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Safeway Senior Vice President Ken Shachmut Talks about Holding Health Care Costs Steady, for Four Straight Years, Do-It-Yourself Health Reform, and $8,000 Colonoscopies

IMPORTED: __media_4EAF829F25AE46B6BD4F8C0EE9CAF320_w_100_h_133_as_1.jpg Working with Safeway CEO Steve Burd, Ken Shachmut is one of the architects of Safeway's much-talked-about health care reengineering program that has managed to do the remarkable: hold health care costs for the organization steady since 2005. President Obama frequently refers to the Safeway story as an example of what's possible for the rest of the nation with the right approach to health reform. Here, Ken talks about what Safeway did and what's coming next.

Q: I suspect that a lot of our readers want to copy the Safeway model. Or maybe wish they had four years ago. What exactly did you do?

A: In 2006, for our non-union employees, we essentially affected a near-100 percent changeover of our then-current menu of health plan offerings, which was a fairly typical, broad spectrum of traditional HMO and PPO plans. We dropped those plans and instead instituted a consumer-directed health care plan with a $1,000 deductible, which has natural incentives in it for people to make prudent choices. For instance, there's an inherent financial penalty in the plan for using the emergency room when you don't need to, and as a result, we found inappropriate ER visits dropped significantly. We also instituted a more aggressive formulary that encouraged people to use generic equivalents whenever they were available. And, we gave people an incentive to take a health risk assessment (HRA), which is something I wouldn't underestimate. It's important for people to know what their challenges are to help guide them in talking with their health care providers.

Q: And the net effect was?

A: Overall costs for that population have stayed steady, with no cost-shifting, either. Initially, overall costs actually dropped by about 13 percent. Those savings were a combination of better rates under the consumer-directed plan, lower utilization of things like the ER and lower costs for prescription drugs under the new formulary. We shared that savings with our employees and their costs went down even more—by about 25 percent. Since 2006, our costs have crept back up a bit, but not on the same trajectory as other companies. We're now spending only 2 percent more on health care for our non-union employees than we did in 2005. We're essentially even over a four-year period, while most other employers saw a 38 percent increase. These costs are all-inclusive: Safeway's contribution; our employees' premiums; and our employees' out-of-pocket expenses. There has been no cost-shifting in these numbers.

Q: So you've saved a little bit of money I gather?

A: Yes. About $150 million overall is our calculation. It gets better, though. We're projecting a slight decline in costs for 2010, which will bump up the overall savings to about $230 million. To date, our employees have received more than half of the savings. And going forward, they will continue to share in the savings.

Q: We keep talking about "non-union" employees. Does any of this apply to union employees?

A: Yes. Changes to the benefits of union employees have to be negotiated carefully and that's a slower process, but we've shared our results with union leaders and they're coming on board, more and more. The switch to a consumer-directed plan and the related savings figures refers to our 30,000 non-union employees, but the 170,000 union employees are starting to embrace elements of the plan. We have worked with our union leaders to include some elements of our new health plan into the contracts covering about half of our bargained employees. We will continue to work on this together.

Q: It strikes me that Safeway's program—moving to a consumer directed plan, setting up incentives, establishing a tight formulary, promoting HRAs—is probably not unique. But your results are. What's different about Safeway?

A: The key was eliminating other offerings. That's really unusual. Today, in northern California, we offer either our CIGNA administered consumer-directed health plan (the CIGNA ChoiceFund) or Kaiser. That's it. We would have gotten very different results if our consumer-directed plan had just been offered as one option among many. We also took a really holistic approach and raised awareness among our employees about critical health issues, related behaviors, and available resources. Most people don't know this (although, increasingly Safeway employees do), but about 70 percent of all health care issues are behavior-driven. So, education and changing individual behavior in healthy directions are really critical elements. You can't just assume that people know the ins and outs of managing diabetes or high cholesterol or back pain or cardiovascular issues or asthma. Those diseases are the enemy and you've got to talk about them, help educate people, and provide incentives to motivate healthy behavior change. That's where you make the biggest difference.

Q: President Obama talks about Safeway all the time. That must make you feel pretty good?

A: We all are gratified by the president's recognition of our success in bending the health care cost curve, while improving employee health care benefits. We believe that other companies, union trusts, and organizations can accomplish similar results, and we are available to work with them through our new health care services company Safeway Health. I encourage readers who are interested in learning more to contact me directly at [email protected]. In the meanwhile, we're not resting on our laurels. We have some things planned for 2010 and if our projections are right, we'll actually see a decline in costs next year for our consumer-directed health plan and a slight increase on the Kaiser side.

Q: What exactly do you have planned?

A: This year we rolled out Healthy Measures, a voluntary program that involves measurement around four key issues: smoking, weight, cholesterol, and blood pressure. If employees meet the targets in all four areas, they get a discount of $780 on their health coverage contribution. Employees with covered spouses, domestic partners, or a family can save up to $1,560 ($780 each for the employee and spouse), which is the maximum discount we're allowed to give under the Health Insurance Portability and Accountability Act. Healthy Measures provides strong incentives for healthy behavior, and helps keep costs low for Safeway and our employees. Next year we will extend Healthy Measures further.

Q: What's been the reaction?

A: It's been great; 74 percent of eligible employees signed up right off the bat. The nice thing is that there's really no downside to the program. You can sign up and if you pass the screens, you receive the premium discounts immediately. However, if you do not pass one or more screens, you still have a shot at the discount. When you come back a year later and meet the targets, we retroactively give you the discount. There's absolutely nothing to lose. For 2010, we will redouble our efforts in promoting the program and expect to achieve participation rates of more than 80 percent.

Q: Safeway has also recently started to cap the allowable reimbursement for certain procedures. Talk to me about very expensive colonoscopies.

A: Colonoscopies in the area surrounding our corporate headquarters cost anywhere from about $900 to more than $8,000. For the exact same procedure. That sort of price range for a good or service doesn't exist anywhere else in society except health care. Patients often have no real idea what services cost and not much incentive to help control costs. Safeway publishes a list of colonoscopy providers along with the approximate price and lets the employee choose where to go. But we only pay up to about $1,500, which is the amount you need to spend to obtain what quality data indicate is a good colonoscopy. Employees are still welcome to go wherever they want, but if they choose a more expensive site they'll pay the difference. And the difference does not get counted towards their out-of-pocket limit. It's their choice and it's their money.

Q: So, without naming names, has anyone at Safeway gotten an $8,000 colonoscopy lately?

A: No. No surprise here. Transparency works.

Q: Safeway CEO Steve Burd established the Coalition to Advance Healthcare Reform, which is very much in favor of health care reform and of universal coverage. That's atypical for a big business. Is Safeway alone here, or do you think we're seeing a shift in the politics of health care?

A: We're not alone. There are over 60 companies in the coalition and we operate in every state. Several million people are employed by those 60 companies, and many more when you count covered dependents. Everyone reading this is welcome to join. Go to to learn more.

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