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.