Wednesday, April 15, 2009

Choosing Healthcare

“70 percent of healthcare costs are driven by behaviors.” —Steven A. Burd, CEO of Safeway, Inc.

While other companies have seen their chunk of healthcare costs increase at a brisk rate in recent years, Safeway has kept its healthcare costs steady since 2005. The main reason for this, says Safeway CEO Steven Burd in this Reuters article, has been the company’s focus on healthy lifestyle choices.

I have no idea where Burd gets the statistic quoted at the top of this post or how accurate that number is. But he is saying is that the vast majority of health costs are directly tied to lifestyle choices. Safeway has capitalized on this by offering an insurance discount to employees that make healthy choices that the company promotes. Those choices include maintaining a healthy weight and not smoking.

Each year employees that participate in Safeway’s health plan receive a score based on their health choices. “[T]hose who score the lowest pay 51 percent more for health insurance premiums than those who score perfectly,” says Burd. He also says that the company has incurred no additional expenses to implement this plan.

The Health Care Blog’s interview with Safeway Sr. VP Ken Shachmut goes into much greater detail about the company’s health initiative. Shachmut calls the company’s health insurance system “market-based health care.” He says, “Our basic premise was that if people were given responsibility for their decisions, and there was transparency to the financial consequences to those decision (both good and bad, mind you!), that they would choose to maximize both their health and their financial benefit.”

Shachmut says that implementing this plan not only slowed the growth of health care costs, it “reduced all-in per capita healthcare spending 13%.” This allowed the company to cut the insurance cost for employees “by 25% or more. … These new plans introduce mutual benefits - by controlling costs, improving outcomes, and helping to leave more money into our employees’ pockets through encouraging healthy choices.”

This sounds interesting, but doesn’t it seem a bit coercive? Shachmut says:
“I want to be clear - we were adamant about designing this program to cover only those things for which our employees had control and which were clearly behavioral in nature. We do not differentiate for genetics, and we did everything prospectively and transparently so that everyone had equal opportunity to improve their behaviors. And, where there are special circumstances documented by a physician, we authorize exceptions.”
Among the accountability included in the plan are annual tests for “weight, tobacco, blood pressure, and cholesterol.” Nagging people about health choices doesn’t work, says Shachmut. But people are driven by their wallets. By demonstrating healthy choices, an employee using the family option can save “almost $1,600” per year in insurance costs. The company also offers a number of benefits designed to enhance health, including “discounted gym memberships” and full coverage for preventative care.

On top of this, Safeway is working to identify good providers, based on “price, outcome, satisfaction, etc,” and get this information out to employees. Shachmut says, “Healthcare is a complex topic and there is no one “silver bullet” – but full transparency on cost and quality comes close.”

It seems from the Shachmut interview that Safeway would prefer to move away from the “employer based insurance system that we have inherited is an accident of history from the WWII era.” But executives realize that this would require a revolutionary change that is beyond their control. So they have decided to make the best of the situation they have. “There is no need to wait for government action,” says Shachmut. Still, the company advocates the following reforms:
  • Market-based healthcare system.
  • Universal coverage with individual responsibility.
  • Financial assistance for the low-income.
  • Healthier behavior and incentives.
  • Equal tax treatment.
Shachmut says that the math shows that when “the entire nation addresses healthcare in a way similar to our approach at Safeway, there will be enormous savings – in both the public and private sectors.” I doubt that simply applying the Safeway plan to all Americans through the federal government will produce these kinds of outcomes.

Shachmut’s math appears to have discounted one of the main features that makes Safeway’s plan work: individual choice. Safeway employees apparently have some choice in whether to participate in this plan. About 30% of non-union employees and 70% of union employees don’t participate in the accountability plan. Aside from this, does anyone know how many employees have chosen to leave the company and work elsewhere rather than submit to the requirements of the plan?

How much different would the health and cost outcomes be if all Safeway employees were forced to participate in the plan, they had no choice but to work for Safeway, and Safeway couldn’t fire anyone? What if the company were required to cover a proportionate number of the currently uninsured population to boot? That is effectively what Shachmut is suggesting when he pushes for universal coverage.

Under universal coverage, no one could opt out of the plan, as a significant number of Safeway employees currently do. No one could choose to leave the plan without emigrating outside of the country. Plan providers would have to cover everyone, regardless of how bad their health choices were.

