Health-Care the Safeway


-Jarrett Skorup

The news the past week has been heavy on health care.  President Obama delivered a speech in Green Bay, Wisconsin partially outlining his plan to force private insurance companies to compete with the government (still not sure how that works) and demonizing those on the side of free-markets.  He has also issued statements that his new plan will include more taxes; Max Baucus, senator from Oregon, hints that Congress may tax health benefits, something Obama specifically chided McCain for on the campaign trail saying,

Apparently, Senator McCain doesn’t think it’s enough that your health premiums have doubled. He thinks you should have to pay taxes on them, too.

The AP reports that Obama is also open to borrowing in order to pay for the plan, though I’m not exactly sure how that fits with his “paygo” idea.  But what the hey, I’m just a lowly intern, much to inexperienced to understand that politicians rarely mean what they say.

So what is the free-market response?  Has anybody solved the problem?

There are several examples of companies who have found ways to better their insurance while decreasing costs, and all have done so by using the free-maket ideas of incentives and competition.  The two major examples are Whole Foods (led by the libertarian-leaning CEO, John Mackey) and, more recently, Safeway.

Writing in the Wall Street Journal today, CEO Steven Burd lays out his plan for how the federal government could save 40% on its health care by adopting some easy Safeway initiatives.  So how has his company been able to cut costs and yet manage to keep good service?  By relying on the free-market.

As much as we would like to take credit for being a health-care innovator, Safeway has done nothing more than borrow from the well-tested automobile insurance model. 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 the good driver premiums.

The program also provide incentives to those who get healthy on their own; doing things like quitting smoking, losing weight and decreasing blood pressure and cholesterol levels.  Employees are provided with lower premiums for improving in these areas, much in the same way that car companies reward good drivers, women (who, it pains me to say, tend to be safer) and those who avoid tickets.  This voluntary program (done by those in Safeway’s non-unionized work force) has a rating of “very good” or “excellent” by 78% of those participating; and Mr. Burd believes that things could be even better if laws were repealed that currently constrain the incentives his company is allowed to offer.

Using the free-market to increase competition, lower costs, and provide better care?  What a novel concept.

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One thought on “Health-Care the Safeway

  1. Novel eh? Its amazing how some trains of thought become compartmentalized. One of the great measures of education is reapplication. When one can realize where and how to use previously learned knowledge, whole new avenues open up.

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