Should Health Insurance Be Like Car Insurance?

Why healthcare providers should be rewarding healthy customers! 

The health insurance issue is going to come front and center in the next few days, once everyone stops twittering about Iran and notices that the Senate is really hunkering down to attempt to overhaul how health insurance works in this country. One of the main issues is the cost of providing health care, which is enormous, and will cost the government trillions of dollars they don’t have if they decide they are going to provide us all with health care. Facing that predicament, lots of people are talking about how to reduce our health care costs. Should Health Insurance Be Like Car Insurance?

At Safeway , using an innovative new system that correlates employee behavior with insurance premiums, they have kept their costs flat over the last four years, despite the national average for companies increasing by 38 percent. How does it work? Simple.

Be Healthy. Pay Less.

Like car insurance, the amount you pay goes up if you do bad things. Get a speeding ticket, your car insurance goes up. Start smoking, your Safeway health insurance costs go up. This is because Safeway realized that nearly all their health care costs were from a small group of diseases ( cardiovascular disease, cancer, diabetes and obesity ), and that, in large part, these diseases can be easily mitigated or even prevented by simple changes in lifestyle.

So, all Safeway employees are tested annually for tobacco usage, healthy weight, blood pressure, and cholesterol levels. The healthier you are, the less you pay, and your health is the sole determinant in your premium costs. This is in stark contrast to how most health insurance works, where everyone pays the same amount, and if you are a fat smoker with bad cholesterol and go to the hospital 20 times a year, the healthy non-smoker who gets into a freak accident and has to go to the hospital for the first time in 10 years has to subsidize the costs of all your visits.

This is also a perfect free-market approach to getting all of America healthier. Fitting into a bathing suit might be motivation for some, but getting more money in your wallet while shedding pounds would probably motivate a lot more people.

Learning From Safeway: 

Effective health-care reform must meet two objectives:

1) It must secure coverage for all Americans,

and

2) It must dramatically lower the cost of health care.

Health-care spending has outpaced the rise in all other consumer spending by nearly a factor of three since 1980, increasing to 18% of GDP in 2009 from 9% of GDP. This disturbing trend will not change regardless of who pays these costs — government or the private sector — unless we can find a way to improve the health of our citizens. Failure to do so will make American companies less competitive in the global marketplace, increase taxes, and undermine our economy.

At Safeway we believe that well-designed health-care reform, utilizing market-based solutions, can ultimately reduce our nation’s health-care bill by 40%. The key to achieving these savings is health-care plans that reward 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. During this four-year period, we have kept our per capita health-care costs flat (that includes both the employee and the employer portion), while most American companies’ costs have increased 38% over the same four years.

Safeway’s plan capitalizes on two key insights gained in 2005. The first is that 70% of all health-care costs are the direct result of behavior. The second insight, which is well understood by the providers of health care, is that 74% of all costs are confined to four 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 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.

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 we have pronounced differences in premiums that reflect each covered member’s behaviors. Our plan utilizes a provision in the 1996 Health Insurance Portability and Accountability Act that permits employers to differentiate premiums based on behaviors. Currently we 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 nonunion work force. Employees are tested for the four measures cited above and receive premium discounts off a “base level” premium for each test they pass. Data is collected by outside parties and not shared with company management. If they pass all four tests, annual premiums are reduced $780 for individuals and $1,560 for families. Should they fail any or all tests, they can be tested again in 12 months. If they pass or have made appropriate progress on something like obesity, the company provides a refund equal to the premium differences established at the beginning of the plan year.

At Safeway, we are building a culture of health and fitness. The numbers speak for themselves. Our obesity and smoking rates are roughly 70% of the national average and our health-care costs for four years have been held constant . When surveyed, 78% of our employees rated our plan good, very good or excellent. In addition, 76% asked for more financial incentives to reward healthy behaviors. We have heard from dozens of employees who lost weight, lowered their blood-pressure and cholesterol levels, and are enjoying better health because of this program. Many discovered for the first time that they have high blood pressure, and others have been told by their doctor that they have added years to their life.

Today, we are constrained by current laws from increasing these incentives. We reward plan members $312 per year for not using tobacco, yet the annual cost of insuring a tobacco user is $1,400. Reform legislation needs to raise the federal legal limits so that incentives can better match the true incremental benefit of not engaging in these unhealthy behaviors . If these limits are appropriately increased, I am confident Safeway’s per capita health-care costs will decline for at least another five years as our work force becomes healthier.

