Steve Burd on Improving Healthcare
Just about everyone agrees that healthcare costs are rising too fast, and Steve Burd, Chairman/President/CEO of Safeway, aims to do something about it. At this week's FMI Midwinter Conference, he presented an overview of a plan that he says has worked for Safeway and that he believes can work for other companies.
Basically, Mr. Burd believes that healthcare costs are rising due to the absence of market-driven forces, poor consumer choices, and the extra costs attributable to the under and uninsured. He says that healthcare costs averaged 48 percent of net income for companies in the S&P 500 in 1997 and are projected to rise to 102 percent by 2008. And, healthcare spending growth is growing 3.6 times as fast as the CPI. For all of that, relative to other industrialized countries, the U.S. has a high mortality rate for those under five, and a life expectancy rate that is average at best, while spending more per capita.
Mr. Burd believes much of the problem is due to the fact that while 65 percent of the population is insured, 20 percent is underinsured and 15 percent is uninsured. The insured end up paying 130-140 percent of what their healthcare actually costs, while the uninsured pay only 10-20 percent of theirs. This is because the insured subsidize the uninsured through higher hospital charges and the uninsured tend to use emergency rooms in lieu of much less expensive primary care physicians. There are other factors as well: providers are paid for services instead of results; and consumers tend not to do the things they need to do to stay healthy, nor do they act wisely in spending their healthcare dollars because they aren't rewarded for doing so. (When healthcare is "free," for example, consumers treat it as such and overuse the system.)
With this background, self-insured Safeway has undertaken an ambitious plan to get employees to bear more individual responsibility and fill out health risk questionnaires. The company pays for all preventive care, such as annual physicals and age appropriate procedures; helps employees better manage chronic conditions; and offers wellness programs, such as tobacco cessation, weight loss, and stress reduction.
The net result of this program has been an 11 percent reduction in Safeway's healthcare costs, a healthier employee population, and the ability to keep costs under control going forward. Also, Mr. Burd believes this program will save lots of employee lives, as preventive screenings paid for by the company catch a lot of potentially serious conditions.
Steve Burd has been vilified in the past for his management of regional banners but it's worth noting that his plan to "reinvent" Safeway's business looks to be working. At the same time, he and his executive team have apparently reinvented their healthcare program to improve employee health and reduce costs. And now, he is lobbying state and federal governments, as well as big business, to make changes along these lines in our healthcare system as a whole.
Editor's note: In last night's State of the Union address, President Bush called for expanding access to healthcare by creating a tax benefit for those who purchased their own insurance. Others under employer-provided plans would see their coverage treated as income and, therefore, taxed.
"For the millions of other Americans who have no health insurance at all, this deduction would help put a basic private health insurance plan within their reach,” said Mr. Bush. "Changing the tax code is a vital and necessary step to making health care affordable for more Americans."
In response to the preliminary proposal put forth by the President, Democrats welcomed a new focus by the Administration on the issue but expressed concern that it would amount to a tax increase on mostly middle-class taxpayers.
Discussion Questions: Is Safeway's program a workable template for other retailing industry companies and should the industry as a whole make an intense effort to get government backing for this type of healthcare reform? What are your thoughts on the initial proposal put forth last night by President Bush in the State of the Union address?
Steve Burd's Address on Healthcare - FMI Mid-Winter Conference, January 23, 2007 (Download MP3)