Safeway's Burd Urges Rethinking Health Care

DAVID ORGEL

ORLANDO, Fla. — Steve Burd, chairman, president and chief executive officer of Safeway, last week implored the food industry to follow his company's lead in attacking the spiraling cost of health care.

The supermarket executive known for his tough negotiating with labor unions in 2003 and 2004 called on retailers and suppliers to play hardball with the current state of health care by embracing market-based solutions that slash costs and boost the quality of services. He also reached beyond the typical CEO role to urge all food industry executives to push this agenda with government at many levels.

“There are very few opportunities in a lifetime in which you can work on an issue this big and complicated, and can say, ‘We can solve this,'” Burd said during an address at Food Marketing Institute's Midwinter Executive Conference here.

Burd said the recent success of Safeway's new health care plan motivated him to seek a wider platform for this issue to “help create the new model for health care.”

Safeway drove down costs with its 30,000 nonunion employees, and the company plans to accomplish the same thing with its unionized workers, which number about 170,000, he said. Safeway is among the major Southern California chains that will be renegotiating union contracts that expire March 5.

Safeway's new health plan reduced costs 11% in its first year, a period when U.S. industry continued to experience mounting health charges, Burd said. The program was popular with employees because it provided them 22%-32% in cost savings through a combination of reductions in out-of-pocket charges, deductibles, premiums and other elements. Financial incentives were created for employees to follow good health practices and to seek economical care.

The company increased its health plan deductible while funding a health reimbursement account of $1,000 that employees can use to pay expenses until they retire or leave the company. Employees began to feel they had a stake in how much they spend and started to more carefully scrutinize provider costs, Burd said.

“We got good consumer behavior,” he said.

Safeway also committed itself to paying the full cost of many preventive exams, such as physicals and mammograms, and to funding programs such as tobacco cessation. A diabetes phone support program staffed by nurses has reduced visits to emergency rooms, he said. Safeway also pushed the use of generic drugs over brands.

The company offered reductions in premiums to employees who exhibited good health practices and to those who filled out health-risk questionnaires to establish baselines.

Safeway demanded more cost and quality transparency from its health care providers, Burd said.

Safeway also showed its commitment to health care by assigning a senior vice president to focus on this issue full time, he said.

Burd said employees were increasingly attracted to Safeway's health plan because their costs were being significantly reduced. “I expect 95% to take the plan next year.”

Burd wants other companies and industries to follow Safeway's lead because of the depths of the national health care crisis, he said.

“I'm trying to broadly enlist the business community to change the rules of health care,” he said.

“If we don't solve this crisis, it will hurt all of American business because we compete in a global world.”

Burd said that in 1997 health care costs for the S&P 500 companies amounted to 48% of net income. In contrast, in 2005 health expenses nearly equaled net income, while for Safeway costs surpassed income in that year because of tight profit margins, he said.

Moreover, he said, the United States spends a greater percentage of gross domestic product on per capita health care than many other industrialized countries but comes up short in comparisons on mortality rates and life expectancies.

Burd asserted that 60%-70% of the nation's $2 trillion in health care costs is the result of behavior rather than genetics. “That gives you confidence that if you change behavior you'll drive down health care costs.”

He said about three-quarters of costs focus on four problems: cardiovascular disease, cancer, diabetes and obesity.

“Changing behavior on these four diseases is where the money is.”

A key component of the problem is the rising number of uninsured and underinsured people in the country who are subsidized by insured people in what amounts to a hidden tax, he said.

“So it should bother you if you know of companies that don't have health insurance for their employees.”

Burd said the nation's goals should be to encourage healthier behavior among the population, reduce health care costs and use the savings to help subsidize those without adequate insurance.

Burd supports a plan by California Gov. Arnold Schwarzenegger to revamp that state's health care system by requiring businesses with 10 or more employees that don't offer health insurance to make contributions to a state insurance fund. Burd, however, supports higher contributions than the governor proposes. Schwarzenegger's plan includes many elements of Safeway's program, such as market-based solutions, preventive care and cost controls.

“Some of the most creative things are being done at the state level,” Burd stressed, adding that the health care issue won't get serious attention at the national level until after the 2008 presidential election.

“If your state has an active governor, then engage in that effort.”

Burd said proposals in prior years to nationalize health care were misguided, partly because they would have led to inferior care.

“The beauty is that now we're not hearing proposals for nationalized health care anymore,” he said.

Burd cited the example of automobile insurance as one to emulate for health care.

“If you have a DUI, your insurance goes up,” he said. “That kind of thing doesn't happen now in health care. But it should happen if you have bad health behavior.

“Most health care plans lack incentives to motivate healthy behavior.”

Burd noted that health flexible spending accounts that provide tax savings, which he considers a positive savings tool for employees, aren't reaching their potential because the federal government doesn't allow people to roll over monies into subsequent years.

“I've been pushing in Washington, D.C., for rollover of these accounts.”