Archive for June 19th, 2009

A column in the Wall Street Journal tells the story of Safeway’s CEO, who has lowered the cost of health care by shifting to a system where employees have an incentive to control costs because they understand the money comes out of their own pockets. This highlights the key problem with most of the so-called reforms in DC. Costs are rising because of “third-party payment” – i.e., people buy health care and do not care about costs because the government or an insurance company is paying the bill. The politicians are responsible for programs such as Medicare and Medicaid, of course, but government laws and regulations also are largely responsible for the inefficiencies of the insurance system since tax laws and regulations create a big incentive for the use of employer-provided insurance policies that are somewhat equivalent to getting food at all-you-can-eat restaurants. Unfortunately, every time politicians expand third-party payments, costs rise further, which leads to more pressure for politicians to provide additional third-party payment. This downward spiral is why the system gets worse every time politicians try to shield people from acting like real consumers:

As most of corporate America sits on the health-care sidelines — issuing vague statements, trying not to offend a new U.S. president — Mr. Burd has charged into the political debate. “I’m here because health-care simply isn’t a partisan issue,” he says. There is what works, and what doesn’t. “I’m genuinely concerned someone might try to solve this by nationalizing health care, at the moment we at Safeway have proven that it is the market that reins in costs.” Prove it, he can. As recently as 2004, Safeway was suffocating under health-care costs growing at 10% a year. Mr. Burd, who had long been intellectually and politically drawn to the health-care issue, decided it was time to hit the restart button. He blew up the company’s existing health-care structure and replaced it with one that embodied market principles — choice, responsibility, competition and price. 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. …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. …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. When I ask Mr. Burd what he hopes to accomplish here, he is blunt that one goal is to prevent a “public option” that would only “piggyback on the experience of Medicare.” It’s a “Trojan Horse” that will steer people to government and ultimately squeeze out innovative programs like his. …As for his fellow CEOs, Mr. Burd is eager to debate anyone who thinks he will escape costs by dumping health care on the government. Business will still be taxed to pay for the program, making the U.S. less competitive. Far better, says Mr. Burd, for companies to control their destiny, and prove markets can also work for health care.

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