Healthcare Solutions that Work
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Agenda U. S. healthcare challenge Healthcare Solutions that Work Safeway experience National Health Policy Conference February 2, 2009 Policy implications Steve Burd Chairman, President & CEO Safeway Inc. 2 NHPC_020209_screen America’s Healthcare Challenge Coverage Problem America’s Healthcare Challenge Cost Problem Coverage Problem Cost Problem Annual Growth 1980 - 2007 Uninsured Uninsured 15% 15% 8.4% 3.3% CPI Excluding Healthcare 3 NHPC_020209_screen America’s Healthcare Challenge Cost Problem Annual Growth 1980 - 2007 4 NHPC_020209_screen America’s Healthcare Challenge Coverage Problem Healthcare Coverage Problem % of GDP Cost Problem Annual Growth 1980 - 2007 25.9% Uninsured % of GDP 25.9% Uninsured 16.2% 15% 16.2% 15% 8.4% 8.4% 9.1% 9.1% 3.3% 12.3% 10.6% 3.3% 8.5% CPI Excluding Healthcare NHPC_020209_screen Healthcare 1980 2005 CPI Excluding Healthcare 2020P US 5 NHPC_020209_screen Healthcare 1980 US UK 2005 2020P Canada Switzerland 6 Root Causes of Escalating Healthcare Costs Solving the Problem of Rising Costs Too many consumers are not part of the system Insure everyone – no one should be left out Disconnect between payers and receivers of healthcare Create more personal responsibility Cost and quality transparency is largely absent Provide cost and quality transparency Insurance policies generally lack incentives to change Encourage prevention and wellness by linking healthy behavior behaviors to financial incentives Providers of healthcare have little incentive to be cost Pay more for results and less for services rendered conscious…paid for services delivered, not results 7 NHPC_020209_screen 8 NHPC_020209_screen Potential Healthcare Savings Healthcare Costs as Percent of GDP % of Direct Healthcare Spending 2008* Healthcare Annual Cost Growth Scenarios Total Savings $800 Billion* 2% Business as Usual + 8.2% 2% Flat 0% 30% 4% 25% 6% 20% 15% 45% 15% 10% 16% 1980 Level = 9.1% 5% Transp'y Behavior Driven Model Admin Cost EvidenceBased Medicine ER to Regular Uninsured Contribute 25% Total Impact 0% 1980 * 2008 Estimates: Total HC spending ~ $2.4 Trillion, Direct spending ~ $1.8 Trillion 9 NHPC_020209_screen 1990 2000 2005 2010 2015 2020 Source: Safeway analysis 10 NHPC_020209_screen Agenda Safeway’s Healthcare Expense Trend* Index 2005 = 100 U. S. healthcare challenge Business as Usual 160 CAGR 140 128 110 120 Safeway experience 100 138 119 102 100 80 88 92 2006 2007 8.4% 0.5% 94 New Plan 60 40 20 Policy implications 0 2005 2008 E 2009 F * Per-capita expenses for Safeway non-union EEs moving to new plan from former PPO plan These per-capita expenses are all-inclusive – Safeway contribution, EE premium and EE out-of-pocket expense NHPC_020209_screen 11 NHPC_020209_screen 12 Sources of Safeway Savings Safeway Results Based on Three Major Discoveries Total per capita costs 4% 70% of healthcare costs are driven by behavior 31% 8% 18% Four chronic conditions comprise 74% of healthcare costs Obesity is a driving factor in all four chronic conditions Plan Design Medical Plan Design Rx All Other Total 13 NHPC_020209_screen Unhealthy Behaviors are Expensive 14 NHPC_020209_screen Non-Compliant Behavior is Common 2008 Incremental Cost per Condition % Non-Compliant with Recommended Care $920 73 $705 $475 $420 32 55 51 46 46 35 $320 40 Obese Smoking Obesity Uncontrolled Hypertension Lack of Exercise Coronary Artery Disease Uncontrolled Cholesterol Colorectal Cancer Asthma High Cholesterol Diabetes Overweight / Obesity Source: Elizabeth McGlynn, et al, The Quality of Health Care Delivered to Adults in the United States, NEJM, Vol. 348:2635-2645 June 26, 2003 (No. 26); NHANES 2005-06 Source: American Institute for Preventive Medicine 2005; American Journal of Health Promotion 1991, 1993, 2000; Milliman & Robertson 1995; Safeway analysis NHPC_020209_screen Hyper tension 15 16 NHPC_020209_screen Automobile Liability Insurance – A Useful Analogy Philosophy for Behavioral Incentives Two neighbors – same cars, very different driving records Individuals are responsible for their own behavior* Bill has no tickets or