The health care debate for supermarkets operators is shifting away from who should bear the runaway costs of health care to who is most responsible for ensuring one's health.
Steve Burd, Safeway's chairman, president and chief executive officer, is leading the charge for innovative, market-based solutions that put the onus on employees to practice good health habits.
“At Safeway we are reversing the national trend of rising health care costs through an innovative plan for non-union workers that pays 100% of preventive care, rewards good behavior and allows employees to take more control of their health care decisions,” he said in a written release.
Bill MacAloney, owner of three Jax Markets stores, in Anaheim, Calif., said he was impressed when he heard Burd speak on the topic at FMI's Midwinter Executive Conference in January. “Burd identified a lot of things that most of us don't even think about in how you can save money on your health care,” Mac-Aloney said. Burd's speech spurred MacAloney to look into a Health Savings Account (HSA) as an option for his 80 insured employees.
Health spending accounts are available for employees to use to pay for health care expenses not otherwise covered by their health plan. Depending on the plan, employees and or employers can make tax-deferred contributions to these plans. Such accounts are often accompanied by consumer-directed health plans (CDHP) that carry high deductibles.
President Bush in his 2007 budget proposal encourages the implementation of HSAs and is recommending reforms to expand their use. FMI is endorsing those reforms and is proposing additional funding for HSAs to better cover those with chronic diseases.
MacAloney said his health care premium has risen 8% to 10% each year. To curtail these increases and cut down on unnecessary doctor visits, he moved his employees to cost sharing. They make a $25 contribution each week to defray physicians' bills.
MacAloney is not alone in his efforts to share the cost of rising health care insurance. According to the Food Marketing Institute's 2006 Speaks report, three-quarters of supermarket companies have passed part of their cost increases to their employees, 20% of companies have fully absorbed the cost increases, and only 2.5% have passed full increases to their employees.
Aside from changing insurance companies or signing with networks for larger discounts or changing the plan itself to be more cost-effective, retailers have increased plan premiums, deductibles and co-pays. They have eliminated health care for certain part-time employees and extended eligibility waiting times for others. Some may no longer insure family members or dependents. Even employee wages have been cut to cover the increases.
These strategies appear to be working to slow rising costs for food retailers. Last year was the first time in many years that double-digit increases — 12% between 2004-2005 — dropped to single digits, 9% between 2005-2006, according to FMI's Annual Financial Review.
For independents like MacAloney, health care costs are slightly higher. The National Grocers Association reports in its NGA/FMS Financial Survey that health care costs rose 13.6% in 2005 and 10% in 2006.
“More of our members are looking at developing wellness programs, more consumer-based programs, and engage employees in activities that are health-conscious and rewarding,” said Tom Wenning, senior vice president and general counsel for the Arlington, Va.-based association.
“HSAs, flexible savings accounts paid for in pretax dollars, give employees a cost-based assessment when they are spending their own dollars. They become more concerned about making unnecessary doctor visits,” he said.
Jay Lawrence, president, Lawrence Bros., Sweetwater, Texas, who saw his costs go from 0.2% to 1.2% of sales over the last decade, sees little relief in sight, though.
To curb those increases, Lawrence dropped its third-party administrator, who negotiated 15% discounts, and went to Blue Cross and Blue Shield of Texas, which was able to negotiate 40% discounts because of its size, said Lawrence. In addition, the retailer, who insures between 200 and 300 mostly non-union employees out of a workforce of 700 at 20 stores, passed on costs to employees by raising co-pays and deductibles, which range from $200 to $1,000.
“It's gotten to the point that all we can afford in health care is to take care of the big stuff,” said Lawrence. “That is even not enough.”
According to a recent poll of 573 companies with 500 or more workers, Watson Wyatt Worldwide, a global consulting firm, Arlington, Va., found that 9% of employers plan to offer only one health insurance option next year — a high-deductible policy in which workers better monitor their spending. Such plans charge the higher deductibles, typically $1,000 annually, in exchange for cheaper monthly premiums and preventive services. Of the companies surveyed, which included Wal-Mart Stores, 38% are offering high-deductible health plans (HDHPs) this year along with other options, up 33% from last year. Just 5% are offering only high-deductible plans. That percent is expected to rise to 9% in 2008.
