Safeway flat lines health costs

Ken Shachmut

To “flat line” is not a good thing in medical terms, but it is an extremely positive and significant outcome when applied to health costs, and that is just what Safeway has done.

Since it adopted a holistic and aggressive approach to health and health costs in 2006, Safeway has become famous – as they should be – for holding its health care costs constant. They have proved it can be done. At least, it can be done in the private sector.

Safeway created a per-capita index based on 100 for its costs in 2005. It is still at 100, while its old plan, which tracked with national costs, would have been at 163 on the index for 2011.
“We’ve flat-lined our costs, said Ken Shachtmut, executive vice president of Safeway Health, a new consulting arm that is helping other large private companies tame soaring health cost trajectories.

Safeway thinks it can stay at 100 through 2015. It projects national costs will rise by then to an index level of at last 226 and as much as 261. That makes sense, because health costs have been doubling about every eight years in the United States for the last 40 plus years.

As a ratification of Safeway’s results, Serigraph, a mid-size company, has also leveled out the cost curve. Using similar methods, we have kept annual increases to an average of less than 3% since 2003.

How did Safeway do it? There are a lot of moving parts in its plan, but here are some of the main elements of its innovative management approach:

• It started with its non-union employees, 30,000 out of 200,000, and they set the example.

• It concentrated on behavior change and concentrated on critical measures: weight, tobacco use, cholesterol and blood pressure. Family premiums are reduced by $1560 per year if employee and spouse get passing grades on those four metrics. “It’s the incentives, stupid.”

• Its Market Based Health Plan uses “reference pricing.” As an example, Safeway pays up full cost up to $1500 for a high quality colonoscopy in a market that ranges from $887 to $8650. Above $1500, the employee pays the rest out of pocket. Think that doesn’t save costs and create a market dynamic? The company plans to reference price 1500 procedures.

• It uses a hot line, so employees can always get a second opinion on a procedure. Safeway searches for best practice doctors and clinics.

• Smokers pay a $1400 annual premium, but those who quit get a big rebate. Safeway estimates a smoker will spend an average of $1800 more for health care. The Safeway Amendment to Obamacare will allow 30% to 50% differentials in premiums for good or poor behavior.

Larree Renda, president of Safeway Health, said the company with 10,000 employees could save $45 million a year by the fifth year into a market-based plan. No wonder other companies are knocking at its door.

With Safeway almost 40% below the U.S. average, she cited Safeway’s results as “transformational.” That adjective is justified.

Think what the savings could be if its model were applied to the national health care bill of $2.6 trillion.

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  • Anonymous

    Useful, John. I know that Trek here in Wis has implemented some incentives like these as well.