Safeway's healthcare magic

Kimberley Strassel:

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Today, Safeway has accomplished what Washington claims is the goal: The company's per-capita health-care expenses have remained flat, compared to the near 40% increase experienced by the rest of corporate America over the past four years. This has not been done by cutting care or shifting costs to employees. Nearly 80% of the 30,000 nonunion Safeway workers who take part in the program rate it good, very good, or excellent.

Magic? Not even. Mr. Burd explains that the "cure for today's ills is simply removing the obstacles to a free health-care market."

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, analyze 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 behavior," 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.

Critics of price incentives argue that they pressure consumers to forego necessary care. Mr. Burd counters that Healthy Measures and the company's free preventive care -- designed to catch problems before they become expensive -- have in fact resulted in a healthier work force. Safeway's smoking and obesity rates are roughly 70% the national average. The program has even been cautiously greeted by Safeway's union leaders, who understand that soaring health costs are eating into union wages.

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This is a variation on the medical savings accounts pushed by Steve Forbes. Both work better than any "government option" could ever hope, because the put market discipline back in the health care equation. When you replace the wisdom of the marketplace with control freak policies you can expect rationed health care. Price and incentives are a much more efficient method of rationing.