Many of those making the worst choices are also the ones that could least afford to pay for coverage. So even if you raised their rates through the roof, those high rates would necessarily be subsidized by others that actually pay. The poor that make bad choices wouldn’t actually pay more, so they wouldn’t actually be incentivized to make healthy choices. On the contrary, their poor choices would be subsidized, providing additional incentive to make bad choices. Moreover, this means that rates for the responsible would be much higher than for current responsible Safeway employees.

Beyond this, it must be recognized that Safeway commands only a smidgen of the healthcare market, even in the area of its corporate office. What would costs and outcomes be like if Safeway commanded the entire healthcare market in the region and if Safeway were instead a political entity? It would effectively dictate uniform pricing and even treatment details. As the company controlled more healthcare details, healthcare professionals would lobby the regime for more beneficial conditions. A different breed of ‘paint-by-the numbers’ provider would become the norm.

Removing choice in the name of compassion cannot and will not produce the kinds of health benefits and cost savings that Safeway is currently experiencing with its healthcare plan, even if all of the elements Mr. Shachmut touts were to somehow miraculously pass political muster to become part of a national universal healthcare plan.

Safeway has apparently achieved some wonderful and noteworthy results with its healthcare initiatives. We’re not just talking cost; we’re talking about longer life and a better quality of life for many of its employees. But it is foolish to assume that these same benefits will be realized on a broad scale with universal healthcare coverage. Safeway has actual personal choice on its side. Regardless of the kinds of ‘market based’ elements employed, no universal coverage plan can obtain the benefits of personal choice.


Charles D said...

It sounds like Safeway would like to have universal single-payer health care but doesn't think the U.S. political system is capable of delivering it, in spite of the fact that most Americans support it. So they have to make do the best they can using the flawed market system and dress it up in fancy language so that it doesn't sound as bad as it is.

If everyone has free health care cradle to grave and can choose their own doctors and hospitals, then why would they feel trapped and want to opt out? A market system cannot provide goods unless there is a profit potential. In the health care field, the only way an insurer can be profitable is to have healthy participants. Unfortunately not all Americans are healthy and not all their diseases and injuries are the result of poor lifestyle choices.

The key ethical concern here is that none of our fellow citizens gets substandard care because they can't afford proper care. None of our fellow citizens should have to choose between food and prescription drugs or delay needed physician visits because they can't afford insurance. If we can't care for our neighbors using a market system (and we obviously cannot), then our obligation is to them, not to an economic ideology.

Scott Hinrichs said...

Why is it that supporters of government provided healthcare insist on saying it is "free"? And why is it that providing care for those that can least afford it requires roping everyone into a huge, inefficient Soviet style healthcare system? Why is this the only option?

Charles D said...

Good point. It is not free. You will have to take some (not all) the money you currently pay for inadequate health insurance and pay it to the government instead. However, no one will go bankrupt and lose their home due to medical bills, no one will have to choose between feeding their family or buying lifesaving drugs. It's not free, but it is a bargain too good to pass up.

No rational person is suggesting a "Soviet-style" healthcare system. All we are suggesting is that we replace the expensive and inadequate private health insurance market with a different mechanism of payment. The only differences you will notice is that you don't get a huge bill from the provider, you don't have to file claims and spend endless hours on the phone trying to get the insurer to pay, and you will still have money in your bank accounts after a major illness.

It's not the health care system that needs to be fixed, it is the health insurance system. We have great health care in this country if you can afford it. All we need to do is make sure we can all afford it.

Scott Hinrichs said...

So you say, but it cannot actually work that way in practice. Healthcare resources are scarce. For some reason, nobody is willing to admit this, but it is a simple fact of real life.

To reduce costs and cover everyone, new efficiencies would need to be introduced. Simply put, government has one of the worst track records in the world of being efficient. The incentives to be efficient do not exist. Instead, when revenues are maximized (payment for the system is put at the highest rate people will bear), government ALWAYS resorts to either rationing, decreasing quality, or both. Yes, our current quasi-private third-payer system also does this, but not with the same level of effectiveness or coerciveness as government run plans do.