Last year, Wal-Mart introduced the Value plan with a $1,000 deductible. This year it has added two plans, dubbed Freedom plans, in which annual deductibles range from $1,250 to $3,000 for singles and $2,500 to $6,000 for families. These plans are coupled with HSAs in which Wal-Mart contributes 20% of the annual deductible to the HSA, plus the company will match employees' HSA contributions up to 20% of the deductible.
That means Wal-Mart can contribute up to $2,400 to an employee's HSA in 2007 for an employee with family coverage who has a $6,000 annual deductible, according to a report by Atlantic Information Services, Washington, a publisher of business health care policies.
However, only employees who have insurance coverage through Wal-Mart for at least a year are eligible for Wal-Mart's HSA contributions.
Health care benefits are a top priority for United Food and Commercial Workers unions who are in contract negotiations this year, as they try to win back what was lost in the 2004 Southern California labor settlement, when health care costs were either shifted to employees or benefits were reduced or lost.
As a result, some employees saw their eligibility waiting times extended; new employees for the first time paid 20% toward their health premium cost; co-pays, co-insurance and deductibles increased; plan options were restricted; and wages were reduced for new hires, according to a study by the University of California-Berkeley Center for Labor Research and Education.
Figures show that 94% of the 70,000 unionized grocery workers in Southern California had health insurance prior to the strike. That dropped to 54% by September 2006.
As is the case in Southern California, supermarket chains are holding down costs by having new hires coming in through a lower tier with reduced benefits. As older employees, who have higher benefits, retire or move on, they are replaced with those from the lower tier with fewer benefits. Other supermarket chains tried to adopt the two-tier approach to benefit cost-cutting.
In their current contract negotiations with Kroger's Ralphs, Safeway's Vons and Supervalu's Albertsons in Southern California, UFCW locals are attempting to eliminate the two tiers and win back health benefits. Contract talks have been extended until April 9, but the union has decided to target Albertsons with a strike authorization vote, upping the ante for a settlement.
A similar tactic was taken in the recent contract settlement with Ahold's Stop & Shop in New England, where the part-time nature of the grocery labor force was at issue.
Amber Sparks, a spokeswoman for the UFCW, Chicago, noted that 80% of the grocery workforce in New England is part time, a figure that relates to the nation as a whole in the food retail industry. “A big trend in the way supermarkets are trying to cut health care costs is to bring on more part-time workers and reduce their hours so companies can pay fewer benefits,” she said.
After authorizing a strike against Stop & Shop that would have involved 45,000 workers, a settlement was quickly reached last month, resulting in some concessions. New part-time workers — putting in 15 to 35 hours a week — would be eligible for health care coverage paid fully by Stop & Shop in a year, instead of two years. However, current part-timers still have to fulfill their two-year eligibility.
Both full- and part-time labor received salary increases in the Stop & Shop settlement. Beginning in 2008, however, full-time workers must contribute $5 to $15 a week toward their health care premiums. Stop & Shop was paying 100% for full-time workers' health care premiums.
Sparks said the UFCW is hoping momentum from the Stop & Shop settlement will carry over to Southern California. “We are hoping it will show companies that by simply reducing full time to part time is not an effective way to reduce costs. Our workers will fight back to get back some of those benefits,” she said.
Shifting the burden of health care costs to employees eventually falls on taxpayers, Sparks said, explaining that almost half of those who work at Stop & Shop are unable to afford health insurance, and many are on Medicare. “So you have a lot of people relying on taxpayers rather than on employers to provide health care. The taxpayers are subsidizing these big companies.”
The UFCW would like to see the whole issue of health care off the table, and would support some sort of universal plan, said Sparks. “Going forward, we'd like to see cost-shifting stop. Safeway's Steve Burd talks about universal health care. We are hoping to become partners with him in advocating some type of universal health care.”
Don't Get Sick
While public policy debates on health care reform are just starting to take shape as the 2008 election year approaches, supermarket operators are realizing they may be hitting a wall blocking further cost shifting. Attention is being turned to consumerism and having employees take responsibility for their health and follow preventive health measures to stay out of the doctor's office and the emergency room.
Much attention has been given to Safeway, Pleasanton, Calif., for the plan it implemented in 2006 for its 30,000 non-union workers. Besides paying 100% for preventive care, the plan includes a health reimbursement account (HRA) of $1,000 per individual funded by Safeway that employees use to pay expenses. It offers flexible spending accounts. Those who demonstrate healthy behavior enjoy discounts on premiums. Health care costs for employees have decreased 30% over two years under the plan, according to Safeway.
