I Like Safeway’s Health Plan!

I read about this Kimberly Strassel column about Safeway’s health plan last week and meant to mention it but forgot.

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.

Here’s how the plan works:

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.

The article mentions that one of the pitfalls of traditional health insurance is that the employees have no skin in the game (other than their premiums), which leaves them little incentive to keep costs low. I agree with this assessment and think it’s the main reason healthcare is so expensive. I think health insurance has helped drive healthcare costs higher. Insurers negotiate with doctors and hospitals to get better rates, which means those who don’t have health insurance must pay more, which means rates must increase, which makes healthcare more expensive…

Anyway, I’m sure Safeway’s plan has pitfalls but I’d rather us try something like this than go for some kind of government-sponsored (socialized) plan where individuals have little incentive to control costs.


15 thoughts on “I Like Safeway’s Health Plan!”

  1. How much do the employee have to pay to participate in this plan? Is this $1000 per individual, if on a family plan or spousal coverage? or it is 1k regardless of number in the household?

  2. So what happens if the employee has heart failure or needs an organ transplant? Safeway picks up the entire tab after the employee cap is meant? Safeway must have some overall stop-loss policy or I'd say they have a ticking bomb on their hands…

  3. I have one of these plans where I work. The HSA is like a 401k, the money is mine – I can save it or spend it on health care costs. If I leave the company, the money comes with me. With the account is a high deductible insurance plan. The HSA contribution from my company covers the first half of the deductible, I have to pay for the second half, then the normal insurance (80/20 coinsurance) kick in after that. The premium cost to me is about 2/3 that of a normal PPO or HMO plan.

    Having used this sort of HSA plan for 2 years, I will say it has really focused my attention on costs. These sorts of plans will make you think twice about medical care, but at the same time provide the financial safety net that insurance should be.

    1. @CTF – I think the HSA plans are a little different than the HRAs. As I understand it you can take the HSA with you when you go, but not an HRA. My husband has an HRA at work. There is an individual and a family cap. Since I'm on a separate plan at my employer, I'm not sure what the family cap is. His plan is like the Safeway one, except that the employer contributes 3k per year, and he has to pay the next 3k. This is his first year on the plan, so we're not sure what we think yet. So long as he's basically healthy, I think we'll break even. My one concern is that I don't like the idea of having to do cost comparisons in the midst of a health crisis.

  4. To fix this healthcare mess we need to have the total costs of procedures and hospital visits provided upfront, just like shopping for a car or any other product.

    If I call a hospital regarding their costs they won't tell me. If I call the insurance company, they won't tell me either. It's ridiculous! You don't know what it costs until after you have been provided the service AND HAVE RECEIVED YOUR BILL IN THE MAIL!

  5. Good comments so far.

    Stacey, I don’t know the answer to your question as the article doesn’t go into that much detail.

    Ken, You make a good point. Transparency is the key!

  6. I'm concerned that this could leave those with chronic illnesses at a disadvantage. Luckily, I don't have diabetes or something like that, but this could really affect those people who have severe diseases with high treatment costs.
    Having skin in the game is great, and is the best way for people to start paying attention to costs. I agree with Ken that more transparency is needed as well. But this plan could also lead to adverse selection in the insurance pool as it makes healthy people winners and sick people losers. Insurance only works if you have a large, diverse pool of participants with various risks. If healthy people are winners, then you may segment your risk pool have a pool that is uncharacteristically sick, and that drives costs up.
    Finally, keep in mind that this system would still not work for Small Businesses, which is the working population that (arguably) needs help the most. This plan will not address their need for greater risk pools to keep costs down. But I would love to see this system where I work!

  7. The medical community really needs to get it's act together in regards to the number of errors they make — errors that end up requiring more medical care to fix (increasing costs).

    When my child was in the hospital, there were numerous times I caught errors with the nurses bringing the wrong medication, or incorrectly handling an IV line. But I still couldn't catch two serious errors with his medication: blood pressure medication that is considered on overdose for an adult, and a too rapid weaning from steroidal medication that caused 4 ER visits and finally a trip to a different city's hospital before a doctor could figure it out.