The Healthy Measures program currently applies only to our nonunion work force. While we have numerous health and wellness provisions in our union contracts, we are working with union leaders like Joe Hansen of the United Food and Commercial Workers to incorporate healthy measures provisions in our union work force as well.

While comprehensive health-care reform needs to address a number of other key issues, we believe that personal responsibility and financial incentives are the path to a healthier America. By our calculation, if the nation had adopted our approach in 2005, the nation’s direct health-care bill would be $550 billion less than it is today. This is almost four times the $150 billion that most experts estimate to be the cost of covering today’s 47 million uninsured . The implication is that we can achieve health-care reform with universal coverage and declining per capita health-care costs .

There is a very real possibility that we will see positive transformational health-care reform in the near future. I am encouraged by the effort I see on Capitol Hill, particularly the bipartisan effort in the Senate. While some tough issues remain, if we continue to work in a bipartisan manner I believe we will resolve these issues successfully and find agreement on meaningful reform.

Mr. Burd is CEO of Safeway Inc., and the founder of the Coalition to Advance Healthcare Reform. 

Car Insurance Companies Reward Good Behavior: Drivers with records free of 15-car pileups and tickets for doing 90 in a 55 pay cheaper premiums. Health insurers, on the other hand, offer people little incentive to stay out of harm’s (and doctor’s) way. But a growing number of health advocates say this is a mistake, and that the system would function better if bodies were treated more like Buicks.

With policymakers still ironing out the details of the nation’s health-reform plan, hospitals, corporations and consumers are all trying to figure out ways to save on medical costs. While employers and health insurers have tried to steer plan members to lower-cost care and healthier behaviors in order to save the companies money, employees often pay the same amount in premiums and copays no matter what. Since employees generally don’t see any financial benefit from choosing the cheaper option – for instance, urgent-care clinics over emergency rooms – experts say it’s no surprise consumers are unwilling to do their employers any favors.

Some Fortune 500 companies and other employers – from JetBlue to IBM to equipment manufacturer Caterpillar – have begun to experiment with new health-care models that allow employees to keep some of the money they don’t spend on health care, or that reward or penalize them based on how well they manage their health.

Many of these plans more closely resemble auto insurance – with healthier employees effectively paying less than colleagues who are at greater risk for developing diseases related to smoking or obesity. For example, 38% of companies planned to charge higher premiums or deductibles in 2012 to employees who smoked, had high cholesterol levels, did not actively treat a chronic condition like diabetes or high – blood pressure or failed on other health measures, according to Towers Watson – the same way people with speeding tickets pay higher auto insurance rates to compensate the plan for their greater risk of car damage.

And although healthier employees may not be paying lower premiums, per se, while their unhealthier colleagues get penalized, they may get to see some savings later on, as 80% of companies planned to financially reward employees for healthy behavior (such as participating in weight- or disease-management programs) in 2012, according to Towers Watson. Such incentives often take the form of deposits into an employee’s health savings account, say experts, or removal of the premium penalties if employees show they’ve quit smoking or lowered their blood pressure. Experts say the rewards are the equivalent of lower premiums for safe drivers: After IBM began offering employees rebates worth up to $300 a year for participating in exercise and nutrition programs, the company saved $190 million in health care costs between 2005 and 2007, says a spokeswoman. IBM employees spend up to 60% less on their overall health-care bills than industry norms, according to the National Business Coalition on Health.

This year, JetBlue launched an overhauled health plan designed to simultaneously reward healthy employees and save the company money– with crewmembers who participate in wellness programs ultimately paying less for their medical benefits. Employees can now earn up to $400 individually or $800 for a family by participating in certain health programs, and workers with some chronic conditions can snag an additional $250 individually or $500 per family if they enroll in a care-management program. In a letter to employees explaining the changes, CEO Dave Barger said the airline’s old health-care model was backward: “Our plans are not structured in ways that are making us healthier – physically or financially.”

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While reminding employees that they split JetBlue’s health-care bill with the airline, Barger linked the company’s success to employees’ “smart decisions,” writing, “I am convinced that solving for ‘health,’ where controllable and possible, presents the greatest chance of successfully arresting our rising health-care costs.” JetBlue did not respond to a request for comment.

