Saturday, June 20, 2009

More on Safeway's health care

Friday WSJ op-ed column by Kimberly Strassel revisits the Safeway health care plan and adds one more important detail in the plan's incentive structure:


The company today fully pays for an array of primary and preventive visits and tests. But beyond that, employees have skin in the game. The company deposits $1,000 each year into a "health reimbursement account," which workers can use to pay for care. The next $1,000 in expenses is the employee's responsibility. After that, employees pay 20% of costs up to a $4,000 maximum.

Safeway workers these days treat that first $1,000 carefully, since anything beyond it comes out of their pockets.

Assuming employees can roll over anything left from the $1k endowment each year, this makes the employee very price sensitive for the first $2k in health expenditures each year. Reasonable people can disagree as to whether this is wise or not. In some situations we do not want individuals to be overly frugal with their health care expenditures (frankly, if you have strep throat I really would rather have you go to the doctor). But it is not like the current system is free of perverse incentives!


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