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In the grocery business, volume counts. Profit margins of mere pennies comprise the bottom line, and so health care costs rising at nearly double-digit inflation rates threaten to undermine the grocer’s business model.

Hence, one of the nation’s largest supermarket chief executive officers has his sights set on reducing rates of obesity among his 200,000 employees.

Safeway CEO Steve Burd looked at the numbers and concluded obesity is the root of a majority of his company’s health care costs. The way he sees it, chronic conditions, such as heart disease, diabetes and cancer, are his primary cost drivers. Obesity is behind them all.

Relying on his steadfast belief in the efficiency of markets, Burd led his self-insured company in 2005 to create a health plan that puts healthy behavior incentives squarely in front of his employees.

In the three years since, Safeway’s health costs increased only a half a percentage point, Burd told an audience of hundreds of health services and policy researchers last week in Washington D.C. In that time, most businesses have experienced about 16 percent increases in family premiums.

Burd also believes that later this year, he’ll be able to show that the average Safeway employee’s BMI is lower than the national average. About two thirds of U.S. adults are overweight or obese.

To many, Safeway’s plan may seem punitive and unfair. Burd, however, insists that he’s instituting a culture of wellness and prevention, while making people responsible for their behaviors.

“When consumers bear the costs, they’re motivated,” Burd said. “It’s not intended to be punitive; it’s intended to encourage healthy behavior.”

Each year, Safeway employees have their BMI, blood pressure and cholesterol measured. They also take a test to see if they smoke. Their word isn’t good enough.

The difference in premiums between employees who are overweight and smoke and those who aren’t is roughly $1,500. The employee pays that difference. If they quit smoking and lose 10 percent of their body weight, Safeway will pay them back the difference at the end of the year.

Safeway doesn’t expect employees to do it alone, Burd said. Insurance pays 100 percent of the costs for preventive health services like annual physicals and well child visits. The company offers free smoking cessation help, nutrition counseling and gym memberships.

Burd wants to see if his model will scale. He challenged 30 large, self-insured businesses to replicate the Safeway model. Another dozen major food and beverage distribution companies have joined a coalition to reverse obesity trends.

Burd has also taken his plan to Capitol Hill. In the photo at top, he’s with Sen. Ron Wyden (D-Oreg.) promoting the Healthy Americans Act.

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18 Responses for “A Business Case to Tackle Obesity”

  1. Peter says:

    So he thinks that obesity is the root of HIS company’s health costs – WOW! He’d better look at how HIS company uses mind games and shelf location/marketing tricks to get all their (non-employee) shoppers (kids included) past the fast food/fat food/sugar food before they get to the “healthier” food in the back.

  2. Nate says:

    Amazing what a self funded employer can do to control cost when it doesn’t have to fight government regualtion to do it. Why again are we not discussing the success of self funded health plans when debating private insurance versus public plans?
    Self funding has the highest efficienty and lowest fixed cost minus the direct profit motive that people hate about carriers yet no one wants to even discuss them as a solution.
    Question the motivation of reform and those proposing it!

  3. Deron S. says:

    Progressive employers truly can make a difference. I wish all of you could see what’s going on in my organization. We hired a nutritionist and, in a short period of time, she has transformed the attitudes of 75% or more of our employees regarding their health. It has improved morale, it has improved productivity, and I think it will have positive effects on our health costs.
    The public just needs education and motivation. We need to see what it means to be healthy and how devastating life can be down the road for those leading unhealthy lifestyles.
    We get off on these tangents about how to finance healthcare and who’s to blame for our problems. How about we just make a nationwide push to lead healthier lifestyles? You will not find a better way to lower healthcare costs than to promote healthier lifestyles among the population. Stimulus $$ should not be going to HIT. It should be used to fund comprehensive, all-out assault on unhealthy behavior.

