Why Health Insurance Doesn’t Work

Recently, The New England Journal of Medicine published a major study confirming what other research showed— that angioplasties and stents don't prolong life and don't even prevent heart attacks, yet $30 billion was spent on those last year.  In contrast, Mutual of Omaha found that almost 80 percent of people eligible for angioplasty or bypass surgery were able to safely avoid it by making the comprehensive lifestyle changes we recommend , saving almost $30,000 per person in the first year.  Why do you think people have become so enamored of high-tech interventions and drugs that are covered by most insurance plans and Medicare, whereas diet and lifestyle choices that may play an even bigger role both in quality of life, survival and costs are usually not covered?  
Many Americans are looking for a quick fix.  If I can take a pill or have a stent rather than change my lifestyle, that sounds easier.  As I talk with policy makers, only a few seem to really understand the role of behavior in health-care costs. Most policy makers believe that solving the coverage problem is going to cost an enormous amount of money and that's why it hasn't been dealt with.  Even people who thought behavior mattered believed that you had to make a big investment today and wait five to 10 years to begin experiencing the savings.  The big surprise is that's not the case.

When we redesigned our health plan to reward people for healthful behaviors and prevention—such as an annual physical, a colonoscopy, regular mammograms, to name just a few, if you're diabetic you control your blood sugar, if you're overweight, you make a commitment to lose those extra pounds—those behavioral changes will clearly affect your health, clearly affect your longevity, and lower your costs and our costs.

What has been the experience at Safeway?
We saved 15 percent of our health-care costs the first year, flattened our costs the second year and rewarded our employees with a premium reduction of 25-34 percent.  We've been paying for 100 percent of preventive care.  But if you're not getting annual physicals, then you're not going to gain a financial incentive, so effectively your insurance premium with us will go up.  It's not just that we suggest you do this; there's a strong financial incentive for you to behave in your own best interests. And, we continue adding incentives in our health-care plan.  As a result, we believe that we can continue to improve the quality of care for our employees, make them healthier with some of our wellness programs, and in fact, continue to drive costs down. 

You've been bringing together both the left and the right, Republicans and Democrats, management and labor.  Yet only three years ago, Safeway had a contentious strike with its unions over trying to deal with rising health-care costs by cutting benefits.  It cost everybody a lot of money, and nobody really won.  But you're now saying, "We can take a different approach where everyone wins and we can all come together."  Last month, for example, we went together to Dallas and met with several union and business leaders to discuss these ideas, and it was a constructive dialogue.  What changed?  
I think there's a natural alliance between business and labor on this issue, and there's been a sea change.  This is clearly a nonpartisan issue.  The reason business is getting engaged is that costs are rising and it's affecting global competitiveness.  Labor leaders are engaged in this issue because health-care cost increases are eating away at their ability to get wage increases.  Last year alone, health-care cost increases explained 50 percent of the rise in the consumer price index.

While we must always be competitive, I'm now advocating, along with union leaders, that we fundamentally change the rules of the game.  That will not only drive health-care costs down and get everyone covered, but it will also improve the competitive landscape.  When I talk to business leaders, I have yet to find a CEO who doesn't agree with the notion that everyone should be insured.  That was not true 10 years ago.

What's different now?
I think the problem has simply gotten worse.  It's interfering with companies' ability to be globally competitive.  I now believe that health-care costs in this country—which run about $2 trillion—can be reduced by 25-50 percent if we just remove some of the current obstacles to market forces.

In a true market-based system, consumers pay more when they get sick so there is a clear incentive to stay healthy.  However, with insurance and other third-party payers—even with universal coverage—the market forces don't apply, since people pay essentially the same amount each year whether they're sick or healthy.  How does your approach address this issue?
In our health-care plan, your premium fluctuates with your own personal behavior.  If you choose not to engage in healthy behaviors, you will pay a higher premium in future years.