accidents; John has a reckless Health plans should be free to charge individuals the full driving citation and an accident cost of their behaviors When consumers bear the true cost, they are motivated to change The result will be improved health, higher productivity, Bill’s Premium John’s Premium $762 / year $1,540 / year We all accept this as fair and lower healthcare costs *But not their genetics Source: Mercury Insurance Company, Alameda County CA NHPC_020209_screen 17 NHPC_020209_screen 18 Four Chronic Conditions Comprise 74% of Costs Four Chronic Conditions Comprise 74% of Costs Cost Distribution by Disease State Cost Distribution by Disease State 17% 74% of Total Costs 100% 17% 100% All Other Total Healthcare Cost 74% of Total Costs 9% 9% 10% 10% 11% 20% 11% 20% 33% 33% Cardiovascular Disease Cardiovascular Disease Cancer Diabetes Overweight & Obesity Other Chronic All Other Total Healthcare Cost Cancer Diabetes Overweight & Obesity Other Chronic 80% Heart % Preventable / Manageable disease / Stroke Source: CDC, HHS, 2005 data, Safeway analysis 19 NHPC_020209_screen 20 Source: CDC, HHS, 2005 data, Safeway analysis NHPC_020209_screen Four Chronic Conditions Comprise 74% of Costs Four Chronic Conditions Comprise 74% of Costs Cost Distribution by Disease State Cost Distribution by Disease State 17% 74% of Total Costs 100% 100% All Other Total Healthcare Cost 9% 10% 10% 11% 11% 20% 20% 33% 33% Cardiovascular Disease 80% Heart Cancer Diabetes Overweight & Obesity Other Chronic All Other Total Healthcare Cost Cardiovascular Disease 30% / 60% 80% Heart % Preventable / Manageable disease / Stroke NHPC_020209_screen 17% 74% of Total Costs 9% Cancer Diabetes 30% / 60% 80% Type 2 Overweight & Obesity Other Chronic N % Preventable / Manageable disease / Stroke 21 Source: CDC, HHS, 2005 data, Safeway analysis NHPC_020209_screen 22 Source: CDC, HHS, 2005 data, Safeway analysis Four Chronic Conditions Comprise 74% of Costs Obesity is a Major Cost Driver Cost Distribution by Disease State Top 4 chronic diseases - % of total healthcare spending 17% 74% of Total Costs 100% 74% 9% 11% 10% 10% 2% 11% 20% All other 9% 20% 47% 33% 33% 19% 1% Obesity 26% Cardiovascular Disease 80% Heart Cancer 30% / 60% Diabetes Overweight & Obesity 80% Nearly all Type 2 can improve disease / Stroke NHPC_020209_screen Other Chronic All Other 27% Total Healthcare Cost 7% Cardiovascular Disease % Preventable / Manageable Cancer Diabetes Overweight & Big 4 Total Obesity *2008 Estimates: Total HC spending ~ $2.4 Trillion, Direct spending ~ $1.8 Trillion Source: CDC, HHS, 2005 data, Safeway analysis 23 NHPC_020209_screen 24 Safeway Healthy Measures U.S. Obesity Rates Four key measures offered to all employees 61% – Weight 49% – Tobacco use 74% Participation – Blood pressure 40% – Cholesterol Participation to earn lowest healthcare premium 25% 15% 14% 18% – Voluntary – Employees and spouses Two ways to earn lowest premium 1965 1975 1985 1995 2005 2015P – Pass the screenings now 2025P – Improve, verify at next year’s screening – rebate at year-end Source: NHANES Safeway analysis 25 NHPC_020209_screen 26 NHPC_020209_screen Safeway Obesity Challenge Healthy Measures Incentives 2008 Safeway BMI Distribution* Family annual premiums * $1,560 $4,628 Broad Awareness/Prevention Program Employee Costs Differences Premium 51% Premium & OOP 25% 37% 34% $3,068 Targeted, InterventionBased Program 17% 7% 1% 13 Both Do Not Participate Both Participate & Pass All Additional Premium 14 15 16 17 18 19 Underweight Medical Costs Absenteeism *The employee and spouse are both eligible for Healthy Measures discounts NHPC_020209_screen Total 27 Safeway’s Experience is Nearly Unique – Why? We understand and have acted on our three discoveries 20 21 22 23 24 Normal Weight 25 26 27 28 29 30 Overweight $332 31 32 33 34 Obese Class I $732 35 36 37 38 4% 39 40 41 Obese Class II 42 43 44 45 46+ Obese Class III $1,059 $1,475 50 186 790 621 $382 $918 $1,849 $2,096 *Source: Healthy Measures 2008 Holistic Approach – Genuine Focus on Employee Health & Wellness Free fitness center and gym membership discounts – 70% of costs driven by behavior Care management, wellness, 