One CEO's Health-Care Crusade

A lifelong believer in free markets, Safeway's Steve Burd now believes government must step in to rescue U.S. medical care

by Richard S. Dunham and Keith Epstein

Signs of Steve Burd's hard-charging nature surfaced early in life. As a Wisconsin teen, he had a factory job making Valentine's Day candy hearts, the kind that say "Kiss Me." When the machine clogged, he'd clear away the batter with his hands, without shutting off the whirring mechanism. Once, he severed a fingertip. After a long lunch hour getting it stitched up, he returned to his post. "Famous old Midwestern work ethic," he laughs.

He proved just as tough while running companies over the past three decades, first as a turnaround specialist at buyout firm Kohlberg Kravis Roberts and then as chief executive of Safeway (SWY). During most of the 14 years that he has led the grocery store chain, Burd slashed jobs, perks, and even executive bonuses to stave off threats from lower-cost competitors such as Wal-Mart Stores (WMT) and Costco Wholesale (COST).

Then came the day in 2004 when he realized he just couldn't keep doing the same thing anymore. After hearing a Harvard University economics professor describe the breakdown of the American health-care system, Burd dispatched his top lieutenants to provide a full accounting of his company's health costs. Poring over financial reports, they stumbled on a sickening statistic: Their spiraling health expenditures had hit $1 billion, 119% of Safeway's net profit. "We started to do the rudimentary math," recalls Senior Vice-President Ken Shachmut, "and concluded that if this keeps happening, we were going out of business."

Leading the Charge

Burd first tried wellness and preventive-care programs. But it wasn't enough. His frustration grew so strong that he underwent a fundamental conversion: The lifelong believer in keeping government out of corporate affairs became convinced that, to rescue the U.S. health-care system, government had to get involved. Ultimately, all Americans needed coverage, and CEOs had to lead the charge. "I've become a bit of an evangelist on this," says Burd, sitting in his fifth-floor corner office overlooking the bustling Amador Valley, outside of Oakland, Calif.

The Safeway CEO represents a new breed of activist executive. The determined involvement of Burd and others like him is one big reason that advocates for health-care reform from Sacramento to Washington are beginning to grow optimistic about the prospects for remodeling American medical care. No one has any illusions that it's a sure thing, given the many failed reform efforts over the past six decades. But things may be different now because of an unusual confluence of factors, including the business community's heightened interest in sweeping change, the Democratic Presidential candidates' early emphasis on health issues, and the public attention likely to be generated by the recent release of agitprop director Michael Moore's new documentary, SiCKO.

What many moviegoers soon will be learning, executives have had to live with for years. Corporate health costs have risen by 87% since 2000, to $8,500 per worker. U.S. medical spending is expected to double in a decade, to $4 trillion. Translated into macroeconomic terms, more than one in every five dollars spent in America will go to health care.

No Burden for Foreign Competitors

An individual company's cost can be astronomical. Intel's (INTC) health insurance costs last year were equal to one-fifth of the $5.8 billion the company spent on research and development that year. For every new Chrysler (DCX) sold, the automaker estimates $1,400 covers health costs, a burden not felt by its international competitors. And that grande latte you picked up at Starbucks (SBUX) this morning? Well, the Seattle coffee giant pays nearly as much for health-care costs as it does for raw beans.

John Castellani, president of the Business Roundtable, which represents 160 of the country's largest companies, says that 52% of his members describe health costs as the biggest economic challenge they face. "The cost of health care has put a tremendous weight on the U.S. economy," Castellani says. "The current situation is not sustainable in a global, competitive workplace."

But what to do? Despite agreements on the problems, tender alliances tatter when it comes to identifying the best response. Big business splinters over solutions to cost. Small business protests the possibility of more federal mandates. Conservative purists insist on free-market remedies. "No bureaucracy will ever be able to get the scale of change we need," asserts former House Speaker Newt Gingrich (R-Ga.). And the Bush White House stands prepared to work with conservative groups to block any fix that increases the reach of government. "My message for the CEO of Safeway is to focus more on your private-sector solutions and less on trying to get other people to absorb your costs," says Grover Norquist, president of Americans for Tax Reform, who favors market-based measures such as expanded medical savings accounts.