People like to point to Medicare as a success. But some of Medicare's per procedure costs are kept low due to passing on excess costs to private payers. That gravy train would go away once private payers disappeared. Medicare touts low administrative costs, but that is only because those costs are transferred elsewhere. Unlike private insurers, Medicare does little to combat fraud. It has no incentive to do so. Instead, Medicare's burden of fraudulent expense is substantially higher than for private payers.

The cost benefits promoters of government run health care tout will only be realized through quality reduction and rationing. Only, people will no longer have any option to get better care outside of the system.

I still haven't ever had anyone answer the question of why we must coercively reduce choice and place everyone into a massive government run system simply in order to provide healthcare for those that currently cannot afford it. Does the pro-government crowd really want people to believe that this is the only or even the best way to accomplish this goal?

Charles D said...

First of all, eliminating private insurance companies with their enormous marketing and lobbying budgets, huge executive compensation and duplicative processes plus the army of clerks providers have to pay to handle all the claims will save an enormous amount of money - probably 25-30% of our current cost.

As for RATIONING, we already have it. We ration care based on ability to pay and availability of private insurance. There has to be a better way, and there's no reason to think government would be less effective or more coercive. If everyone is covered for everything and we focus on preventive care, we should be able to reduce costs without rationing.

As for fraud, all insurance companies deal with fraud and there have been plenty of arrests and convictions for Medicare fraud. Obviously more could be done, but there is no inherent reason that government cannot be effective here either. The people who actually investigate fraud are on salary and they will do their jobs regardless of who signs their checks. Actually, private Medical fraud cases outnumber Medicare/Medicaid fraud cases.

The reason no one answers your final question is that it is based on a false premise. We do not need to "coercively reduce choice" or put everyone in a "government run system". Health care choice will not be reduced by a single-payer system. You can still choose your own doctors, hospitals, drug stores, and therapists - no reduction in choice. There will be no government-run system since the health care delivery system will remain just the way it is.

I simply don't think many Americans give a crap whether they are insured by Aetna, Kaiser, or the government as long as they can choose their doctor. A single-payer plan will increase choice because you won't have to change doctors because yours is not in the network of your employer's new carrier.

I can understand why the drug industry, the for-profit hospital industry and the insurance industry oppose universal health care - they are profiting from the current inefficient and ineffective system. That's why they spend billions spreading lies and scare stories to defeat health care reform.

Scott Hinrichs said...

When government determines how healthcare is paid for, government will effectively determine what doctors can do, what kind of treatments they can administer, and who can get what kind of treatments. This is already apparent in current Medicare practice. Only Medicare currently has competition from the evil for-profit insurers, so it can't completely control the entire system.

Medicare does prosecute fraud, but the only reason it has fewer fraud cases than private insurance is that its fraud detection efforts are comparatively minuscule compared to private insurers. It has fewer cases because it doesn't know or care about the fraud. Politicians regularly refuse to fund Medicare fraud detection. Private studies have documented a massive taxpayer funded business in Medicare fraud that goes undetected by the government each year. In short, the evil private insurers have much greater incentive to reduce fraud than do politicians.

If government were the only insurer, there would be savings in marketing, but it wouldn't be nearly as large as you suggest. The Massachusetts-like plans current being promoted actually increase marketing. Most government marketing is hidden and is done through venues unavailable to private insurers (i.e. Social Security mailings, etc).

Still, privatizing socialized medicine has its downsides as well. Patients are not customers; they are products. The payer (regardless of whether it is government or private insurance) is the customer. This creates incentives for providers to satisfy the payer rather than satisfying the patient. It makes possible the occurrence where the practitioner regularly performs successful procedures without improving the patients' overall conditions.

What we need is less insurance, not more. As many procedures as possible should be removed from coverage. People should have coverage for treatment that would create a catastrophic financial burden, for truly unforeseen issues and for actual urgent care, but they should generally cover run of the mill stuff themselves. Of course, we should have measures to aid those that can least afford necessary healthcare. This would reduce the role and cost of insurance (whether public or private). Patients would get more of what they truly need and practitioners would be freed up to practice according to their training and judgment rather than according to a bean counter's manual.

No matter what we do, there is no utopia in healthcare. There are only tradeoffs. Everyone should at least acknowledge this fact. If most people could see first hand the tradeoffs they would ultimately have to make for a universal single-payer system, they'd keep the mess they have today.