24-hour nurse line – Four chronic diseases comprise 74% of costs – Obesity is arguably the most significant cost driver Healthy foods discount in cafeteria We believe in the efficiency of markets and have re-designed our healthcare plan with this in mind CareConnect program for breast and prostate cancer We have taken a holistic approach that reinforces our Cancer fundraising – more than $100 million to date interest in our employees’ Strong senior management leadership NHPC_020209_screen Engagement in policy debate 29 NHPC_020209_screen 30 Major Safeway Healthcare Plan Elements HRA account FSA account Physicals at 100% Well baby/child at 100% Age-appropriate mammograms at 100% Age-appropriate colonoscopies at 100% Integrated care management 24/7 nurse line MedExpert Behavior incentives CareConnect for cancer Transparency tools Major Safeway Healthcare Plan Elements Therapeutic equivalency switching with coordinated co-pays Drug facts website Rx compliance rewards soon Fitness Center Discount gym memberships with coordinated co-pays FSA account Physicals at 100% Well baby/child at 100% Age-appropriate mammograms at 100% Age-appropriate colonoscopies Corporate nurse at 100% No-smoking campus Quit smoking programs with free aids Weight Watchers subsidies Weight management programs Cancer research fundraising Healthy food cafeteria subsidies Healthy snacks for meetings Aggressive formulary Information/encouragement of generics 31 NHPC_020209_screen Therapeutic equivalency switching HRA account Integrated care management 24/7 nurse line MedExpert Behavior incentives CareConnect for cancer Transparency tools Aggressive formulary Information/encouragement of generics Drug facts website Rx compliance rewards soon Fitness Center Discount gym memberships Corporate nurse No-smoking campus Quit smoking programs with free aids Weight Watchers subsidies Weight management programs Cancer research fundraising Healthy food cafeteria subsidies Healthy snacks for meetings Formed CAHR Co-founded Healthy Weight Commitment 32 NHPC_020209_screen CAHR Membership Core Principles for Healthcare Reform Market-based healthcare system Universal coverage with individual responsibility Financial assistance for low income Healthier behavior and incentives Equal tax treatment 33 NHPC_020209_screen Tackling Obesity Nationwide Aetna Alex Lee Inc. Bashas Blue Shield of CA Brookshire Bumblebee Seafoods C&S Wholesale CIGNA Clorox Coca Cola CVS / Caremark Del Monte Foods Edison International Eli Lilly General Mills Giant Eagle GlaxoSmithKline HCA Health Net Heinz Hershey Humana Illinois Tool Works InnerLink Jax Markets KKR Kaiser Permanente Kimberly Clark Kohl’s Kraft Foods Kroger Land ‘O Lakes Longs Drugs Lund Food Holdings Merck McKesson Medtronic Morgan Stanley Norfolk Southern PG&E PepsiCo Pfizer Playtex Price Chopper Procter & Gamble Publix Raley’s RenderX Rockwell Automation Rockwell Collins Roll International Safeway Schnuck’s Smucker SuperValu Unified Western United Healthcare United Supermarkets USAA Wakefern Wegmans Winco Foods Wrigley Food Industry Healthy Weight Commitment 40% of population is obese, another 33% overweight Call to action from Safeway and PepsiCo CEOs for a nationwide solution Obese kids are now developing adult ailments – first Challenge accepted by 12 major food companies generation with lower life expectancies than parents Developing programs with demonstrated success The single biggest driver of healthcare costs – largely Broad participation expected with recruiting underway behavioral, and reversible NHPC_020209_screen 35 NHPC_020209_screen 36 1,750 Less Calories In per Week Healthy Weight Commitment Many ways to achieve the goal – 250 / day Help individuals achieve energy balance* 1 less Café Latte – Behavior change: 3,500 calorie rule – Food products with lower energy density Handful of raisins instead of candy Teach kids early, comprehensively and consistently “Walk the talk” in the workplace – 30+ companies will Cutting 1,750 cals/wk One less chocolate chip cookie demonstrate results Communicate broadly to achieve objectives Replace 1-traditional dressing with very low cal dressing