Steven A. Burd, the CEO of Safeway, wrote a brilliant editorial in today’s Wall Street Journal on how his company have cut almost 40% of health care costs, compared to the national average over the past few years.
The solution? They bill health insurance premiums on the basis of behavior, following the auto insurance industry, rather than giving a flat rate of insurance to all, regardless of blood pressure, weight, tobacco usage, etc…:As much as we would like to take credit for being a health-care innovator, Safeway has done nothing more than borrow from the well-tested automobile insurance model. For decades, driving behavior has been correlated with accident risk and has therefore translated into premium differences among drivers. Stated somewhat differently, the auto-insurance industry has long recognized the role of personal responsibility. As a result, bad behaviors (like speeding, tickets for failure to follow the rules of the road, and frequency of accidents) are considered when establishing insurance premiums. Bad driver premiums are not subsidized by the good driver premiums. As with most employers, Safeway’s employees pay a portion of their own health care through premiums, co-pays and deductibles. The big difference between Safeway and most employers is that we have pronounced differences in premiums that reflect each covered member’s behaviors. Our plan utilizes a provision in the 1996 Health Insurance Portability and Accountability Act that permits employers to differentiate premiums based on behaviors. Currently we are focused on tobacco usage, healthy weight, blood pressure and cholesterol levels.
President Obama is right to recognize that rising health care costs mean serious problems to the American economy, but I think that he is disastrously wrong in his proposed solution.
Read Burd’s editorial here.
June 12, 2009 at 3:50 pm |
Not really disagreeing, but I hate references to “healthy weight.” Different body types and builds point to different weights that would be “healthy”, but usually the health industry doesn’t differentiate – it’s all based on what someone of a particular age, gender, and height should weigh. If I was down to what would be considered a “healthy weight”, I’d have no depth whatsoever but still be nearly as physically wide as I am. It’s hard to change bone structure and positioning.
I do agree with providing an incentive to live healthier though. Of course, active individuals tend to have a higher risk of impact injuries (turned ankles, broken bones, tendonitis…). Though, those ARE more short-term issues than heart disease, diabetes, morbid obeseness, etc, which would cost less over the long-term.
June 12, 2009 at 4:11 pm |
I get the idea of tracking insurance premiums to risky behaviors. One worry I have, though, it what happens to people who make poor choices? With auto insurance, the worst thing that can happen is one cannot get a car. While that is bad, it is not nearly as bad as being unable to get any significant healthcare. Unless we are willing to deny someone needed treatment, the public is probably going to have to pick up the tab at some point. Is the idea that we increase premiums for less healthy habits to encourage healthier habits (and thus people) and then figure the public will pay for less?
Also, if we want to hold people responsible for their health insurance costs, what about people who have greater risk factors that are not due to their behavior? Being overweight or having higher risk for cancer are not always connected to one’s choices. Seems like it would be tricky to distinguish between someone who is directly responsible for their health woes and those who are not. But then again, maybe this is just about incentives and minimizing the unhealthy people so the government does not have to pay for as many.
Maybe we should discourage eating unhealthy foods by taxing them more. If we want to permit companies to charge more for health insurance based on behavior, should the government (that ultimately has to incur some costs for unhealthy behaviors) be able to tax more based on behavior?
June 12, 2009 at 4:12 pm |
Can you add ReCaptcha to the comments?
June 12, 2009 at 4:29 pm |
Heath–
I agree with you that there can be no “perfect” weight, etc… I’m no expert on the specifics, but I would have to think that some of that could be taken into account. The Devil, of course, would be in the details.
Ben–
I think that the idea is indeed that, by incentivizing exercise, not smoking, etc…, the total amount of health care costs will decrease. Safeway has dramatically slashed their costs not by refusing to insure some of their employees (at least as far as I could tell from the editorial), but by giving big discounts to those who are in the best shape. This encourages more people toward better health, and that decreases the overall health care costs of the company. The insurance company can then charge lower premiums because it is paying out for fewer health expenses.
I think this point is important to the overall argument of an incentive-based health care policy. I’m not talking about limiting health insurance any more than it is now, but I am talking about making it possible to reduce your payments (because of reduced overhead costs to the company) through a better lifestyle, just as you can reduce your auto payments through better driving. In this case, I think incentives will work far better than nationalization.
Also, I am very uncomfortable with the idea of taxing unhealthy foods for one simple reason: taxes don’t go away. If doughnuts, for example, become so heavily taxed that people no longer want to buy them, then there will be a net decrease in doughnut sales. If this happens, then that tax revenue will dry up, leaving x government program without the funds it has been depending on.
When this happens, the government typically doesn’t close shop on the program — instead, the government simply looks for another target to tax. Perhaps this time, Ben, the government will turn their eye toward a diploma tax. So, what started out as a tax for the really unhealthy foods (which we didn’t really care about, because we didn’t eat too many of them anyway) turned into a tax on the things we really loved.
I just don’t think that the United States federal government is the best place to try to micro-manage what you eat, how much you exercise, etc…
June 12, 2009 at 4:30 pm |
I don’t really like sites that always require me to use ReCaptcha (or something like it) every time I comment. I might in the future, but I don’t think so right now.
You’ll have to lobby Andrew.