Safeway Inc. is one of the largest food and drug retailers in North America. At the end of 2008, there were 1,739 Safeway stores across the U.S. and Canada. (Source: Safeway 2009 fact book)

The Safeway Health Plan Strategy Overview:

In January 2006, Safeway offered their non-union workers a CDHP that is structured with a $2,000 annual deductible for all employees and limits out-of-pocket costs to $3,000 for family coverage. The annual deductible is offset by a company contribution of $1,000 to a health reimbursement account (HRA), and unused funds in the HRA are rolled over to the next plan year. The CDHP/HRA covers all preventive care services at 100% and it provides a 24-hour nurse advice line staffed by registered nurses to help people manage chronic conditions. Safeway’s CDHP/HRA is designed to give employees incentives to promote healthier lifestyles and lower the cost of insurance for employees and the company.

(Source: Excerpts from The Health Care blog interview with  Senior Vice President Ken Shachmut on October 28, 2008)

The Challenge:

Safeway’s healthcare expenses were rising at double-digit rates and the premium costs to the company were not sustainable—and they were marginalizing the company’s profitability.

A Health Initiatives Task Force (HITF) was established to evaluate the situation and develop a solution to this challenge.

Safeway borrowed thinking from the well-tested automobile insurance model and applied it to health insurance. 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 good driver premiums.

How did this thinking transform into a health insurance solution? The HITF issued a position statement stating,“if people were given responsibility for their decisions and there was transparency to the financial consequences of those decisions (good or bad), they would make better choices.”

So, what were the results? The results were nearly immediate and were dramatic. Safeway hoped to slow cost growth, perhaps even flat-line costs for a short time. In reality, Safeway reduced all-in per capita healthcare spending by 13%. The CDHP/HRA introduced mutual benefits—it controlled costs, improved outcomes, and helped leave more money in employees’ pockets by encouraging healthy choices.

The key to achieving these savings is in the design—a health plan that rewards healthy behavior. As a self-insured employer, Safeway designed just such a plan in 2005 and has made continuous improvements each year. The results have been remarkable.

For the past 4 years, Safeway has kept its per capita healthcare costs flat (that includes both the employee and employer portions), while most American companies’ costs increased by 38% over those same 4 years.

Safeway’s plan capitalizes on 2 key insights gained in 2005. The first was that 70% of all healthcare costs were the direct result of behavior. The second insight, which is well understood by the providers of health care, was that 74% of all costs are confined to 4 chronic conditions (cardiovascular disease, cancer, diabetes, and obesity). Furthermore, 80% of cardiovascular disease and diabetes is preventable, 60% of cancers are preventable, and more than 90% of obesity is preventable.

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 there are pronounced differences in premiums that reflect each covered member’s behaviors. The plan utilizes a provision in the 1996 Health Insurance Portability and Accountability Act that permits employers to differentiate health insurance premiums based on behaviors. Currently Safeway’s targeted behaviors are focused on tobacco usage, healthy weight, blood pressure, and cholesterol levels.

Safeway’s Healthy Measures program is completely voluntary and currently covers 74% of the insured non-union work force. Employees are tested for the 4 measures cited above and receive premium discounts off of a “base level” premium for each test they “pass.” Data is collected by outside parties and not shared with company management. If employees pass all 4 tests, annual premiums are reduced by $780 for individuals and $1,560 for families. Should employees “fail” any or all tests, they can be tested again in 12 months. If they pass or have made appropriate progress on a factor such as obesity, the company provides a refund equal to the premium difference established at the beginning of the plan year. More specifically, the company rewards employees $312 per year for not using tobacco, while the annual cost of insuring a tobacco user is $1,400.

Safeway is focused on building a culture of health and wellness. It was discovered that Safeway’s obesity and smoking rates are roughly 70% of the national average. With the implementation of the CDHP and the wellness program, Safeway’s health-care costs for 4 years have held constant. Many of the Safeway employees lost weight, lowered their blood pressure and cholesterol levels, and are enjoying better health because of this program.