How Safeway Slashed Its Healthcare Costs, While Keeping Quality High

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We, like the President, believe that the whole challenge in healthcare is to cut costs. Do that, and all the stuff about universal coverage will be much easier to solve.

Unlike the President, we’re not convinced that just wanting it, or passing new regulations, or implementing new technology is really going to cut it.

The name of the game is to get consumers to be more responsible for the costs of their medical decisions, so that they’ll shop around, weigh competing providers, and so providers will have to market towards them, both through cost and quality.

A company that seems to have an interesting story to tell is grocery giant Safeway, which is profiled today in the WSJ, and whose CEO has been in Washington telling lawmakers how they slashed their healthcare bills. It sounds pretty cool.

It’s all about having employees put some skin in the game to keep costs down and stay healthy.

The Safeway plan has two main parts that work in tandem. The first involves giving employees a financial stake in the system. Safeway demolished the traditional PPOs and HMOs that encourage consumers to be cavalier about costs. The company today fully pays for an array of primary and preventive visits and tests. But beyond that, employees have skin in the game. The company deposits $1,000 each year into a “health reimbursement account,” which workers can use to pay for care. The next $1,000 in expenses is the employee’s responsibility. After that, employees pay 20% of costs up to a $4,000 maximum.

Safeway workers these days treat that first $1,000 carefully, since anything beyond it comes out of their pockets. The company is alive with stories of people who no longer visit the emergency room for routine care but instead call around to doctors to ask prices, and swap information with colleagues. Safeway is doing its part to improve price transparency, by having its care administrator, Cigna, analyse claims information. One discovery was that within 30 minutes of its California headquarters routine colonoscopy prices ranged from $700 to $7,000. By the end of the year, employees will be able to go on a Web site, punch in a zip code, and get a list of providers and costs.

The second part of Safeway’s plan was an embrace of the obvious: Healthy people cost less. Mr. Burd notes that 75% of health-care costs are the result of four conditions — cardiovascular disease, cancer, diabetes and obesity. The majority of these are preventable. “Obesity in this country went from 18% to 40% in 20 years — this is not genetics, this is behaviour,” he explains. He says that an obese employee can require 10 times the number of doctor visits in a year than someone of healthy weight.

The result was Safeway’s “Healthy Measures” program, which is voluntary. Employees are tested for smoking, weight, blood pressure and cholesterol. Every area they “pass” results in a reduction in their premium, of as much as $1,560 for a family, a year. Those who fail but prove progress can get refunds. Safeway complements this with an intense culture of health: weight-loss tips, fitness competitions and smoking cessation programs. Read the whole thing >

We’re going to go out on a limb and guess that the scheme has its critics and flaws, but this sounds like the right idea. Use insurance as it’s meant to be used (as protection against rare events, so that you don’t get financially wiped out when you get hit by a car on your bike) and then create real incentives to stay healthy and reduce costs on the routine stuff.

What’s great is that it doesn’t even sound like something that needs anyone’s approval. Any company, looking at the Safeway model, should just be able to up and do it.

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