By JLP | June 26, 2009
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.