(Bloomberg) — Walgreen Co., the biggest U.S. drugstore chain, will move its workers into a private health insurance exchange to buy company-subsidized coverage, the latest sign of how the debate over ‘Obamacare’ is accelerating a historic shift in corporate health care coverage.
Walgreen’s decision affects about 160,000 current employees and follows similar action this year by Sears Holdings Corp. and Darden Restaurants Inc. As an alternative to administering a traditional health plan, all three will send their employees to an exchange run by Aon Plc. Fourteen more companies will join in 2014 when 600,000 people will participate, Aon says.
The insurance options offered by the private exchange are similar to those in the Affordable Care Act’s public exchanges, though workers will get their subsidies from their companies instead of the government, says Ken Sperling of Aon. While the private effort isn’t directly linked to the ACA, the debate over the law has spurred a new look at cost-cutting by businesses, municipalities and consumers.
Companies are “tired of the volatility, the complexity and the cost” tied to traditional health plans, says Sperling, a national health exchange strategy leader at Aon. “Volatility, complexity and cost — those are the things that run through health care right now.”
Other large employers, including International Business Machines Corp. and Time Warner Inc. have this year moved their retirees into private exchanges from company-picked plans. Trader Joe’s Co., the closely held grocery store chain, has said it will move part-time workers at its 400 stores onto the ACA exchanges, and United Parcel Service Inc. decided to drop health benefits for 15,000 of its workers’ spouses who can get insurance through another company.
Workers’ welfare
Disappearing are the days of the company owning their workers’ welfare, says Linda Barrington, the executive director of Cornell University’s Institute for Compensation Studies.
Retirement plans such as “401(k) and the like require more of employees than did the traditional pension, albeit they also offer more ’choice,’” Barrington says. “Choice can be good. But making the right choice requires educating oneself and discernment in the decision — both which are responsibilities that take time, and maybe some talent.”
The move to put workers into private exchanges will probably gather steam, says Paul Fronstin, director of health care research at the Employee Benefit Research Institute.
“I expect it too, though I also expect it won’t happen overnight,” Fronstin says. “Most major trends in benefits have taken decades to take off.”
Contribution ‘comparable’
Walgreen’s financial contribution to workers’ health plans will be “very comparable to what we currently pay for their premiums,” says Michael Polzin, a spokesman for the Deerfield, Ill.-based company.
Aon, based in London, will help lower growing employer costs, which can be $10,000 per worker, according to Sperling. Consumers in turn will get more choice, and experience in the private exchanges suggests that they’ll opt for less coverage, rather than richer, more comprehensive plans, he says.
Walgreen has 8,117 stores in the U.S. The company will give employees the same amount of subsidy next year as it currently pays for their premiums, Polzin says.
Previously, Walgreen had two insurers each offering two plans, for four total options, Polzin says. The Aon exchange has five insurers each offering five different plans. Under the private exchange system, companies give workers a subsidy, and the employee will make up any difference in cost for more complex coverage.
Less coverage
In Aon’s private exchange, which last year had about 100,000 workers in it, 42% of people chose health insurance with less coverage and lower cost, than they had previously through their employer. And 26% of people chose richer benefits.
“Most people don’t need a whole lot of health care coverage,” Sperling says. A small fraction of people, less than 10%, drive the bulk of health care costs, he says.
Most large employers are self-insured, meaning that they take on the financial risk of their employees’ health costs. While an insurer typically administers the plan, if health costs go up in a given year because a lot of people get sick, the company pays. Under a subsidy model in the exchanges, a company’s costs are more predictable and controlled, and the insurer takes the financial risk.
Aon’s Sperling says it’s part of companies getting away from things they don’t specialize in, like providing benefits, and letting them focus on running their businesses.
IBM decision
IBM said this month it will shift about 110,000 Medicare- eligible retirees to Tower Watson’s Extend Health, the largest private Medicare exchange.
Former workers will find more options than the business could provide through its own plan, IBM, the third-largest U.S. employer according to data compiled by Bloomberg, said in a statement e-mailed Sept. 7. Caterpillar Inc. and DuPont Co. also have moved Medicare-age retirees onto the Extend exchange.
IBM said at the time that it had capped retiree health insurance subsidies in the 1990s, and the move wasn’t about cutting costs, rather it was to give workers more choice of plans.
