of healthy people.”

    I worked a short time in a hospital. You are right doing all healthy things does not guarantee health. I meet healthy Black people there who had disease of black people. As yet no cure that I know of. I assume this group pays at discount rate due to their healthy choices, which is all they can do. Cannot fight diseases inherent in ones race except be as healthy as possible. Unless science has come up with help.

    “I’d like to find out more about “health care reform alternatives.” This alternative also doesn’t help to bring health insurance to those who currently don’t have it do to cost and employers who do not offer health insurance benefits.”

    In Washington D.C. There was a school plan that gave better education to children and at reduced cost. It has been dropped by Obama. Maybe teacher association contributions to his election was reason.

    Free enterprise health care can and has occurred. I believe Michigan (??) has such a plan as apparently Safeway has. We only have to look at Social security to know how government ruins things. Look what government pushing banks to loan to unqualified home buyers did.

    I would have hospitals hire efficiency experts to cut wasteful spending. Would then let them run rampant throughout government as well.

    There are plans for uninsured and those employed by business that has no plan for whatever reason. A expansion of medicare to UNITED STATES CITIZENS I might endorse after seeing the specifics if highly limited. Problem is many don’t have insurance because they want more things and insurance can wait. Short sighted thinking, those I don’t want to help. They get what what they deserve.. Nothing. Best answer is free enterprise, not wholesale medicare plan.

    I do not have medicare. I have long term conditon and covered by Evergreen Insurace. Who has contract with Medicare. I save money shopping for best drug prices. I buy some medicines under kmart 90 day supple for $10 & $15. Rest are cheaper through a mail order company.

  • I have to say there are many pharmacies that sell vital drugs at next to nothing cost. I am so happy that pharmacies are doing this now. Cost of medication for a long time was the difference between health and death.

    Thought provoking message Bill. Now if we can convey that type of message to the jugheads in government.

  • Again, thank you for the link Nate. I’ll read later, I’m seriously sleepy.

  • Bill Hedges

    “Lawmakers clash over cost of health care overhaul”
    Jun 17, 2009

    By RICARDO ALONSO-ZALDIVAR

    WASHINGTON (AP)

    “But the more important Senate Finance Committee announced it would delay action, as senators sought to retool their proposals to slash the cost by more than one-third, from an intial $1.6 trillion over 10 years, to less than $1 trillion. Of the five major panels working on health care, Finance has the best odds of coming up with a bipartisan proposal that could overcome gathering opposition.”

    “Majority Democrats running the Finance Committee have told lobbyists that their views will be taken into account as long as their groups don’t mount public campaigns against the legislation, numerous lobbyists say. So far, health industry groups have not launched aggressive attacks against Democrats’ emerging plans.”

    “We have a lot of sweat equity in this process,” said E. Neil Trautwein, chief health care lobbyist for the National Retail Federation, referring to hundreds of hours his group has spent with lawmakers as they prepared legislation. He predicted the bill would prove too costly and force lawmakers to pare it down – or else.”

    “We need cost relief,” he said. “But if comes to the point where we have to cut and run and build a coalition” to oppose the bill, “we’ll take that step.”

    “The American Medical Association backed off from a confrontation with the Obama administration over a government-run plan to compete with private insurance, declining to take a firm position at a Chicago meeting Wednesday.”

    “The health committee, which got to work Wednesday, is chaired by Sen. Edward M. Kennedy, D-Mass., and divided along ideological lines. It’s expected to produce a bill that heavily reflects the wishes of Democrats, but may not be able to pass the full Senate. Much of the day was taken up with speech-making.”

    “Sen. Christopher Dodd, D-Conn., is overseeing the proceedings in place of Kennedy, who is being treated for brain cancer. “My intention is not to jam anything,” Dodd told wary committee Republicans, who say the bill is incomplete, too costly and too one-sided.”

    “This bill contains policies designed to appease a particular ideology,” said Sen. Mike Enzi, R-Wyo., the ranking Republican on the panel.”

    “The complex legislation attempts to slow punishing increases in health care costs, thus freeing up money to cover the nearly 50 million uninsured.”

    “It would boost government subsidies for health insurance, and create new purchasing pools called “exchanges” for individuals and small businesses to buy coverage.”

    “Most people who have employer-provided coverage would be able to keep their plan.”

    “But health care touches every family, and that makes it very difficult to engineer any major changes.”

    “The 1990s Clinton initiative collapsed and the latest attempt has hardly been smooth.”

    “Underscoring the difficulty was word Wednesday that the Finance Committee, which had promised a draft as early as this week, has been forced to delay its deliberations, perhaps until after Congress’ July 4th recess.”

    “Sen. Kent Conrad, D-N.D., said that proposed changes that sweetened government subsidies to the uninsured had unexpectedly boosted the cost, and now lawmakers must trim back.”

    “Finance Chairman Max Baucus, D-Mont., said the goal is a bill that costs less than $1 trillion over 10 years and is fully paid for. “We’ll be ready when we’re ready, but we’re not there yet.”

    “The panel’s top Republican, Chuck Grassley of Iowa, cited three major sticking points: cost, whether to create a new public insurance plan to compete with private insurers and whether to require employers to offer health care or face fines.”

