The Safeway Rx for rising healthcare costs …

TakeAways: Safeway’s keys to containing healthcare costs (1) make sure everybody has some “skin in the game” – i.e.  focus on “out of pocket” costs — don’t eliminate them;(2) steep premium discounts for good behavior, e.g. not smoking, weight control; (3) a database of providers and costs so people can shop around.  Works for me …

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Excerpted from WSJ, “Mr. Burd Goes to Washington Business will pay for government health care”, June 19, 2009

As recently as 2004, Safeway was suffocating under health-care costs growing at 10% a year. The company blew up the company’s existing health-care structure and replaced it with one that embodied market principles — choice, responsibility, competition and price.

Nearly 80% of the 30,000 nonunion Safeway workers who take part in the program rate it good, very good, or excellent.

The Safeway plan has two main parts that work in tandem.

The first involves giving employees a financial stake in the system. 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. Employees  go on a Web site, punch in a zip code, and get a list of providers and costs. One discovery was that within 30 minutes of its California headquarters routine colonoscopy prices ranged from $700 to $7,000.

The second part of Safeway’s plan was an embrace of the obvious: Healthy people cost less: 75% of health-care costs are the result of four conditions — cardiovascular disease, cancer, diabetes and obesity. The majority of these are preventable. and, for example,an obese employee can require 10 times the number of doctor visits in a year than someone of healthy weight.

Under Safeway’s voluntary “Healthy Measures” program, 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.

Today, Safeway’s smoking and obesity rates are roughly 70% the national average.

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