In the search for effective solutions to health care, the grocery chain Safeway has adopted a simple, time tested approach: base premiums on behavior. This is the fundamental model of the the auto insurance industry.

In a 6/12/09 WSJ op-ed, Steven Burd, the CEO of Safeway, details Safeway’s four year long experiment with this model. While American companies have average a 38% increase in health care costs since 2005, Safeway costs have remained flat. Like many large companies, Safeway is self-insured, giving them data on actual medical claims turned in by employees.

Employees who don’t engage in risky behavior, like drivers who don’t speed, pay lower premiums than those who do. The program is voluntary at Safeway but most employees rated the plan good to excellent and the participation rate is 74% for non-union employees. Employees who reduce their weight or give up smoking are rewarded with lower monthly premiums. Safeway is currently negotiating with the union to introduce a similar program for union employees.

This year, the Federal government is likely to step in to the health insurance market to attempt to solve problems so seemingly intractable that the private marketplace and the individual states have failed to address them. Older employees become slaves to their employer. On an individual plan, a woman who had breast cancer 10 years ago may pay four times the premium charged an employer for a plan with the same benefits. How many states have high risk health insurance pools as they do for auto insurance? Year after year small employers, patients and lawmakers have acknowledged that the current system is broken. Suggestions are made. Discussions and arguments follow and little is done.

The Federal government has a poor record of solving problems. That there is enough support for a Federal government solution to the problems in health care insurance says more about the failure of the private marketplace and the state legislatures than an endorsement of the Federal government.

In a 6/11/09 WSJ op-ed, Karl Rove, deputy chief of staff to former Pres. Bush, notes several concerns opposing a government run health insurance program.

Rove argues that a public option will eventually drive the 1300 private insurers out of the US health insurance market. He states that the lower fees that Medicare pays to hospitals (71%) and doctors ($81%) shifts costs to private insurers as doctors raise fees to offset the lost revenue. He quotes a Milliman study estimating a cost shift of $1800 per year for a typical family.

My personal experience does not support the data that Rove cites. Rove says Medicare pays less than private insurance, but my private insurance company pays 71% to my dentist for a routine procedure, less than the average percentage that Medicare pays. Why hasn’t my dentist stopped taking private insurance? Perhaps my insurance company, one of the largest in the U.S., is not typical of the private industry as a whole? I doubt it.

Rove argues that a public option “will lead to health providers offering less care.” That may or may not be true. In this downturn, a number of businesses in my industry have reduced their rates. Have we given less professional service? No. We are professionals. Will my doctor not order a blood test because of reduced reimbursement rates? I think most doctors would be insulted by such an insinuation.

Rove cites a Lewin Group estimate that “70% of people with private insurance…will quickly lose what they now get from private companies”. That may be true. For a decade, we small employers have watched insurance rates skyrocket, far above the cost of inflation. We opt for less generous benefit plans with higher co-pays, and higher contributions from employees to offset the escalating cost. Private insurers have offered few solutions to reduce this expense. Bureau of Labor Statistics (BLS) surveys show a steady decline in companies offering health benefits. In time, only the largest companies will be able to afford this kind of benefit to their employees, reducing the competitiveness of small businesses.

Rove contends that, although Medicare pays low rates, it is too expensive. Like private health insurance, Medicare suffers from the same escalating growth of health care spending in this country, and it is a real concern. While Rove lays the blame solely on Medicare, Kathleen Sibelius rightfully sees the growth in Medicare spending as a systemic problem of the whole health care system.

Rove argues that “Medicare and Medicaid cost much more than estimated when they were adopted” and to “expect a public option to cost far more than the Obama administration’s rosy estimates.” A wise word of caution. In many remodel jobs, and a health care overhaul is a huge remodel job, it is wise to add 25% to the original estimates. Obama’s estimates could use the same prudence.

Rove argues that “the public option puts government firmly in the middle of the relationship between patients and doctors,” cautioning that, as difficult as private insurers are to deal with, government is so much worse. Well said.

Rove contends that “Republicans have plans to … put patients and their doctors in charge, bring the benefits of competition and market forces to bear, and ensure access to affordable and portable health care for every American.” Presumably, this plan is different than the one that Republicans have touted for the past 15 years.

At emotionally charged committee meetings in mid-May, Senators hotly debated the provisions of a health care bill, Janet Adamy reported in a 5/16/09 WSJ article.

Obama’s suggestion of a Medicare like public plan, strongly opposed by Republicans, seemed to have little chance of advancing out of contentious committee hearings. Two other public plans were put forth: a multi-regional plan run by third party administrators; and state run plans similar to those for state employees. A third option was a public plan that would have to pay for itself and play by the same underwriting rules as private plans.

In a WSJ article 6/10/09, after announcements by the House and Senate, Ms. Adamy and Naftali Bendavid report on the progress of health care proposals.

The House draft outlined a national exchange for health insurance, included a public option and a requirement that most Americans have health insurance. Eligibility for Medicaid would be conditional on income alone, no longer requiring that someone be a parent. The draft includes subsidies for families and individuals making less than 4 times the poverty level. At current levels, the proposal would provide subsidies for individuals making less than $43K and families earning less than $88K. The Senate’s draft bill was similar, including even more generous subsidies of 5 times the poverty level.

Many details are missing in both House and Senate versions, including the most important detail: how to pay for it. Leaders in the House plan to have the final wording on the bill completed by July, work out differences with the Senate by September and have a bill in place by October.