    “The measure before Kennedy’s committee would cost about $1 trillion over 10 years, but leave 37 million people uninsured, according to an analysis from the nonpartisan Congressional Budget Office. Parts of the draft bill have yet to be finalized, so its true costs and benefits are not fully understood.”

    “Sen. John McCain, R-Ariz., last year’s GOP presidential nominee, questioned how the committee could move ahead on legislation without hard figures on cost.”

    “How can we possibly, reasonably address this bill … without accounting how to pay for it?” McCain asked at the start of the committee’s session. McCain said it was “a joke if we run through this stack of papers.”

    “Nonetheless, political momentum for remaking the system is the strongest in decades.”

    “No issue is more of a moral imperative,” Dodd said. “In the richest nation on the face of this Earth, you shouldn’t have to be well-off to get well.”

    “Big holes remain on the most contentious issues in Kennedy’s 600-plus-page bill: a new public insurance plan to compete with the private market, and whether employers must provide health care for their workers.”

    “The committee was scheduled to meet daily through next week. There were 388 amendments to be considered, the vast majority from Republicans.”

    “Majority Democrats in the House could make their bill public this week, with committee votes after Congress returns from its July 4 recess.”

    “Major cuts in Medicare and Medicaid will pay for some of the new costs but senators disagreed among themselves over whether to tax employer-provided health benefits – something Obama campaigned against. Also elusive was a compromise with Republicans on a new public insurance plan, which the GOP opposes.”

    “Separately, two new health care plans were introduced Wednesday.”

    “House Republicans introduced a proposal that would provide tax credits to help the uninsured buy coverage from private insurers.”

    “And a bipartisan troika of former Senate leaders unveiled a $1.2 trillion plan, fully paid for, that would cover the uninsured. The plan by Democrat Tom Daschle and Republicans Howard Baker and Bob Dole would tax some health care benefits as if they were income. It would leave it up to the states whether or not to create public insurance plans.”
    ……….

    “Medicare: Are You Really Covered?”
    April 9, 2009 by Alexis Cala

    by Alexis Cala, PICurrent Assistant Producer

    “If you’re insured through Medicare, you may find that your doctor or specialist is no longer providing the services they once offered.”

    “Medicare is federally-funded insurance for people 65 and over, younger disabled people, and anyone with End-Stage Renal Disease (permanent kidney failure). This government program is in place to make health insurance more accessible and affordable.”

    “However, many doctors are finding it costs them too much to care for Medicare insured patients and are opting out of the system all together. If your doctor opts out, then they are no longer participating in Medicare and you need to know what your options are.”

    “A couple of reasons doctors are opting out:”

    “Cuts in Medicare reimbursement rates (this is what Medicare pays your physician for services provided to you). In other words your doctor isn’t getting paid enough to cover your care.”

    “Malpractice premiums and medical practice costs have gone way up. Doctors can’t keep up with costs, layoffs, paperwork, and the growing number of Medicare patients.
    When 40 million Americans are covered by Medicare and countless doctors opt out, more and more elderly and at risk patients are left with even fewer healthcare options.”

    “If you are enrolled in Medicare and your doctor opts out:”

    “You may have a difficult time accessing care. Some doctors are not accepting any new Medicare patients and in some cases they’ve turned away their regular patients as well.”
    Be prepared for limited or delayed services. Doctors who are still seeing Medicare patients are cutting staff and delaying new equipment purchases to make up for expenses. This might mean longer waiting periods for routine care.
    Whether you’re currently enrolled or are going to be soon, there are things you can do to make sure you’re covered and getting the care you need.”

    “If you are just beginning the Medicare process, start shopping around for a doctor now to save yourself time and money. Ask your doctor if they are “enrolled” to find out if they are still accepting Medicare. You can also check this list of Medicare enrolled physicians.”

    “Talk to your doctor! If your current doctor has opted out then talk to them about your options, they may be able to point you in the right direction. Some doctors are allowing Medicare patients to continue seeing them for care, but at a higher price.”

    “Try an urgent care clinic in your area. There are over 18,000 walk-in centers in the U.S. and the majority of these accept Medicare. These facilities generally offer care for minor illnesses, x-rays, etc. and you don’t even need an appointment”
    ……….

    “Do employers have to pay into the Social Security and Medicare systems?”

    “Absolutely. Not only do you pay 6.2% of your gross pay to Social Security and 1.45% to Medicare, your employer also pays a matching amount.”
    ……….

    I worked nearly 40 years before becoming totally disabled. Now my benefits are going to be cut. To help pay for health insurace for those who can’t affort insurace. Can you blame me for being mad. Are older folks now suppose to do without or find a job ?

    Gee, I hope illegals get my benefis too. So unfair for me to pay. I don’t make $250,000 a year. I bet I wlll lose more because I was foolish, I saved my money and earned a retirement. How dumb of me…

    I did all the right things. I got an education. I saved my money by not going on expensive vacations, lived modesty, and drove my old car. Still do.

    Now my medicare will be reduced to help those that were not prudent. Sorry, I have no empathy for them.

    I know from reading about England’s health plan, future benefits will be cut. Thanks Obama-bum…