By Al McClain
Just about everyone agrees that healthcare costs are rising too fast, and Steve Burd, Chairman/President/CEO of Safeway, aims to do something about it. At this week’s FMI Midwinter Conference, he presented an overview of a plan that he says has worked for Safeway and that he believes can work for other companies.
Basically, Mr. Burd believes that healthcare costs are rising due to the absence of market-driven forces, poor consumer choices, and the extra costs attributable to the under and uninsured. He says that healthcare costs averaged 48 percent of net income for companies in the S&P 500 in 1997 and are projected to rise to 102 percent by 2008. And, healthcare spending growth is growing 3.6 times as fast as the CPI. For all of that, relative to other industrialized countries, the U.S. has a high mortality rate for those under five, and a life expectancy rate that is average at best, while spending more per capita.
Mr. Burd believes much of the problem is due to the fact that while 65 percent of the population is insured, 20 percent is underinsured and 15 percent is uninsured. The insured end up paying 130-140 percent of what their healthcare actually costs, while the uninsured pay only 10-20 percent of theirs. This is because the insured subsidize the uninsured through higher hospital charges and the uninsured tend to use emergency rooms in lieu of much less expensive primary care physicians. There are other factors as well: providers are paid for services instead of results; and consumers tend not to do the things they need to do to stay healthy, nor do they act wisely in spending their healthcare dollars because they aren’t rewarded for doing so. (When healthcare is “free,” for example, consumers treat it as such and overuse the system.)
With this background, self-insured Safeway has undertaken an ambitious plan to get employees to bear more individual responsibility and fill out health risk questionnaires. The company pays for all preventive care, such as annual physicals and age appropriate procedures; helps employees better manage chronic conditions; and offers wellness programs, such as tobacco cessation, weight loss, and stress reduction.
The net result of this program has been an 11 percent reduction in Safeway’s healthcare costs, a healthier employee population, and the ability to keep costs under control going forward. Also, Mr. Burd believes this program will save lots of employee lives, as preventive screenings paid for by the company catch a lot of potentially serious conditions.
Steve Burd has been vilified in the past for his management of regional banners but it’s worth noting that his plan to “reinvent” Safeway’s business looks to be working. At the same time, he and his executive team have apparently reinvented their healthcare program to improve employee health and reduce costs. And now, he is lobbying state and federal governments, as well as big business, to make changes along these lines in our healthcare system as a whole.
Editor’s note: In last night’s State of the Union address, President Bush called for expanding access to healthcare by creating a tax benefit for those who purchased their own insurance. Others under employer-provided plans would see their coverage treated as income and, therefore, taxed.
“For the millions of other Americans who have no health insurance at all, this deduction would help put a basic private health insurance plan within their reach,” said Mr. Bush. “Changing the tax code is a vital and necessary step to making health care affordable for more Americans.”
In response to the preliminary proposal put forth by the President, Democrats welcomed a new focus by the Administration on the issue but expressed concern that it would amount to a tax increase on mostly middle-class taxpayers.
Discussion Questions: Is Safeway’s program a workable template for other retailing industry companies and should the industry as a whole make an intense effort to get government backing for this type of healthcare reform? What are your thoughts on the initial proposal put forth last night by President Bush in the State of the Union address?
Steve Burd’s Address
on Healthcare – FMI Mid-Winter Conference, January 23, 2007
(Download MP3)
BrainTrust
Discussion Questions
Poll
Loading …
The idea that consumers will make better choices and take more responsibility for their own health care decisions under a high deductible plan is utter nonsense and ignores one of the most basic tenets of consumer economics.
You can’t make informed decisions without a free flow of pertinent information. It’s broken in so many ways it is patently insane.
Medical care is extremely technical, and decisions often have to be made at the worst possible time, when your health is at risk and you may not have the luxury of time or the ability to concentrate. The gatekeeper providers (doctors) are hard to reach and ever-less available for informative counseling. The insurance company plays a shell game with reimbursements, so you don’t even know what the economic value is of many decisions until after the fact, and, unlike any other form of commerce, the consumer is given a service without knowing the price and told that it is their own responsibility to have researched it in advance, but the vendor has no concern with cost.
The health care system is an impenetrable maze where you can’t easily find out if the hospital you go to has killed anybody recently through errors or rampant infections, where your doctor may be a repeat offender of poor medical practice and you might never know, where your drug provider might be ripping you off, and you can’t even pronounce the name of half the things you are supposed to be taking.
