Walgreens moves workers to private health-care exchange

September 18, 2013

Walgreens said on Wednesday that it is moving 160,000 workers to a new health-insurance model, joining a growing list of large employers seeking to control costs by having employees shop for coverage in a private marketplace.

The drugstore chain said that beginning in 2014, it will give employees a set amount of money to choose health insurance coverage from a wide range of offerings in a fast-expanding private online marketplace run by Aon Hewitt, a benefits firm.

Walgreens joins Sears Holding, Darden Restaurants and other firms in pushing its workforce into the private exchanges, part of what employee benefit analysts call a historic shift in health-care benefits accompanying the implementation of the Affordable Care Act, known as Obamacare.

“This is good for employers because it makes their costs more predictable,” said Thomas ­Buchmueller, a health economist who teaches at the University of Michigan. “But it is also a good thing for employees, who will have more choices.”

Analysts cautioned, however, that the new approach is not without potential pitfalls. For instance, although the new health-care law requires large employers to provide insurance plans that are affordable for workers or face a cash penalty, it is unclear how much firms such as Walgreens will continue to subsidize employees’ health-care plans — particularly during hard economic times.

Also, there is a risk that employees will choose plans that are inexpensive yet provide inadequate coverage.

“What we’re seeing is a continuation of a trend where employers are shifting from providing the tangible benefit to putting contributions into a pot, making the employee responsible for buying the actual benefit,” said Linda Barrington, executive director of Cornell University’s Institute for Compensation Studies. “Employees have more choice, but they also have to be educated consumers.”

What is clear is that a growing number of private employers are moving their workers and retirees toward private exchanges. Time Warner and IBM recently shifted retirees to private exchanges for health-care coverage.

In a statement, Aon Hewitt said that the number of workers joining its exchange in 2014 is five times the number currently enrolled. In addition, the firm said, its recent survey of nearly 800 large and mid-size firms with a total of more than 7 million workers found that 28 percent of the companies expect to join private health exchanges within five years.

The exchanges allow workers to shop for health benefits from a wide menu of insurance plans offering an array of coverage options and prices. The idea, similar to that underlying the public exchanges being set up under Obamacare, is to stoke competition that would lower prices while giving employees more options.

“Over the past decade, the average health care cost for large employers in the U.S. has increased $10,000 per employee and the amount employees will be asked to contribute is expected to grow much faster than the rate of salary increases,” Ken Sperling, Aon Hewitt’s national health exchange strategy leader, said in a statement. “The Aon Hewitt Corporate Health Exchange seeks to mitigate health care cost increases by creating an efficient marketplace that fosters competition.”

Noting that 36 percent of its employees are single and under age 30, Walgreens said its workers would appreciate more tailored health-care coverage options. Some employees could end up paying less than $5 a month for a plan offering minimal coverage.

Paul Fronstin, an economist at the Employee Benefit Research Institute, said the shift in health-care coverage is not unlike the moves many private firms made years ago shifting employees from defined-benefit pensions to defined-contribution plans such as a 401(k). Employers were still involved in framing worker choices and subsidizing the benefit, but much of the risk — to choose the right investments and to make adequate contributions — now falls on employees.

“Employers are not abandoning coverage when they move to these plans,” Fronstin said. “They are reinventing it.”

Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.
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