  4. Barry Carol says:

    While I applaud Steve Burd’s efforts to reduce Safeway’s healthcare costs by creating financial incentives that will drive employees to improve their health or penalize them with higher insurance premiums if they don’t, I’m not sure how well it will scale. I suspect that his workforce is younger than average while many of Safeway’s stores are in California which has a more temperate climate and outdoor lifestyles are more prevalent. The age and demographic profile of the workforce is very different in old line industries like autos, steel, aerospace, tire and rubber, etc. The government sector also probably looks quite different demographically. On the other hand, his approach would probably work quite well in the rest of the supermarket industry and in companies with younger workforces like Whole Foods and Starbuck’s and in industries where obesity is less prevalent like airlines.
    As for obesity itself, I was surprised to learn that, according to a recent article in Health Affairs, while 34% of Americans are obese, only 8% of Asian Americans are. This suggests that there is a strong cultural component to what we eat and it’s not just a matter of discipline or the lack of it or the inability to easily access and afford healthy foods.
    Regarding taxing unhealthy foods, I generally support this conceptually. However, Charlie Baker, CEO of Harvard Pilgrim Healthcare, recently made the good point that cigarettes are easy to tax because they are a product which, if used as directed, are harmful to one’s health. By contrast, candy, ice cream, soda, pizza and the like, when consumed in moderation, are not harmful.

  5. Peter says:

    “By contrast, candy, ice cream, soda, pizza and the like, when consumed in moderation, are not harmful.”
    If you eat them in moderation you will only be taxed in moderation.

  6. Deron S. says:

    Barry – I think you make some good points, but I don’t think we can use demographics as excuses. It just requires a different approach. Every attempt at reducing obesity and promoting healthy lifestyles that I’ve seen in my lifetime has been incremental/half-hearted. I think our chronic illness problem is serious enough that we need to attack it vigourously and from every angle, including education, food company regulation, taxation, other monetary incentives/penalties to promote desired behaviors, etc.
    I can’t imagine anyone wants to be obese or unhealthy. The goal will be to get to the true source(s) of the problem. Maybe we should all have to undergo a health risk assessment each time we renew our drivers license. Anyone with risk factors would have to take steps to address them. I’m not a big fan of being intrusive in people’s lives, but I’m also not a big fan of our increasing incidence of chronic illness, much of which stems from what we put in our bodies.

  7. Sarah Arnquist says:

    Thanks everyone for the comments. This is a good discussion. let’s see if we can keep it going.
    Per the discussion on Safeway employees’ demographics, though many stores may be in the moderate climate, California’s obesity rates are no lower than the rest of the nation. Also, maybe Safeway’s employees are younger, but many also probably fall in the bottom quartile of education and income — two well-known risk factors for obesity.
    I think the Safeway case is interesting because it shows that tackling the obesity problem isn’t just a matter of concern to public health people. Businesses should care because it affects their bottom line.
    Finally, Peter as to your comment regarding what Safeway put’s on its shelves, I think it’s a good point to raise. One of the company’s Burd mentioned is teaming up with him on this effort is Pepsico. Well, soda isn’t exactly helping people lose weight. Will these company’s be willing to risk some profits by selling America healthier foods?

  8. Deron S. says:

    Sarah – This conversation is one of the most important ones I’ve seen on THCG in quite some time. This is where the focus needs to be. If we devote a significant portion of our resources to this initiative, we will see great returns. There are a lot of naysayers who feel that the American public will never change. I disagree, particularly if the approach is multi-faceted.

  9. Peter says:

    “particularly if the approach is multi-faceted.”
    Would that include a calorie tax? Would that include mandatory calorie listings on take-out/restaurant/super-market food? Would that include removing subsidies for corn/wheat/soybeans (corn also side subsidizes meat) and transfer the subsidies to fresh fruit and vegetables? Would that include banning junk food advertizing to children?