Informed consumers? Bah. Before you can hold me accountable for being a good consumer, you have to make it easy for me to know the ramifications.
The retail industry is one that is at the forefront of this lack of insurance/under-insurance issue, with the huge mass of temp workers at low wages. The constant flux of people is also a cause in preventing a holistic solution. No solid numbers are available as to the loss suffered by retailers due to poor insurance of their store employees.
As mentioned in an above post, a holistic solution would be larger in scope than a single retailer; at minimum it would need to be across all retailers–say the NRF/FMI offering memberships and health coverage to all employees of all retailers registered with it and charging the retailers for the same. The mass of humanity involved will make this most lucrative for all PBM’s to seek out and bid for this business and thereby–hopefully–reducing costs while increasing coverage–but then…what do I know….
The next time you go to your doctor’s office, take a look at the giant wall of paper medical records–if it’s a small office. If you’re at a big practice, you may not see the records, because it takes entire rooms to house them.
When I see those mountains of manila in my doctors’ offices, I want to weep at the utter waste of it all: the scrawled notes, the endless slips of paper, the hours spent transcribing notes and keying in codes, the square footage at premium office-space rents–all to track an amount of data that in any other office would hardly tax a portable hard drive.
The way I see it, the almost complete failure of the healthcare industry to automate at the clinical level contributes mightily to wasting providers’ and patients’ time and money and to the medical errors that kill so many hospital patients.
No industry has made the dream of the paperless office come true. But very few industries routinely put so much at risk and then lose it all because somebody misplaced a slip of paper.
Building on some of the comments above, Mr. Burd also advocated billing and quality transparency, and in fact said that we should all “demand” it of providers. And, he suggested that medical records be electronic and portable so that we could carry them with us when we travel, so procedures that we’ve already had would not have to be duplicated. From my perspective, Safeway has thought long and hard about most if not all of the issues related to healthcare. Burd did not have time to go through everything in his presentation, and I provided only a brief overview of some of his ideas.
Steve Burd (as well as John Mackey at Whole Foods) deserves congratulations for taking concrete and effective actions for managing what his corner of the world can manage.
That said, the proverbial “elephant in the room” is the massive amount of waste in the healthcare ‘system’ that drives costs needlessly high while, ironically, worsening outcomes. (E.g., literally thousands of Americans die needlessly each year because pharmacists can’t read illegibly-scrawled prescriptions and dispense the wrong drug and/or dosage and central line infections that patients acquire in hospitals while being treated for another problem entirely.)
There have been countless studies by knowledgeable and non-ideological organizations that have documented that 40% to 50% of current costs are ‘waste’ (i.e. they do not improve patient outcomes, they worsen the quality of work life for healthcare providers, and quite often they act as perverse incentives that inhibit progress).
Is there a CEO or senior manager in business, much less in the retail business, that would accept simply reducing the rate of increase of waste on this order of magnitude in the total costs of his or her organization ?
Since healthcare benefits have become such a lightning rod issue in the retail industry especially, we might well ask why more, if not all, retail leaders and the various industry associations aren’t more proactively addressing this issue of driving out the waste as opposed to simply “socializing” the waste?
This is an area in which Steve Burd can excel, because it involves crunching numbers rather than selling groceries. Yes, I think Safeway’s template is a workable plan, so long as it is available to everyone. The average person just can’t go out and buy and individual health insurance policy. Just about everybody has something wrong with them–high blood pressure, overweight, mental health issues, high cholesterol, a grandmother who died from cancer, etc. Basically individuals are uninsurable without paying outrageous premiums. If you can’t get into a group policy, there are not many options. I personally have had to buy one through a state sponsored risk sharing plan with no questions asked, and it ain’t cheap.
As far as Mr. Bush’s proposal is concerned, I think it’s ridiculous. My accountant has already figured out how to deduct my premiums and health savings account contributions. For the self employed, it’s already deductible. If you work for someone, generally the premiums are pre-tax and your income is reduced by the amount of the premiums. This tax code change is not going to help middle and lower class tax payers at all. Health Savings Accounts are well meaning but they are a joke. You put money in the account, deduct from your income, and then pull the money out to pay medical bills. Why not just be able to deduct you medical bills dollar for dollar off your taxes and just skip these accounts?