Sheila Laing, assistant vice president, benefits, at Hy-Vee, West Des Moines, Iowa, is familiar with Burd's philosophy on health care, and his support of California Gov. Arnold Schwarzenegger's newly released plan for universal coverage for all Californians. She said things are a lot different in California from the managed-based health care in Iowa and the surrounding states where Hy-Vee conducts business.
Hy-Vee offers employees a choice of three plans — HMO, PPO and an HDHP with HSA. The focus is on preventive care for its 50,000 employees. The company taps into its brand and in-store resources of healthy foods, and relies on its dietitians and pharmacists to promote good health and manage chronic health problems. It sponsors a weight loss/get fit program — Lighten Up Hy-Vee — a spinoff of the national Lighten Up America program. (See “A Big Challenge,” Page 22.) The company posts updated health information on its bulletin boards about medicines, doctors and health activities sponsored by Hy-Vee, such as smoking cessation or fitness activities.
According to Laing, Hy-Vee's health care costs have fallen under the national average in the last four years, with 8% average increases during that period. In two of those years, Hy-Vee actually gave employees money back on their premiums because the self-insured plan took in more in premiums than it paid out.
She attributed this to employees paying more attention and managing their health better. “Employees have taken advantage of all the different resources we offer. At store level, they are finding out how to shop wisely and are using pharmacy, online wellness information, and they are participating in our Lighten Up program.”
Laing believes the grocery store with all its resources is the perfect setting to promote and support healthy behavior for its employees and shoppers.
Hy-Vee will examine a health risk appraisal program for its employees, she said. Such appraisals require employees to fill out a questionnaire about family health history and lifestyle habits. The goal is to identify high- and moderate-risk individuals and motivate them to change unhealthy behaviors that could lead to serious diseases. “You add biometrics [cholesterol, body fat, blood pressure, etc.] and it gives you a stratification of one's health. For the company, it gives us aggregate data on what we need to work on [in plan design],” said Laing. “If we can get people to do the screenings, that will affect our long-term trend in health care.”
Econo Foods, Brillion, Wis., is a six-store independent that is testing a mandatory health risk assessment program for 38 employees at a store in Sturgeon Bay, Wis. It contracted with Besiada Health Innovators, based in Green Bay, to set up a health care site, which is located in a storage area of the floral department in front of the store. Three rooms accommodate testing, treatment and consultation. The site is staffed by a nurse practitioner, who offers free health consultations to the insured employees. Those not insured pay a small fee.
The assessment phase consists of a comprehensive review of lifestyle habits and family disease history. Data is shared with the company.
“In a typical company, we will find that about 20% of the population is healthy, another 50% need some sort of health style management and the remaining 30% with a significant but treatable diagnosed condition,” said Karen Besiada Hansen, president of the health services company.
Once the data has been gathered, each employee meets with a Besiada health care professional to go over their individual assessment report. Those in the healthy category are encouraged to keep up the good work. Those who are in need of a lifestyle management change are invited to discuss their situation and set goals for making healthy changes. They then schedule monthly face-to-face meetings to monitor progress. Individuals diagnosed with some sort of disease or condition meet with the on-site nurse practitioner at least twice a month to monitor, reassess, educate and coach behavior for a positive outcome. (See “Keeping Them Healthy,” Page 20.)
Supervalu, Minneapolis, which is being threatened with a labor strike at Albertsons in Southern California, said in a written response that it “believes in short- and long-term health care programs that allow individuals the freedom to make appropriate health care choices that provide high-quality, affordable care.”
According to the statement, Supervalu evaluates its health care plan offering to ensure associates' needs are met and health care benefits are competitive with the industry. “We have introduced various changes and enhancements, including an increased focus on wellness, to improve the value of our programs to associates while managing the rapidly increasing costs in health care.”
In Southern California, Stater Bros., Colton, and Gelson's, Encino, agreed to a contract with the unions. However, the health care portion of that contract still comes under the bargaining process with the bigger chains, said George Frahm, group senior vice president, retail operations and administration for Stater Bros.
Besides its multi-employer benefit plans for unionized workers, Stater Bros., which operates 162 stores, has a company plan for management that increased 5% last year. About 16,000 of Stater Bros.' workers are insured under the union, while some 1,000 employees are covered under Stater's company policy.
