A CEO’s perspective on reducing health care costs

On June 12, the CEO of Safeway (Steven Burd) wrote an insightful piece for the Wall Street Journal titled “How Safeway is Cutting Health-Care Costs.”  After an analysis of their health care costs in 2005, Mr. Burd found that 70% of the health care costs that Safeway is facing are driven by behavior-related items.  In particular, 74% of their health care expenditures came from just four areas: cardiovascular disease, cancer, diabetes and obesity.  In an effort to reduce these expenses and improve the health and productivity of their employees, Safeway redesigned its wellness program to encourage employees to improve their health.  Participating employees earn incentives in the form of health insurance premium discounts (up to $780 for individuals; $1,560 for families) for tracking and improving their health status around the four key cost areas listed above.  The results of their program (called “Healthy Measures”) have been nothing short of remarkable:

  • Obesity and smoking rates are now 70% of the national average
  • 0% increase in health care costs over the four years that they have run the program
  • 78% of employees rated the plan as “good, very good or excellent”
  • 76% of employees have asked for more financial incentives to reward healthy behaviors

It is impressive to consider that Safeway held its costs flat while the average increase in health care costs over the same period was 32.6% according to research conducted by Towers Perrin.  Safeway’s experience demonstrates that the strategic applicaton of incentives to change behaviors around the core drivers of health care costs can yield dramatic results.  The program is completely voluntary and currently covers over 70% of Safeway’s non-union workforce.  You can read the full article online at the Wall Street Journal.

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