Substitute 2 diet soda for 2 reg soda Keep the volume and taste, not the calories *Calories in / Calories out (CICO) 37 NHPC_020209_screen 38 NHPC_020209_screen 1,750 More Calories Out per Week Agenda Many ways to achieve the goal – 250 / day U. S. healthcare challenge 1 hour of pacing while on the phone 6 days / week 45 minutes walking at 4 mph 6 days / week Burning 1,750 cals/wk 65 minutes shopping at Safeway 7 days / week 40 minutes circuit weight training 4 days / week Safeway experience 4.5 hours playing golf walking (w/o cart) per week Policy implications Add activities incremental to normal movement 39 NHPC_020209_screen Market-Based Healthcare System 40 NHPC_020209_screen Creating a Consumer Healthcare Market Private system can work well if we create a market Basic Market Requirements Government should lead in delivering transparency Knowledgeable consumers Today No – Start with the Medicare database Alternatives exist – Supplement with private insurers – Establish quality benchmarks Information is available Sometimes Difficult to access – Make information broadly available – Do not let the desire for perfection get in the way of progress All plans should include substantial behavioral Price matters Occasionally Quality matters When known incentives; price is the ultimate market mechanism NHPC_020209_screen 41 NHPC_020209_screen 42 Creating a Consumer Healthcare Market Value of Cost Transparency Low Cost Basic Market Requirements Knowledgeable consumers Alternatives exist Information is available Today Tomorrow No Transparency tools Sometimes Often Difficult to access Transparency tools High Cost $12,771 $11,053 $7,170 $6,803 $6,800 $2,148 $2,739 $634 Price matters Occasionally Skin in the game Colonoscopy Quality matters When known Pay more for results Hernia Repair Arthroscopic Knee Surgery Normal Child Delivery 3:1 4:1 2:1 10:1 High Cost : Low Cost Multiple Source: New Hampshire Insurance Department; Safeway surveys and analysis 43 NHPC_020209_screen Universal Coverage with Individual Responsibility All Americans should have access to healthcare plans, 44 NHPC_020209_screen Financial Assistance for Low Income Healthcare is expensive – over $5,500 today for every and be required to have insurance American Risk pools become large and there should be no exclusions for pre-existing conditions Even when costs are brought under control, they will still exceed the ability to pay for some Government can play a valuable role in creating rules and mechanisms to facilitate access Financial assistance for low income earners is necessary to fill the gap Government should not compete with the private sector 45 NHPC_020209_screen Healthier Behavior and Incentives 46 NHPC_020209_screen HIPAA Incentive Allowance is Insufficient Safeway example – Family with 2 obese smokers Improved behavior and health status is critical $1,410 $3,250 $1,690 – Lowers per capita costs Gap – Frees resources for today’s uninsured >100% $1,840 All healthcare plans should incorporate incentives $1,560 – Start with plans for Government employees – Consider incentives for private plans The HIPAA limit for healthy behavior incentives is Tobacco Obesity Total inadequate HIPAA 20% Allowance Incentive Gap Incremental Healthcare Cost NHPC_020209_screen 47 NHPC_020209_screen 48 Price Incentives for Behaviors Only Equal Tax Treatment Not for genetic differences Today’s paradigm is out-dated – Response to wage and price controls during World War II Not for pre-existing conditions – Ratified through Supreme Court decisions – Dysfunctional today Focused on the top chronic conditions Healthcare expenses for all Americans should have the same tax status – Will have a major impact; 80/20 rule – Whether company-provided or individually purchased – Can be managed effectively – Pre-tax treatment is preferable 49 NHPC_020209_screen Applying the CAHR Principles First Steps for Reform Cost and quality transparency, starting with the Medicare database Coverage of all Americans Subsidies for low income financed by system savings HIPAA incentives increased to 40-50% Equal tax treatment for all NHPC_020209_screen 51 NHPC_020209_screen 50