“The low increase in cost that we experienced last year was due to the good consumerism of those covered by this plan,” said Frahm.
In conjunction with the management plan, Stater publishes a monthly newsletter that reports on drug costs, medical services and doctors. The company provides free annual physicals that have proved beneficial. “Fortunately, we've been able to detect health conditions that can cause problems down the line,” Frahm noted. “Associates can get treatment early and they don't miss work. It saves on costly hospital visits.” Next year Stater will look into offering an HSA program, said Frahm.
The biggest concern for employers is prescription coverage, which is increasing the most in overall health care costs, he added. Stater is educating its management on the value of using generic drugs. The company offers incentives to do so by reducing co-pays.
Getting employees to take preventive health measures and be smart about health choices is often easier said than done.
“Intuitively, you know wellness is a good thing for your employees,” said Laing, “because it helps with everything from health to productivity to absenteeism to workers' comp. It's trying to wrap your arms around it, and get an ROI for it. Intuitively, you think you know it is a good thing, but it is hard to get that on the bottom line.”
Supermarkets, therefore, face a constant balancing act to do as much as they can for employees while controlling their costs and staying competitive.
Passing It On
Three-quarters of supermarket employers passed on part of the cost increases in health care to their employees.
|ABSORBED ALL COST INCREASES||PASSED ON SOME INCREASES||PASSED ON ALL INCREASES|
|Independents (1-10 stores)||30.6%||63.9%||2.8%|
|Regional (11-100 stores)||13.0%||82.6%||4.3%|
|Chains (100-plus stores)||9.5%||90.5%||0%|
|Source: FMI, “The Food Retailing Industry Speaks 2006”|
Keeping Them Healthy
BRILLION, Wis. — Econo Foods, a six-store independent here, is taking direct responsibility for its employees' health. The retailer is asking its employees to do the same.
Last fall the retailer began testing an on-site health clinic at its Sturgeon Bay store that is staffed by a nurse practitioner to take care of employees' health and wellness needs. The retailer also required mandatory health risk assessments of its insured employees. Such assessments identify those individuals who are at high or moderate risk for serious diseases. Based on the assessment's findings, individual plans are created to change a person's unhealthy behavior. Outcomes are monitored and reports on the aggregate group's health progress is sent quarterly to the retailer.
The assessments and follow-up counseling for the insured employees are free. By making the direct investment in employees' health, Econo Foods hopes to see a cost savings on its insurance premiums due to lower doctor and hospital bills, said Mike Tadych, vice president.
So far, 38 employees at the Sturgeon Bay test location have gone through the risk assessments. Econo Foods employs some 900 people, of which about 200 are insured.
The company, which operates 25,000- to 60,000-square-foot stores in Wisconsin and Michigan, has announced it will go smoke-free as of May 1, which means employees can no longer smoke on the premises. A special area within the stores that was designated for smokers will be eliminated. This decision is a result of the assessments, said Tadych, whose increases in health care costs have been contained to less than 5% a year.
Tadych also is expecting to reduce his workers' compensation costs by keeping employees healthy and by better managing their health habits.
The program is run by Besiada Health Innovators, a Green Bay, Wis.-based population management health/wellness provider. Karen Besiada Hansen, president, formed the company eight years ago as a benefit tool employers can use to curb escalating health insurance costs. She said the goal of companies like hers is to shift from sick care to keeping people well. “It involves a multifaceted approach requiring employer leadership and support. The insurance plan design has to be fully integrated with the program to be a win-win. Cost-shifting to employees is not a win-win, because there is no tool to keep employees healthy.”
Assessments cost $60 per person and include tests for such things as lipidemia, musculoskeletal health, body mass, etc. Reports are sent to employers, showing the usual customary costs of traditional medical services compared to the clinic's costs. Besiada Hansen said they can usually save the employer two-thirds in terms of medical costs. The program also covers disease management and coaching. The quarterly group report sent to employers shows progress made on various health factors like weight, blood pressure and cholesterol levels. “That's how we show employers we are making progress,” said Besiada Hansen.
Econo Foods pays $115 per hour to have a nurse on the premises twice a month for a total of 12 hours. The nurse meets with those in the program to follow up on their health conditions and coach them to better health.
