Reform in Aisle Three

June 1, 2009

Safeway, a grocery chain with 200,000 employees in 22 states, claims that it held its employee healthcare costs flat for three years running. How, you might ask? Read on for more about this radical program.


He’s 59 years old and sells food for a living, but Steve Burd is infuriatingly trim. The CEO of Safeway, a grocery chain with 200,000 employees in 22 states, says he works hard to stay fit, closely following a daily exercise regimen and following all of his doctor’s orders.

As America’s 14th-highest-paid executive (according to Forbes), Burd has millions of reasons to keep himself in shape. But his strategy of controlling his company’s healthcare costs by paying employees to manage crucial health risk factors - and then checking to ensure they do so - is so elegant, radical, and (according to Burd) successful that I can’t believe it hasn’t been made illegal.

At a time when most employers are drowning in annual double-digit healthcare cost increases, you can imagine the stir Burd caused - at an April conference of executives and healthcare policy wonks in Washington - when he declared that Safeway had held its employee healthcare costs flat for three years running. How? By enrolling employees in a voluntary program that gives them discounts on their insurance premiums if they meet, or at least demonstrate significant progress on, certain health targets.

The grocer’s plan is based on a pair of assumptions: First, that four chronic conditions are largely to blame for about three quarters of healthcare costs, and, second, that those four conditions are all largely behavior-driven. Controlling a few key health measures would drive the incidence of each condition dramatically downward, along with their associated costs.

Put another way, if people just stopped smoking and controlled their weight, cholesterol, and blood pressure, Burd argues, then cancer, diabetes, cardiovascular disease, and obesity would become rarities - and healthcare would become affordable. The CEO told attendees of the World Health Care Congress that the strategy has worked at Safeway: “We have essentially flat-lined our healthcare costs over the last four years on a per-capita basis.” Compare that with the 38 percent growth in U.S. health costs during the same period.

Here’s how it works: Nonunion employees -the program hasn’t yet been green-lighted in Safeway’s union contracts - who volunteer become eligible for discounts as high as 50 percent off their insurance premiums. They get the discount at the beginning of the year by passing a screening for nicotine, and for meeting weight, blood pressure, and cholesterol targets. Workers who miss the targets get another chance at the end of the year. At that time, if they demonstrate they’ve gone as little as 10 percent of the way toward the goals, Safeway will issue a rebate for the premium discount.

“We created a market inside Safeway in which the difference between ‘good’ behavior and ‘bad’ behavior means paying 50 percent less on your insurance premium,” says Burd. Safeway, in other words, offered an incentive to its employees to “be good,” made it big enough to be truly enticing, then sat and watched while those improved behaviors reduced its health plan’s medical expenditures. “You will never solve the healthcare problem in this country without solving the cost side of the equation, and you will never solve the cost side of the equation without dealing with obesity, diabetes, and other behavior-related chronic conditions,” says Burd.

How much would the country have saved since 2005 if all of us were on the Safeway plan? Only about $600 billion, by his estimate.

Some important caveats: For one thing, Safeway is able to offer this program only because it is large enough to be self-insured; smaller companies that must contract with insurers are out of luck, until one of those insurers develops a similar plan. Even with the flexibility of self-insurance, barely more than 10 percent of Safeway’s employees have actually enrolled in the plan. Most - about 170,000 - are union members who won’t be eligible until the company is able to amend its contracts, and about a quarter of those who are eligible have declined. That means Safeway’s results are encouraging but hardly conclusive.

Finally, let’s face it - there’s something uncomfortable, maybe even creepy, about the extent to which Safeway inserts itself into the private lives of its workers through the program. Do we really want the boss at our weigh-in? Do we want employers swabbing workers’ cheeks to test for nicotine? Hello, Big Brother.

I get it. But the program is voluntary. And if we’re going to insist on a healthcare system in which employers do most of the paying, we can’t very well tell them sit down and shut up about our pack-a-day habit and our love affair with cheese.

Congress is already signaling that whatever health reform package emerges this year will almost certainly include new freedoms and incentives for employers to experiment with wellness programs. Safeway’s program would be an excellent place to start.

Bob Keaveney is the executive editor of Physicians Practice. Tell him what you think at bob.keaveney@cmpmedica.com, or via his Twitter account: http://twitter.com/bkeaveney.

This article originally appeared in the June 2009 issue of Physicians Practice.