Wall Street Journal Examines Health Coverage at Whole Foods Market
The Wall Street Journal on Wednesday examined Texas-based grocery chain Whole Foods Market's consumer-driven health plan, which "encourages its 30,000 or so workers to feel a bit of the pain every time a doctor sends out a bill." Whole Foods, one of the nation's fastest-growing grocery chains, is one of the largest companies to offer only a consumer-driven health plan, making it "a case study in the impact of such a plan on an entire work force," the Journal reports. Currently, fewer than 1% of insured U.S. residents are enrolled in a consumer-driven health plan, Steve Davis, managing editor of the newsletter Inside Consumer-Directed Care, said. However, the plans are "fast gaining the attention of employers looking for new strategies for reining in insurance costs," according to the Journal. According to the Journal, Whole Foods decided to use a consumer-driven plan to give "employees more of a financial stake in what they pay for medical care in hopes of slowing the growth in medical costs." Whole Foods founder and CEO John Mackey considered such a plan based on a book called "Patient Power," which was published by Cato Institute in 1992 and advocated high-deductible health plans. In 2002, Whole Foods' self-insured health plan was "essentially insolvent," and to offset health costs, the company had to take a five-cents-per-share charge to earnings that year, the Journal reports.
Under the Whole Foods health plan, full-time single workers pay no premiums and workers with spouses and dependents pay premiums only during the first five years of full-time employment. Workers receive an account for medical expenses to which Whole Foods contributes $300 to $1,800 per year, depending on length of employment. Employees present a debit card to medical providers, and money is drawn out of the account. Workers pay "relatively hefty" deductibles of $500 for prescriptions and $1,000 for all other medical costs, according to the Journal. After employees reach the deductible, the health plan "operates more like a traditional one" and covers 80% of most medical expenses, the Journal reports. The company assumes 100% of medical costs after employees reach an annual out-of-pocket spending limit. Any remaining employer contributions carry over to the next year. But unlike some other consumer-driven health plans, the Whole Foods plan does not allow employees to add tax-free contributions to the account. The plan also covers prenatal care and includes incentives for employees to use physicians and hospitals in the plan's network.
According to the Journal, the initial results from the new plan "have been dramatic." The plan is "inducing [Whole Foods employees] to take responsibility for cutting costs by buying generic drugs, asking for fee waivers on lab tests and other procedures, and keeping a closer eye on what doctors charge for their services," the Journal reports. Because most employees do not have to pay premiums, about 95% of Whole Foods' eligible workforce is enrolled in the plan, compared with 65% enrollment in 2002 under Whole Foods' more traditional health insurance plan. Many employees had opted out of the previous health plan in exchange for accruing additional vacation days. Overall medical claim costs in 2003 decreased 13%, and hospital admissions decreased 22% from 2002. For 2003, only 10% of Whole Foods employees spent all the funds in their health savings accounts; for the remaining 90% of employees, a total of $14 million, or $560 per account, rolled over into their 2004 accounts. That $14 million "will act as a future damper" on the company's health costs, as employees who have larger account balances are less likely to pressure the company to enhance health benefits, the Journal reports. Whole Foods in 2003 spent the same amount per employee on health insurance, including contributions to employee health care accounts, as it did in 2002, officials say.
To pay for the new plan, employees had to agree to a reduction in other benefits, including fewer vacation days for some and lower employer contributions to 401(k) plans. The largest "drawback" under the new plan is that employees with chronic conditions, who have "little choice about how often they go to the doctor," can "take a big hit," the Journal reports. According to the Journal, employees at other companies that institute consumer-driven health plans similar to the Whole Foods plan "might see worse results" because Whole Foods' employees generally are healthier and younger than other workers. Some observers contend that consumer-driven plans could cause employees to "skimp on their own care in order to save money for a rainy day," but it will be "years before anyone knows whether that concern is warranted," according to the Journal (Lieber, Wall Street Journal, 6/23).