Can the train wreck be avoided? Eastman Chemical CEO sees much handwringing, but few pilot programs.

Brian Ferguson, CEO of Eastman Chemical, sees lots of handwringing, but no real solutions to the health care train wreck looming on the horizon. Excerpts from a conversation:

What effect do health care costs have on companies competing globally?

Domestic health care costs in the U.S. are roughly 15 percent of GDP, compared with 8 and 10 percent in the developed regions, such as Japan, Europe and Canada. The double-digit pace of growth is also an issue. Aside from energy recently, health care is the most consistent high grower in my cost base. So it is a large factor in the competitiveness of domestic manufacturers.

What role do you feel the government can or should play in this issue? Are we on a road toward socialized medicine?

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It would be a lot easier to improve the health care system we have than to start over. In our system there is a significant insulation of the consumer from the provider that creates a strange dynamic where the normal relationship between supply and demand is reversed. In the worlds I live in competitively, the more supply, the lower the pricing; in the medical community, pricing just keeps on going to pay for the additional supply. My bias would be toward trying to do a better job connecting the consumers with the providers so that they are more sensitive to what is going on and make better choices.

Will consumer-driven health care help with that?

The phrase "consumer-driven health care" sounds good until you peel back the onion and find out what it really means. There are a variety of mechanisms around trying to increase people's sensitivity to the choices they make and what it costs, and have some personal affect on that. In some cases, it can be something as simple as the healthier your lifestyle, the lower your premiums.

Could incentive programs that reward employees for adopting a healthier lifestyle put companies at risk for discrimination suits?

That is the strangeness of our tort system. Some of the 20-plus percent of extra cost incurred in this country is based on our legal system. [Wellness initiatives] are an example of programs where there are no losers, and yet the legal system could get in the way.

What are you doing to connect employees more with the costs?

We have a variety of initiatives encouraging people on healthier lifestyles, but so far no financial incentives. We have been working very hard on the way we buy our health care and on making employees aware of the way that we buy it. In 2003, for example, we set up a pharmacy on company property here in Kingsport, Tenn., where we have 8,000 employees. We tell our employees, "Here is your cost structure at the Eastman pharmacy. You are free to go elsewhere, but the cost to you will reflect that." We are essentially taking away the margin that would have gone to the local pharmacist, which doesn't make us popular in the community. But it allows us to buy smarter and it puts control in the hands of the employees.

What needs to happen to better educate employees?

Information is one of the keys. When consumers shop for cars they go to Consumer Reports or check the Kelly Blue Book. People have become educated over time about how to buy cars, houses, washing machines. But the data systems used by doctors are arcane and fragmented, which doesn't allow for pooling and understanding of data efficiently. How many different ways do you treat acid reflux disease, and what is the best most efficient way to treat it? That information is not readily available to consumers.

Under the status quo, big companies like mine will see rates go up the fastest. That's when the train wreck happens. At some point companies start adding up all of these costs--more than 20 percent in North America--and shutting down or moving. Then you see the indignant response of lawmakers.

I don't see a lot of pilot programs that are trying to find a private health care delivery answer. I see a lot of handwringing, but no public-private partnerships working to try some of these answers out and see if we have a private solution that works. In the absence of those, we wait for the train wreck to happen and for government to get handed the problem.