The CEO of Safeway, Inc. has an op-ed in the Wall Street Journal that argues America can dramatically cut its health care costs by adopting a relatively simple free market solution that the company has tested out to good effect.
Safeway's plan capitalizes on two key insights gained in 2005. The first is that 70% of all health-care costs are the direct result of behavior. The second insight, which is well understood by the providers of health care, is that 74% of all costs are confined to four chronic conditions (cardiovascular disease, cancer, diabetes and obesity). Furthermore, 80% of cardiovascular disease and diabetes is preventable, 60% of cancers are preventable, and more than 90% of obesity is preventable.How does the company translate these insights into cost savings?
Safeway's Healthy Measures program is completely voluntary and currently covers 74% of the insured nonunion work force. Employees are tested for the four measures cited above (tobacco usage, healthy weight, blood pressure and cholesterol levels) and receive premium discounts off a "base level" premium for each test they pass. Data is collected by outside parties and not shared with company management. If they pass all four tests, annual premiums are reduced $780 for individuals and $1,560 for families. Should they fail any or all tests, they can be tested again in 12 months. If they pass or have made appropriate progress on something like obesity, the company provides a refund equal to the premium differences established at the beginning of the plan year.
...we are building a culture of health and fitness. The numbers speak for themselves. Our obesity and smoking rates are roughly 70% of the national average and our health-care costs for four years have been held constant. When surveyed, 78% of our employees rated our plan good, very good or excellent. In addition, 76% asked for more financial incentives to reward healthy behaviors. We have heard from dozens of employees who lost weight, lowered their blood-pressure and cholesterol levels, and are enjoying better health because of this program. Many discovered for the first time that they have high blood pressure, and others have been told by their doctor that they have added years to their life.
I am hardly a health care wonk, but the argument sure seems compelling on first look. I'd be curious to see what Ezra Klein, one of the most knowledgeable and readable progressive bloggers on health care, would say about this. If seemingly fair risk pricing demonstrably brings down overall costs, isn't it preferable to a much more complicated and costly set of reforms?
Of course, one can see the downside to all this:
Today, we are constrained by current laws from increasing these incentives. We reward plan members $312 per year for not using tobacco, yet the annual cost of insuring a tobacco user is $1,400. Reform legislation needs to raise the federal legal limits so that incentives can better match the true incremental benefit of not engaging in these unhealthy behaviors.Smoking today. Alcohol, downhill skiing, and premarital sex tomorrow? Pricing unhealthy habits means testing for them in ways intrusive enough to reliably detect them. What are your vices? Do you want your employer or your government determining which vices cost you money?