    And another thing, doctors prescribing medications that can only be described as OVERKILL for what is being treated. My wife was prescribed a drug (Reglan) that had listed as a side effect: "permanent movement disorders" — for constipation / heart burn!

    And these insurance companies want to say that it is MY FAULT for costs being so high? Absolutely ridiculous.

  8. @Stacy – I work at a company that builds HRA software to do this very thing. It sounds like Safeway still has a group plan, but they raised the deductible and they self-insure the difference. That way, the costs from a catastrophic illness are still spread across a group plan, but the everyday expenses aren't insured.

    That said, most companies with 10,000+ employees have an entirely self-funded group plan (meaning they pay 100% of what the insurance covers) and they just use a carrier for the administration. When you have 10,000 employees, one person having a heart attack isn't that expensive.

    @SBE – There are two ways that HRAs can be used without hurting people with pre-existing conditions. The article says safeway employees have a $4000 out-of-pocket-max which is not that much (relative to a lot of group plans). Either way, the sick employees are still encouraged to elect into the plan because they're still receiving more benefit than the healthy ones.

    Another option is for the employer to cancel the group plan entirely and give HRA dollars to employees who then buy individual policies. In that case, sick employees go on state-funded risk pools which are generally more expensive that normal individual policies, but not normally much more expensive than most group policy premiums.

    Also, this system (we call it GroupHRA) absolutely works for small business. The majority of our employer clients are 10-50 person companies and this model works perfectly for them.

  9. We have a plan similar to that one.

    We usually will say "we pay $150 per month, for the privilege of paying the first $2400 a year ourselves." Although, the reality is that our company puts $1200 a year into our HSA, so we are really paying the first $1200. And since that is pre-tax money, it's really less. Is it a good deal? Depends.

    Our plan also supposedly pays for preventive care, but it seems like, no matter how the doctor reports the yearly visit for our son, we always end up having to pay. So, I have not had the guts to go for a yearly checkup, pap smear, mammogram, blood work, etc for me in the past few years, since I'm afraid we'd have to cover it. Also, due to the high cost of meds on this plan (oh how I miss the copay days) we have dropped nearly all our regular medications, including about half of our son's asthma drugs.

    Guess we will see how all the plays out.

    1. If you call your insurance company first, you should be able to get everything confirmed and nail down what it should cost. You really shouldn't put off those things, especially the asthma meds (that one is life threatening).

  10. These sorts of plans with high deductibles and HSAs are becoming common in my area. I think they are a step in the right direction but we are missing a crucial piece to make informed decisions. It's very difficult to price shop medical costs, aside from prescriptions..

  11. NPR has been having a lot of segments lately on the health care reforms in Congress. One thing that gets mentioned repeatedly is just what you point out: the current system distorts pricing by removing any incentive for individuals to opt for anything but the most expensive treatment. In general, this is because the true cost of the care is hidden by employer-provided insurance. In my mind, the easiest (and therefore most likely to be successful) step towards a solution to this problem is simply to tax healthcare benefits as income. Doing so would make the tax system more coherent–total compensation would be taxed, rather than certain types of compensation being sheltered despite the fungibility of dollars–and provide market pressure to lower costs as employees, suddenly aware of the true price of their benefits, pushed employers for cheaper plans.

  12. Free Health Insurance Leads Generation
    Being a health insurance agent is not a simple job. One may expend the entire day conversing with prospects, but the ultimate result might be wearisome, more than ever if your consumer discards you. Even if you manage to clarify the significance of your insurance policies and superior to any other agent working to enlist that prospect as a client, it may not be enough to, at the end of the day, make a sale.

  13. My wife and I pay over $5,000/yr for the Safeway Cigna plan. Cigna is really picky and we have to fight for every filing. Every year for the last 5 years premiums have increased. I would much prefer that health insurance be abolished along with the companies that provide it. They are a cost drain. It should be replaced with national health CARE.

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