US groups question high cost of healthcare

US groups question high cost of healthcare
By Jonathan Birchall in New York
Copyright The Financial Times Limited 2007
Published: May 23 2007 03:00 | Last updated: May 23 2007 03:00



Craig Barrett, chairman of Intel, says the US healthcare system "delivers results below international norms at high cost". Lee Scott, chief executive of Wal-Mart, says top US companies are being forced to compete internationally "with one hand tied behind their backs". Steve Sanger, CEO of General Mills, laments that "millions are uninsured, while healthcare costs grow almost without restraint".

With presidential elections around the corner, a broad range of top US business leaders are playing a major role in launching a political debate on America's healthcare costs.

In the past the only business voices in the debate came from those directly involved in healthcare, such as insurers and hospitals. But now concerned companies range from the telecoms and manufacturing sectors to leading retailers, whose low-margin, labour-intensive business models are particularly threatened by rising health costs.

John Podesta, head of the Center for American Progress and a former chief of staff in the Clinton White House, says that the issue is likely to be even more important than energy in the 2008 presidential election.

"The crisis may be moving like a glacier, but all of a sudden big chunks of ice are falling off . . . these business voices are rising saying that something really structural and fundamental needs to be done," he says.

The rapid rise of those costs has added fuel to public concern. The US government estimates that healthcare spending will grow at an average of 6.9 per cent a year until 2016, when the $4,100bn (€3,047bn; £2,082bn) annual bill will represent 19.6 per cent of gross domestic product.

Businesses and unions are particularly involved, since 60 per cent of all health cover is provided through employment-based insurance. Two state-funded programmes for the poorest and for pensioners, Medicaid and Medicare, cover a quarter of the population, and a further 9 per cent pay for private insurance.

In place of the traditional partisan debate over who pays, business and labour leaders say they want to look at how the system itself works and at new ways to cut costs. Two new business-backed health reform coalitions have been unveiled this year, sharing broad policy objectives including a profound opposition to any notion of a European-style government-run system.

The "Better Healthcare Together" coalition was founded in February, and includes Mr Podesta's CAP, Wal-Mart, Intel and AT&T in an unprecedented alliance with two of the largest US unions, the Service Employees International union and the Communications Workers of America. It plans to revamp the American health care system by 2012.

A second group, the Coalition to Advance Healthcare Reform, was formed in May with 36 companies, including unionised supermarkets and food companies as well as health insurers. It is led by Steve Burd, chief executive of Safeway, the national supermarket chain, and argues that "meaningful" state and federal reforms are needed by 2009.

Both groups want universal health insurance coverage with costs shared by business, individuals and government; a system that encourages "preventative care"; and a market-based system of "consumer-driven" healthcare, which is intended to make patients' behaviour more responsive to the costs of care.

Safeway has taken a leading role in its CAHR group after introducing an insurance scheme for 30,000 of its workers that it says has successfully reduced their overall medical costs. The scheme provides incentives for preventative medical check-ups that could result in the early detection of cancer or diabetes.

Workers with health problems are also offered premium reductions if they work with health coaches on changing their lifestyles. Safeway is constructing a gym at its main headquarters, with card scans that provide a record to encourage healthy behaviour.

Wal-Mart, meanwhile, has thrown its weight primarily behind initiatives that seek to take costs out of the system, such as in-store clinics and a generic drug programme that it argues could ultimately lower market costs.

It has also formed a research group with Intel, BP and others aimed at creating a standardised system of electronic medical records - a step regarded as essential to giving patients more freedom to move and make choices within the medical system. But Wal-Mart's presence also highlights continuing divisions among the business community.

With its allies in the Retail Industry Leaders Association, it is opposed to efforts in California and Pennsylvania to set a statutory minimum which businesses must contribute to the healthcare of their workers - a so-called "fair share" levy.

Ed Rendell, the Democrat governor of Pennsylvania, said that the biggest pushback against his reform proposals had come over the levy. While the business community had publicly welcomed his proposals initially he was subsequently faced with a stream of lobbyists arguing against small parts.

But disagreements over who pays and how may prove less politically important than the growing consensus between labour and business that something needs to be done.

Levy divides Wal-Mart and Safeway

US business is sharply divided over proposals for a business levy to fund universal healthcare coverage, currently under discussion in California and Pennsylvania.

In California, the governor, Arnold Schwarzenegger, wants all companies with more than 10 employees either to offer healthcare insurance or to pay at least 4 per cent of their wage bill to a state fund. Pennsylvania's governor, Ed Rendell, wants a 3 per cent minimum. Neither of two new business healthcare reform groups launched this year has an official position on the levy. But two leading members of each - Wal-Mart and Safeway - have very different positions and a history of bitter rivalry inflamed by healthcare costs.

Neither company produces figures but Safeway, whose 200,000 workers are largely represented by the UFCW grocery workers' union, is estimated to spend more than 10 per cent of its total wage bill on healthcare. At Wal-Mart, its anti-union competitor, the figure is about 5 per cent of the wages of its 1.3m workers.

That sharp difference, and the supposed edge it gives Wal-Mart, was a key factor in the California grocery workers' strike of 2003-04, as Safeway and other unionised supermarkets sought benefit cuts from their workers which, they argued, would level the competition.

The issue also led to an alliance of the unions, Safeway and others that supported an unsuccessful attempt by Maryland to pass a law that would have forced Wal-Mart to increase its contribution level to 8 per cent.

Subsequently, the Retail Industry Leaders Association, an industry lobby group that includes Wal-Mart but not Safeway, has actively lobbied against Pennsylvania's 3 per cent levy.

However, Safeway's chief executive, Steve Burd, has said that even California's proposed 4 per cent is not high enough.