Safeway Stores, the retail food giant, is making news these days — not for selling produce and meat, but for cutting employee health care costs.

The company, with 1,700 stores and 200,000 workers, is well along on its new health care system that rewards employees for taking care of their own health. The rewards come in the form of reduced health insurance premiums. Safeway self-insures.

Rising health care costs are cited as a top concern of business executives. The costs have pushed even big companies toward insolvency, and as one witness testified, “health care costs kill small businesses.”

Tackle health care costs with innovation, incentives
Larry Waterfield


As the Obama administration ramps up efforts to reform health care coverage and delivery in the U.S., the “Safeway model” is getting a lot of attention. Safeway president and chief executive officer Steve Burd testified before Congress about the cost-cutting efforts that concentrate on employee health in four crucial areas: smoking, obesity, high blood pressure and diabetes.

If employees make progress in these areas they pay less in health insurance costs. Safeway says the program has reduced costs at a time when most firms experience double-digit increases.

Burd is a strong believer in the benefits of fresh produce and health. He told the produce folks a year ago in Las Vegas (at the United Fresh Produce Association’s 2008 show) that “the produce department is the medicine cabinet of the future.”

The Safeway health program does have some potentially controversial aspects, because Safeway monitors employees to see if they are making progress in improving their own health.

Safeway, which runs 1,400 pharmacies, already tests employees for illegal drugs. Now

it also does a “simple swab test” to detect smokers.

There are incentives for employees to lose weight, and to follow drug and treatment guidelines if they have high blood pressure or diabetes. They are not punished or fired for getting sick, but if they follow the doctor-dictated treatments they have lower costs and better outcomes in the long run, thus saving money. The employee saves money, as does the company.

“Behavior is currency,” says Burd. “Seventy percent of costs is driven by behavior.”

The Safeway plan had to pass muster with unions. The majority of Safeway workers are covered by union labor contracts.

Some see in the Safeway system a possible model for reforming the whole health care system, including insurance coverage. The key word is “incentive” — offering employees savings and rewards if they look after their own health.

Members of Congress have visited Safeway to see the program in operation. Lawmakers and policymakers are wrestling with ways to change a system that now eats up 17% of the nation’s wealth, the most expensive system in the world, but one that does less well in terms of life expectancy, infant mortality and some other key indicators than do systems in Western Europe. Also, 46 million people have no coverage, which leads to costly emergency room interventions.

There are some outlines of change taking shape: the U.S. is too large to copy the systems in Canada and Europe. Programs will probably be tailored locally and regionally, and will involve the private insurers, medical providers, employers and the government. Conservatives oppose a “single-payer” plan, such as Medicare for everyone, on the grounds it will stifle innovation and entrepreneurship. Still, low-wage workers will almost certainly have to receive subsidized health insurance in any reform.

But even liberals and conservatives agree reform will have to include incentives for better health, prevention and better diets, including more fruit and vegetable consumption and access to fresh produce. There has to be emphasis on best treatments based on outcomes, and computerized record-keeping.

Regina Herzlinger, a professor and analyst at Harvard University, thinks that a single payer will keep out new ideas, when new ideas are the only way to change a system she says is “killing the American economy.” Newt Gingrich, the former Republican speaker of the House of Representatives, says much the same: New leaders, new ideas, new entrepreneurs can fix the system. You need incentives to change. Those in the system, who are raking in money, have no incentive to change.

Even though there is agreement that better diets are key to better health and prevention, where are the new ideas in this area? Well, more fresh produce in schools and feeding programs is one idea.

Here’s a crazy idea: use the computerized grocery store records of purchases to allow consumers to show they buy substantial amounts of fruits and vegetables — and get a reduced health insurance premium.

Come up with your own crazy idea. Now is the time for innovation in health care. At stake is the future of much of the economy, billions of dollars — maybe trillions of dollars — and the health of all of us. Now that’s something to chew on.