Tadych said once the program was explained to employees, there was little resistance to the mandatory testing. The company gave each employee a $25 gas card as a small incentive. Some employees even challenged each other in a weight loss competition, and others took on a quit smoking challenge, he said.
As to privacy issues, these programs run according to HIPPA regulations. The employer only receives the aggregate data and does not see individual health reports.
Such programs are part of the “consumerism” movement in health care, which encourages employees to be responsible for their health by being proactive and taking preventive measures.
According to Watson Wyatt Worldwide, a global health consulting firm, a survey of 573 large companies indicated that 23% have opened on-site health clinics at some locations.
Employers are moving to greater consumerism — giving employees options and choices on their health care coverage — and focusing more on preventive measures to keep their workforce out of doctors' offices and hospitals. Health risk assessments are offered by 22% of all employers and 53% of large employers.
|(STRATEGY WILL BE SIGNIFICANT OR VERY SIGNIFICANT)|
|LARGE EMPLOYERS||ALL EMPLOYERS|
|Benefit Cost Cuts/Shifts||37%||31%|
|Source: Mercer's National Survey of Employer-Sponsored Heath Plans|
A Big Challenge
WEST DES MOINES, Iowa — Hy-Vee would likely be a clear winner on the “Biggest Loser” reality fitness show.
Since the retailer launched its weight loss program — Lighten Up Hy-Vee — three years ago, 12,000 Hy-Vee associates have lost a total of 79,000 pounds, or 6 to 7 pounds per employee. That's a lot of fat by anyone's standards.
The retailer is in the midst of its fourth annual weight loss challenge, which is financed through the employee benefits department. The competition runs from January to May.
Participants compete in teams of up to 10 people that may be male, female or co-ed. The goal, of course, is to lose weight and stay fit.
“It is not so much about catastrophic weight loss as it is about actively motivating people to do a little more,” said Sheila Laing, assistant vice president, benefits.
Members of teams that lose the largest percent of weight win a $1,000 shopping spree at the retailer of their choice. Hy-Vee expects to give away a minimum of $24,000 to some of the 4,000 players on more than 700 teams this year.
How does such a program impact Hy-Vee's rising health care insurance costs? An analysis of the top weight loss team during the first two years of the program showed a $9,000 savings in member health care claims deductions. “That is just one team,” Laing emphasized. “Extrapolate that over 700 teams.”
While Hy-Vee enjoyed dollar decreases in claims, Laing said the more important thing was that two participants showed positive outcomes. One person stopped taking medication for high cholesterol, and another got off of blood pressure drugs. “So the impact of their dollars on drugs is actually yet to come. If you can impact a medical condition and change behavior and lifestyle, that is all the more reason to keep such programs going,” said Laing.
Others have implemented similar programs. Five years ago, Wegmans Food Markets, Rochester, N.Y., launched its “Eat Well, Live Well” program in an effort to contain its rising health care costs. The program focuses on healthy eating and staying fit. Last month, the Rochester Business Alliance announced it was adopting the program as a corporate challenge after an initial trial last year with several large corporations. A report in the Democrat and Chronicle said 73 companies and 91,000 Rochester-area employees were enrolled in the eight-week program, which challenges employees to walk 10,000 steps in a 24-hour period and consume at least five cups of fruits and vegetables a day.
This year, 14,113 Wegmans' associates, both full and part time, distributed among 609 teams, are participating in the eight-week competition out of a workforce of 35,000. According to Mary Ellen Burris, senior vice president of consumer affairs, the health competition has grown each year. While employees compete for prizes, Burris said practicing good health habits is the biggest reward for individuals.
Wal-Mart's High-Deductible Plans
These plans are a question of affordability for Wal-Mart's 1.3 million employees, who may not have the funds to make the HSA contributions needed to receive matching funds.
|FREEDOM PLAN 1||FREEDOM PLAN 2|
|Annual Deductible (in network)|| $1,250 single |
| $3,000 single |
|Annual HSA Contribution|| $250 single |
| $600 single |
|HSA Matching Contribution||Company matches employee HSA contributions up to 20% of the deductible|
|Annual Maximum Out-of-Pocket Limit|| $5,000 single |
| $5,000 single |
|Co-Insurance||$20 co-payment for office visits once the deductible is met; 80% co-insurance for other charges|
|Source: Wal-Mart Stores, Nov. 2006; Atlantic Information Services|