Other companies are trying to solve their employees’ health problems by waiving copays for generic drugs, second opinions and preventive care, believing they will save in the long-term, since employees will be less likely to get sick. Some Cigna health plan members can now get free second opinions from the Cleveland Clinic. Companies like Dell, Caterpillar and Marriott have eliminated or reduced copays for certain medications and services, which has sometimes resulted in fewer employee health claims, according to a report by the National Business Coalition on Health.

And an IT company that offered its workers free services at the on-site health clinic not only lowered its health costs but also saved its employees a combined $140,000, according to Change Healthcare. “Luring people into the good behavior by making it free is another way of sharing the savings on the front-end with employees,” says Dave Fortosis, a consultant in Aon Hewitt’s health and benefits practice. Dell, for one, knocks off up to $800 in annual premiums for employees who take a health survey and check in with a health counselor once a quarter over the phone, according to a company spokesman. Caterpillar and Marriott did not return requests for comment.

The basic “staywell” health plan concept isn’t new. Back in the 1980s and ’90s, some employers tried awarding cash bonuses to employees who spent little or nothing on health care. Publishing company Forbes Media, for one, paid bonuses of $1,000 to employees who filed no health-care claims, and a smaller prize to those who had less than $500 in health expenses. Employees of the Mendocino County School District in California received up to $500 back if they racked up less than that in health claims.

But those types of bonuses fell by the wayside as employers realized it wasn’t the best idea to reward people for never going to the doctor. “By and large, that approach fell into disrepute because employees or their families were not getting the treatment they needed,” says Fortosis. “Employees and families were just denying themselves care they needed so they could get a little cash.” 

Indeed, those plans relied on a model that probably wouldn’t work for an auto insurer: After all, if you never take your car to a mechanic, there’s a greater likelihood it’ll have a major breakdown in the future. But employers have continued to tinker with and fine-tune the strategy.

Forbes’s bonus model was a precursor for its current consumer-driven health plan, featuring health savings accounts that the company was not allowed to offer at the time because of government regulations. These plans, which allow employees to personally save what they don’t spend on health care, are the wave of the future, some experts say. “You own it. So you pay attention. And that’s the whole premise behind consumer-driven healthcare,” says Margy Loftus, Forbes Media’s senior vice president for human resources.

Such consumer-driven plans as health savings accounts and health-reimbursement accounts allow employees to get their savings back, says Tony Holmes, senior health care consultant for Mercer, a firm specializing in human resources. Companies like Caterpillar and Dell have sweetened the pot further, offering incentives worth up to $900 for enrolling in an HRA, according to the National Business Coalition on Health Report, since the firms directly benefit when members use their health plan frugally, rather than forgo care entirely. “It makes a lot more sense to have your programs do that every time someone makes a decision, rather than sending them a check,” Holmes says. Caterpillar and Dell did not respond to requests for comment.

Some health-care experts feel that these new models perpetuate the old 1990s problem by discouraging some workers from caring for their health. But even employers with traditional health plans, which provide broader coverage at set monthly premium rates, have tried to encourage their staff to be thriftier with them. “We’ve seen their executive leadership tie what their company spends on healthcare to the company’s ability to invest in new facilities and bonuses,” says Douglas Ghertner, CEO of Change Healthcare, which makes health-care cost comparison tools for health-plan members.

The logic: “Going to the lower-cost provider may benefit our company as a whole and consequently benefit you as an employee, because we’ll have more money to pay in bonuses because we’re paying less in healthcare,” Ghertner says. Pinnacle Financial Partners in Nashville, Tenn., for one, has been educating employees about finding lower-cost health providers and prescriptions because all employees are also owners of the firm, “So they have a vested interest in helping reduce expenses for themselves and for the firm overall,” says Stacy Gammons, a Pinnacle human resources specialist.

The new health-care models, say experts, so far fall short of allowing employees to share directly in the cash they save the company. But that may soon change, says Ghertner, as employers have begun to discuss paying employees a percentage of what they save the company on healthcare – for example, 20% of the cost difference between a $4,000 CT scan at a hospital and the same scan for $1,000 at an outpatient facility, or a potential $600 back to the employee. “I think you will start to see employers over time explore it,” Ghertner says.

As you obviously notice d after readi ng this article.. a number of employers are “on board” with this idea. However, it also quite obvious that there are few healthcare providers that are embracing the idea of directly rewarding healthy customers! 

What do you think? Would you sign up for health insurance that got cheaper as you got healthier?