Burd Touts Safeway's Incentive-Based Health Care Plan

Steve Burd, the chief executive officer of Safeway, Pleasanton, Calif., has turned up the volume on his pitch for reforming the health care system in the United States. In recent weeks, he has presented his proposal to legislative leaders in Washington, including a discussion with the White House, and has written an article in The Wall Street Journal describing the plan. He also presented

NEW YORK — Steve Burd, the chief executive officer of Safeway, Pleasanton, Calif., has turned up the volume on his pitch for reforming the health care system in the United States.

In recent weeks, he has presented his proposal to legislative leaders in Washington, including a discussion with the White House, and has written an article in The Wall Street Journal describing the plan. He also presented his argument to attendees at the CIES World Food Business Summit here this month.

Burd outlined several of the problems he believes are at the heart of the current health care system as Congress is seeking to craft a health care reform bill that is expected to provide universal coverage.

“I am a big believer in markets — when markets were allowed to operate the way they are supposed to, costs go down and quality goes up,” Burd said at the CIES Summit. “In this country, we don't have a failed market-based system; we have a failed hybrid system. I am advocating to lawmakers that we remove the obstacles and let the market do its work.”

The key to Safeway's in-house insurance system, which has been keeping a lid on costs for the past four years, is that it incentivizes healthy behavior in much the same way that the auto-insurance industry encourages safe driving by differentiating premiums.

Safeway employees who have opted into the system — so far it is only open to non-union workers — can reduce how much they pay for insurance by practicing healthy behaviors. Employees who quit smoking, lose weight or reduce their blood pressure can earn rebates.

Safeway has calculated how much unhealthy behaviors cost in terms of medical expenses — a smoker costs $1,400 more per year than a nonsmoker, for example, and someone with a body-mass index of 30 or more can cost an extra $835 per year.

“The philosophy behind our plan is that individuals have a fair amount of responsibility for their personal behavior, and we believe health plans should be able to charge people for the full cost of their behaviors,” Burd said. “But the legislative environment currently does not allow that. We can differentiate premiums, but not to the full extent of these costs.

“When consumers bear the full costs, in our experience, they are more likely to change.”

TRANSPARENCY IS KEY

Burd said the biggest opportunity to reduce costs is in the area of transparency. In the current system, people have little incentive to shop for lower-cost procedures, he pointed out.

At the same time, hospitals and doctors are not incentivized to produce results, he said.

“Providers of health care have little incentive to be cost conscious, because they are paid based on services provided rather than results delivered,” he said. “They don't need to be successful, they just need to follow that CAT scan with an MRI and then a few more tests until they have ruled everything out.”

With more transparency about costs and results, people would impose market forces on providers, he explained. That transparency could be achieved if the medical community created a database of procedures that consumers could browse.

“Since Medicare accounts for 40% of the health care in this country, I believe you could establish some quick transparency on major procedures in less than six months by making the Medicare database available,” Burd said. “I would go one step further and make the major providers populate a database, like the Bureau of Labor Statistics has, and then entrepreneurial companies would emerge and create websites using that data.”

At Safeway, the company again is attempting to set an example in that regard. By November or December of this year, the company expects to have a database of common procedures that employees can search by ZIP code to find the lowest-cost providers.

In the next phase of Safeway's health care plan, the company will focus on rewarding employees who comply with doctors' advice, he said, noting that 32% of people in the U.S. who are diagnosed with coronary artery disease do not follow their doctors' prescribed remedies, for example.

“There's a lot of noncompliant behavior,” Burd said.

HOLISTIC APPROACH

Part of the effort at health care reform at Safeway has been to take a holistic approach to improving employee health, Burd explained. For example, in the headquarters cafeteria, Safeway offers healthy foods at a discount, but workers who want less healthy options, like “a cheeseburger and fries,” he said, will pay full price.

In addition, workers are in the midst of a 100-day fitness challenge. Teams of eight to 10 employees are competing over the amount of exercise each team can do in 100 days. In addition, some workers are also tracking weight loss as part of the program.

“We are encouraging health and fitness,” Burd explained.

Safeway has sought to make it easier for workers to adopt healthy behaviors by partnering with some national health-club chains to reduce costs for employees and offering smoking-cessation products free for workers. It also offers a nurse hotline that employees can call to avoid unnecessary doctor or hospital visits.

Another element of the Safeway plan is a “cancer concierge service,” through which employees who are diagnosed with cancer can be guided through the treatment process and directed to what Burd described as both the “best” and “lowest cost” care.

BIPARTISAN PLAN

Asked about his projections for what the national health care reform bill might end up looking like, Burd said he is somewhat optimistic.

“I believe as long as the effort remains bipartisan, we can get transformational reform that would be good for this country,” he said, noting the bill that will come out of the Senate is more likely to have more Republican input and therefore be a “better bill.”

He said he believes the final legislation will include an “individual mandate” for health care coverage, meaning the burden would be on individuals to make sure they are insured, rather than an employer mandate.

He also said he believes there will be more freedom to differentiate the cost of premiums, although still not as much freedom as he would like. Current law stipulates that insurance companies can vary their insurance premiums by no more than 20% among policyholders.

He also believes that universal coverage will be enacted, with a sliding scale of support for low-income individuals based on income.

Burd said he is opposed to legislators “taxing things that they shouldn't” to pay for a universal health care plan, but he says he believes he may have a solution to pay for reform.

“I have some ideas,” he said. “I haven't danced that out to policy-makers — I am still working on it, but I think I have a way to finance this that no one in Washington has talked about, and that I think most people in this room would actually like. But it's not ready for prime time.”

If the federal government had adopted the Safeway plan at the same time Safeway had, and achieved the same results, it would have already saved nearly enough to pay for universal coverage, Burd concluded.