Developing Intelligent Consumerism to Manage Healthcare Costs

The focus on healthcare reform continues to intensify since President Obama's speech to the American Medical Association this June. Media coverage abounds. The recent Time Magazine cover story1, Financial Times Op-ed by OMB Director, Peter Orszag2 and the Wall Street Journal Op-ed by Safeway CEO, Steven Burd3 have all honed in on one key message - the way to more effectively manage healthcare costs is to align incentives to promote healthy behavior.

The statistics are staggering. Healthcare cost have been skyrocketing with insurance premiums increasing 58% over the last decade, while employee wages have increased by only 3%2, and the trend is expected to continue. For many companies, healthcare spending represents the highest administrative cost category after rent and payroll. Yet the most compelling fact is that despite the high cost to both individuals and businesses, 70% of all healthcare costs are the direct result of personal behavior with 74% of all costs confined to four chronic, but largely preventable, conditions (cardiovascular disease, diabetes, obesity and cancer) 3. So how can corporations develop the right incentives to change behavior and manage costs?

Safeway offers several insights to solving the problem with an impressive track record of success. While most American companies have seen healthcare costs increase 38% over the last four years, Safeway has kept its costs flat over this period3. Safeway has accomplished this by building a culture of health and fitness and by implementing financial incentives for healthy behavior. Safeway's Healthy Measures program is a voluntary program measuring key health factors that result in savings on insurance premiums and reward controllable lifestyle choices. Only four criteria are measured on an annual basis: tobacco usage, weight, blood pressure and cholesterol levels, the key contributors to many chronic conditions. Insurance premium savings range from $780 for individuals to $1,560 to families annually based on test results. Participation rates are high at 74% and survey data reveals that employees support and would welcome more programs rewarding healthy behaviors.

There are many levers available to employers in providing creative options for health programs and controlling escalating costs, including working with healthcare providers to make sure they are researching and comparing outcomes, meeting quarterly with brokers to review utilization patterns and adjust plans, and working with as few vendors as possible to get maximum leverage. In addition, instilling a culture of health and fitness through wellness education and support programs will help reinforce the efforts to focus on prevention. Finally, it is worth "connecting the dots" to understand the ROI of wellness programs to quantify savings. Safeway's example is compelling because the company can point to key metrics and identified savings.

Regardless of legislative solutions, there is no question that aligning behavior with incentives and establishing healthcare programs that promote intelligent consumerism will become more prevalent and necessary. Healthcare, as evidenced by Safeway, must shift from a reactive mindset focused on treatment of acute conditions to one that is proactive and focused on avoiding costly conditions through wellness, prevention, and disease management. Better information upon which to make healthcare decisions will be necessary as consumers bear more of the costs. We must better recognize the importance of lifestyle choices in improving our personal health, but also in managing healthcare costs. Corporate support and incentives will help manage costs and will have the additional benefit of a more engaged, energetic and productive workforce. Education and prevention, rather than curing are hallmarks of intelligent consumerism and key elements in managing healthcare costs.

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1 Cloud, John, Alice Park, Kate Pickert and Tiffany Sharples. "How Not to Get Sick." Time, 22 June, 2009: 59-70.

2 Orszag, Peter. "A Medical Plan to Boost America's Fiscal Health." Financial Times, 16 June, 2009: 9.

3 Burd, Steven A. "How Safeway is Cutting Health-Care Costs." WSJ.com, 12 June, 2009. http://online.wsj.com/article/SB124476804026308603.html.