I would like to see universal health care, for U.S. Citizens only, with high deductibles and taxed similarly to the way we have FICA taxes, where even the poor self employed don’t have to pay more than about $15,000 a year. I’d like to see it such that families would not have to pay more than $15,000-20,000 a year, regardless of income.
There are so many abuses of the system. I volunteer at a local hospital. One of the patients was the adult child of a local famous millionaire. This patient was on Title 19, had no insurance, and no assets. This person lived in a mansion, drove a new car, and had access to an unlimited credit card line of credit. All assets were owned by a trust and the trust paid the credit card bill. But since the government paid the hospital bills for those people who own nothing and no income, this patient got free health care from the taxpayers. I’m still trying to figure out how I can do this.
We have the model for single-payer health care. Medicare works. It’s not “national health” or “socialized medicine”–seniors choose their own doctors, private enterprise runs the hospitals. We have excellent health care available and yet lower-income people ignore their bellyache until the appendix ruptures, or their child’s cough until it turns into pneumonia, and a $ problem turns into $$$$$$ and the taxpayer or private enterprise gets stuck with it.
We need to take the venal-bordering-on-fraudulent insurance business out of the middle.
There is a business case for universal health care with a big emphasis on wellness and preventive medicine, and I am delighted that powerful folks like Burd are beginning to see it.
Sign me, $634 monthly premium, $4,000 annual deductible for two people.
One of the issues driving cost in Health Care has nothing to do with health care at all. It’s the business aspect of Health Care. During the Clinton administration, health care providers popularized HMOs and PPOs in an effort to pre-empt the federal government’s move toward some kind of nationalized health care. The result was the explosion of HMOs and PPOs, along with their buildings and personnel. Ironically, as consolidation of these same HMOs and PPOs is occurring today, they are pointing to consolidation as one of the ways they are beginning to reduce the rate of rising health care costs.
As a former health care professional, I am all for individuals taking more responsibility for their health. But rather than simply shifting cost to the individual consumer through HSAs while touting the advantages of “consumer driven” health care, why not allow market forces to contain or reduce costs by taking all of the anti-market rules off health care insurance? Within reason, I can change my car or homeowner insurance any time I want, and I can select my insurer based on price, service, reputation, etc. When it comes to repairs, I can use whatever contractor I want and my insurance company pays whatever they are responsible for. Until I can do the same with my health insurance and health care, it’s not truly consumer driven.
Congratulations to Steve Burd and others like him who have the influence to gain the ear of the health care business!
David: “I would like to see universal health care, for U.S. Citizens only, with high deductibles and taxed similarly to the way we have FICA taxes, where even the poor self employed don’t have to pay more than about $15,000 a year. I’d like to see it such that families would not have to pay more than $15,000-20,000 a year, regardless of income.”
I agree that we need a universal health care program. However, most of the “poor self employed” (and also the “working poor”) are only earning $15K-20K a year, in some cases less. They can’t afford to pay 100% of their income for health care. What this country really needs is a health care system with cost set as a reasonable percentage of a person’s income. In that manner, those with more income will pay higher health care costs, and those with little income would not have to choose between health care or food/shelter for their family.
Health care coverage in this country has become a monumental problem and I applaud Steve Burd for his efforts to resolve this problem for his employees. Not only has Burd taken innovative steps in improving Safeway’s approach to healthcare, but he is now sharing what’s working for Safeway with other retailers.
The time is right for the retail industry to work together on this problem and they need the government to help, but not control their programs. President Bush’s plan that was announced last night to help improve this problem is to be congratulated, however, there is a lot of bipartisan work to be done to turn the plan into a workable solution that will benefit the majority of Americans.
The White House health care plan is posted here. It’s odd, because it promises the President will work toward national health care IT standards in 2006. This typo seems to indicate haste in putting this plan together.
Even odder is that the plan reduces taxes and mentions no way to pay for its provisions. Certainly, if more people are insured, there’ll be some government savings, but will those savings pay for the tax cuts? The President’s stated goal is to balance the budget.
Some goals aren’t achievable, so you try to prioritize. Maybe it would be reasonable to pick some priorities among these competing objectives: (1) escalate the war (2) balance the budget (3) reduce taxes (4) improve social programs.