Tuesday, September 29, 2009

Safeway Exec Touts Health Incentive Plan

By Julie Kosterlitz  

Safeway, the California-based grocery chain, has become an unusually influential player in the debate over health care reform, trumpeting its success in improving worker health while controlling the rising cost of health plans. This year, the company began offering a 20 percent discount on premiums for workers meeting certain fitness and health goals; it is also pushing Congress to change the 1996 Health Insurance Portability and Accountability Act to allow premium discounts of up to 50 percent.

That stance is drawing flack from patients' advocates, the elderly and some labor unions, who say it would allow group insurance plans to discriminate against those with health problems -- the exact opposite of the broader goals of health care reform. National Journal recently spoke with Safeway's senior vice president in charge of health initiatives, Ken Shachmut, about the company's high-profile health and wellness initiatives. Edited excerpts of the interview follow.

NJ: How has Safeway become such an effective advocate for its particular brand of incentive-driven workplace wellness?

Shachmut: I think what's made so much impact for us is that we've succeeded in some respects where others have attempted and failed. We have flat-lined our [per capita health care] costs for four years, all inclusive, with no cost shifting. This year, our health care costs will go down a bit. And the way we've done that is through wellness and prevention.

What we're really fans of is the notion that improving health care costs is all about improving health status of the population: having fewer type II diabetics as a proportion of the population than today, fewer smokers and fewer overweight people and so on. That's all about behavior change. What we've done in our plan is understand the centrality of behavior change, understand that 70 percent of health care costs are behavior-driven. And we've put pretty strong incentives in our plan to motivate people [to adopt healthy behaviors].

We do not and we would never espouse having differential incentives for genetics: That's absolutely off-bounds. When people are obese -- except for those very few exceptions where there are genetic markers for it -- we incent people to move towards a healthy weight. If someone is a smoker, we know that most people can quit -- it's hard, perhaps, but they can quit.

Almost three-quarters of all health care costs are a result of four chronic disease states: cardiovascular disease, cancer, diabetes and a whole host of maladies that stem from being overweight and obese. So we focus our energies on getting people to accept healthy behavior changes that impact those areas.

[We also have a] consumer-directed health plan design, with a health reimbursement account. The first $1,000 comes out of that account and is fully funded by Safeway. The next $1,000 comes totally out of the employee's pocket. After that there's an 80 percent-20 percent split between the company and the employee and a total out-of-pocket maximum of $4,000. If you have a particularly healthy year, all the money you don't spend rolls over into the following year.

These plans by their very structure induce people to spend those health care dollars as though they were their own. We have lots of anecdotal and hard evidence that that has happened. We see people having fewer emergency room visits and more doctor and clinic visits as a proportion of total visits. We see people moving aggressively toward the use of generic medications [and] therapeutic alternatives, [which are] not the same medication, but [have] the same outcomes for many, many patients. We've reinforced [wellness] with what we call our "holistic" approach. We have a wonderful on-site gym in our Pleasanton [Calif.] headquarters that's fully accessible to employees about six days a week. We extend subsidies to other employees around the country to 24 Hour Fitness or Bally's.

Shachmut: I understand that those concerns have been raised. We think they are nonsense. I'd like to use an analogy. [Imagine that my colleague] Brian and I are both 35 years old, we both live in Pleasanton, California, and we both drive the same year Camry sedan. Brian is a terrific driver and he has been since he got his license. He can buy a full suite of insurance from a top-tier for about $750 a year. I on the other hand am a lousy driver. I've been carrying three points on my license forever. At that same carrier I can get the same suite of insurance, but it will cost me over $1,500 -- more than twice as much.

No one who hears that story thinks there's anything wrong with it. Why? Because all I have to do is change my behavior and demonstrate that consistently over a period of time -- perhaps two years -- to the insurance company that I've cleaned up my act, and I will earn Ryan's rate. It's behavior -- it's not genetic, it's not predisposition -- it's behavior. And we believe that the same concept should apply broadly in health care.

About six to eight weeks ago I was asked to take a call with some people in Washington, because we have been pushing hard in the Senate Health, Education, Labor and Pensions Committee and the Senate Finance Committee to get the limits [that current law puts on premium discounts in group health plans] raised from 20 percent to 30 percent.

There were people from the White House health care staff, people from the Department of Labor and from the Department of Health and Human Services -- about 10 in all. I responded to quite detailed, quite pointed questions. Not everybody agreed that our way was the best way; some were concerned that "bad actors" might abuse this provision -- [although we think] that there are already remedies in the law for that. But nobody on the call said, I think this is wrong, I don't think you should be allowed to do it.

Shachmut: In 1985, the fraction of obese people in this country was about 18 percent. In 1995, it was 25 percent. In 2005, at 34 percent. That kind of shift is not genetic. Evolution doesn't happen that quickly in humans. That's behavior -- that is, a function of people eating more calorie-dense foods and having less activity.

NJ: Some people might not be able to meet your health goals because they work two jobs or don't live near a fitness center. It's been suggested that lower-income people eat more high-calorie food because it's convenient or cheaper. Aren't there a variety of compelling reasons why individuals might not be able to achieve these health goals?

Shachmut: It's not necessarily easy for everybody, but I would say that if people think it is important for them that they can think of a way. A soccer mom or soccer dad might be inclined to sit in the stands and watch the kids play, but they could walk up and down the sidelines and follow the ball and probably burn 500 calories....

Are those things harder for some people in certain socioeconomic circumstances? Probably so. But I don't think that changes the notion that it's their health and they should take primary responsibility for doing the things that are within their control, or partially within their control, to go in the right direction. And all we've done with our incentives is provided an extra nudge.

NJ: Do you support the idea of taxing sugary sodas or high-fat snack food?

Shachmut: We're not at all fans of that idea. People ought to be individually responsible for making smart choices.

NJ: Doesn't your approach penalize people who are unhealthy?

Shachmut: We don't characterize these as penalties for those [who don't make the health targets].We characterize it as a reward for those who do. Most people believe that rewards are more powerful [than penalties.] But we recognize that one is the other seen in the mirror.

NJ: How big is the premium discount you're now offering?

Shachmut: It is $780 for the employee and $780 for the spouse, if the spouse is covered. That's 20 percent of the combined premium of the employee portion and Safeway's contribution.

NJ: Why isn't a 20 percent discount, or penalty, big enough?

Shachmut: The incremental cost of health care is about $1,400 for smokers and $1,400 for an obese person. A family with two obese smokers is costing on average $5,600 more than a family that does not have any obesity or smokers. We ought to be able to differentiate up to the full documentable differential cost. It would [have] higher motivational [impact] and be good for [promoting the] health of the family.