  10. We know that the ability to become obese is not equally distributed across the population. There is a strong genetic component that is influenced by environmental and behavioral factors.
    I need more details before I become completely livid here, but how on earth does penalizing people who are at higher risk for health problems and greater health care costs to begin with — and reimbursing them only if they’ve lost 10% of their body weight within a year — do anything other than “thin the herd” of one particular business? Are they trying to make sure that none of their employees appear visibly fat to improve the clientele who shop at their stores?
    I’m all for increasing self-efficacy in consumer health. I want people to eat better and move more. But the science doesn’t support that everyone who does the “right things” behaviorally around eating and activity will achieve and maintain a BMI of 25 or less. (I don’t know what their threshold is — but would a bodybuilder with a BMI of 30 need to work out less in order to avoid the $1,500 penalty?)
    If this isn’t illegal, it should be. I hope there are some employees who file discrimination claims, and win.

  11. Deron S. says:

    Peter – I think all of the things you mentioned should be considered.
    wellrounded – A good plan doesn’t look at BMI alone. You have to look at % body fat, cholesterol levels, and other measures to get a true picture.
    I don’t disagree that genetics can play a role, but it doesn’t explain the increasing incidence of obesity in the population. My guess is that that environmental and behavioral factors play a bigger part. All factors must be looked at and addressed if we’re going to stop the disturbing trends out there.

  12. Deron S. says:

    Here’s an interesting article that supports what we’ve been discussing:
    http://www.medpagetoday.com/Columns/12821

  13. Dan says:

    Thoughts about Obesity
    Obesity has been defined as when excess body fat accumulates in one to where their physical overgrowth makes the person unhealthy to varying degrees. Obesity is different than being overweight, as others determine obesity to be of a more serious concern.
    As measured by one’s body mass index (BMI), one’s BMI of 25 to 30 kg/m is considered overweight. If their BMI is 30 to 35 kg/m, they are class I obese, 35 to 40 BMI would be class II obese, and any BMI above 40 is class III obesity.
    Presently, with obesity affecting children progressively more, the issue of obesity has become a serious public health concern.
    Approximately half of all children under the age of 12 are either obese are overweight. About twenty percent of children ages 2 to 5 years old are either obese are overweight. The consequences of these stats on our children are very concerning, considering the health issues they may or likely experience as they get older.
    Worldwide, nearly one and a half billion people are either obese or overweight. In the United States, about one third of adults are either obese or overweight.
    Women of low socioeconomic status are likely to be twice as obese compared with those who are not at this status. It is now predicted that, for the first time in about 150 years, our life expectancy is suppose to decline because primarily of this obesity problem.
    Morbid obesity is defined as one who has a body mass index of 30 kg/m or greater, and this surgery, along with the three other types of surgery for morbid obesity, should be considered a last resort after all other methods to reduce the patient’s weight have chronically failed. Morbid obesity greatly affects the health of the patient in a very negative way. It has about 10 co-morbidities that can develop if the situation is not corrected. Some if not most of these co-morbidities are life-threatening.
    One solution beneficial in many cases of morbid obesity if one’s obesity is not eventually controlled or corrected is what is known as gastric bypass surgery. This is a type of bariatric surgery that essentially reduces the volume of the human stomach in order to correct and treat morbid obesity by surgical re-construction of the stomach and small intestine.
    Patients for such surgeries are those with a BMI of greater than 40, or a BMI greater than 35 if the patient has co-morbidities aside from obesity. This surgery should be considered for the severely obese when other treatment options have failed. The standard of care illustrating as to whether this surgery is reasonable and necessary should be clarified.
    There are three surgical variations of gastric bypass surgery, and one is chosen by the surgeon based on their experience and success from the variation they will utilize. Generally, these surgeries are procedures related to gastric restrictive operations or mal-absorptive operations.
    Over 200,000 gastric bypass surgeries are performed each year, and this surgery being performed continues to progress as a suitable option for the morbidly obese. There is evidence that this surgery is particularly beneficial for those obese patients that have non-insulin dependent Diabetes Mellitus as well.
    It is believed that the results of this surgery to correct morbid obesity greatly limits or prevents such co-morbidities associated with those who are obese. Yet about two percent of those who undergo this surgery die as a result from about a half a dozen complications that could occur. However, the surgery reduces the overall mortality of the patient by 40 percent or so, yet this percentage is debatable due to conflicting clinical studies at times.
    Age of the patient should be taken into consideration, as to whether or not the risks of this surgery outweigh any potential benefits for the patient who may have existing co-morbidities that have already caused physiological damage to the patient. Also what should be determined by the surgeon is the amount of safety, effectiveness, and rationale for a particular patient regarding those patients who are elderly, for example.
    Many feel bariatric surgery such as this should be considered as a last resort when exercise and diet have failed for a great length of time.
    If a person or a doctor is considering this type of surgery, there is a website dedicated to bariatric surgery, which is: http://www.asmbs.org,
    Dan Abshear

  14. The Safeway example is a good one and I’m glad it’s being discussed in a public forum. I’m blown away by their .5% cost increase. That is almost unheard of, even in self-funded groups. And everyone in the company benefits from that.
    Wellrounded – I understand your concern, but the Safeway employees are being helped tremendously by the company’s efforts. If they participate and lose 10% of their body weight, will they be angry? I imagine the Safeway employees who participated in the program are healthier and happier now. The genetic role in obesity is greatly exaggerated and if someone needs a kick to change their habits, then I think the Safeway model shows one good way to do that.
    That said, you mentioned environmental factors and you’re onto something there. The marketing machine that drives food sales in the U.S. is in need of major reform as well. My question is, where does that start?

  15. Thea says:

    Simply thought on this topic from one workers’ point of view.. I think it’s good to want to change this trend but (Steve Burd or Safeway) going to pay 100% of gastric bypass surgeries if employees want this?
    (Steve Burd or Safeway) Going to change the marking of high fat, high sugar, highly proccessed food and 80% of the fried food they serve in the deli?
    (Steve Burd or Safeway) going to set better schedules to be able to go to gyms and more time for better eating habits?(trying having 30 min.to buy lunch,make lunch get though lines ect. At my store we can’t bring lunch unless we have a locker)
    I don’t think making employees pay more is going to solve the problem they will turn to other health care like State medical or no medical.
    BOTTOM LINE THIS IS DISCRIMINATION!!!!
    if homosexuality is proven to be a danger should they pay more?
    being a single parent has more stress should they pay more?
    being a different race or culture causes different health problem should they pay more?
    This would open the “door” to employers to openly Discriminate against employees and new hires. I was born with auto-immune diseases and the drugs that my insure pays for (though work and state because its the lowest cost to them) causes “severe weight gain” and on top of this I should pay more?

  16. wanda says:

    I work at Safeway, and correct me if I’m wrong, but I was not offered this great deal. What I heard is that only UPPER MANAGEMENT gets the free gym, and the money back. Screw the rest of us.

  17. theo says:

    What a joke, Burd is so superior! Sure he’s concerned about his employees health..Is that why he has come up with a surcharge of over 200.00 a week if your spouse is self-employed and has no access to health ins. for 2010? I have been w/ the co. for over 30 years and have never seen such a “screwing” of the employees as I see coming up in the year 2010. He also took Kaiser away from us and now we have to endure $2000.00 out of pocket before we even get to be reimbursed for any medical visit, WHAT A SICKENING JOKE!

  18. Byron Mccravy says:

    Great blog! Sorry to get off subject, but since Nashville is getting a lot of press lately, I’d like to find a great sushi restaurant or Japanese restaurant in Nashville TN. Have you read any recent buzz? There’s a new one called Nomzilla Sushi Et Cetera, but I’ve only seen a few reviews. Here’s the address of this new Nashville Japanese Restaurant, 1201 Villa Place, Suite 101 Nashville, TN 37212 – (615) 268-1424. Let me know your thoughts! Thanks!

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