Walgreen Co, the largest U.S. drugstore, is moving 120,000 employees to a private health insurance exchange where they can choose a plan from multiple insurers, a sign of the shifting landscape for corporate healthcare because of rising costs.
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The pharmacy chain and 17 other large employers will offer their employee insurance for 2014 through the Aon Hewitt Corporate Health Exchange, part of a national move in which companies are playing a less direct role in providing health insurance coverage themselves.
For example, IBM Corp and Time Warner Inc recently said they are moving retirees to exchanges for those not yet Medicare-eligible and other exchanges for those who are.
The end-cost of these plans sold on these different types of exchanges depends on the plan chosen, but the purchasers will have more options than under traditional arrangements. The Aon Hewitt exchange that Walgreen is using will offer employees insurance plans from multiple companies including UnitedHealth Group Inc and Aetna.
Private exchanges mimic the coverage mandated as part of the Affordable Care Act, but their creation is not part of the law. The public exchanges being set up under the law will enable individuals to buy government-subsidized healthcare based on income; enrollment begins on Oct. 1.
Walgreen's decision will likely prompt its competitors in the retail industry to take a closer look at private exchanges, said Chris Condeluci, an employee benefits attorney at Venable LLP and a former staffer with the U.S. Senate Finance Committee who helped draft the healthcare reform law.
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"Large employers have been taking a wait-and-see approach, and they have been watching for those employers who will adopt early," Condeluci said. "They are going to watch who they are and how successful they are."
Walgreen said it will make the same premium contribution for its employees' 2014 plans that it did in 2013.
"What happens to employer contributions over time? Will they put in as much as they put in the past? These are unanswered questions but potential negatives," says Paul Fronstin, a senior research associate with the Employee Benefit Research Institute. The benefit to Walgreen and other employers is unknown at this point, as their cost-savings are not clear.
Of the 180,000 Walgreen employees eligible for healthcare insurance, 120,000 opted for coverage for themselves and 40,000 family members. Another 60,000 employees, many of them working part-time, were not eligible for health insurance.
Aon Hewitt says other participants in its program include retailer Sears Holding Corp and Darden Restaurants Inc . These new additions raise enrollment to 330,000 from 100,000 last year, and Aon Hewitt estimates enrollment will jump to 600,000 next year, a fivefold increase from 2012.
By 2017, nearly 20 percent of employees nationwide could get their health insurance through a private exchange, according to Accenture Research. A recent report by the National Business Group on Health said that 30 percent of large employers are considering moving active employees to exchanges by 2015.
Goldman Sachs analyst Matthew Borsch said in a research note that the shift to these exchanges could be a positive for insurers if it enables them to sell more profitable, fully insured plans."
Other major providers of private exchanges include Mercer, a division of Marsh & McLennan Companies Inc, and Towers Watson & Co. Mercer said this summer that it had five major employers enrolled but did not name them. Towers Watson is in the process of launching an exchange. Smaller companies, like Buck Consultants, Willis North America Inc and regional players, are also starting exchanges.
CHANGES IN COVERAGE
The five plan choices in Aon Hewitt's private exchange carry names used across the sector - bronze, bronze plus, silver, gold and platinum - and costs are based on the amount of coverage, says Ken Sperling, Aon Hewitt's national health exchange strategy leader.
Bronze and silver plans typically have high individual deductibles - $1,250 or more - meaning that they do not kick in until a participant's out-of-pockets costs exceed the amount of the deductible. Gold and platinum plans have lower deductibles and offer more coverage.
Healthcare premiums for these plans rose about 5 percent last year, consistent with the industry average recently calculated by the National Business Group on Health.
For some employees the exchanges could offer more choice. Walgreen's employees eligible for healthcare coverage were asked in the past three years to choose between two plans, both with high deductibles. Those plans were managed by Blue Cross Blue Shield or United Healthcare, depending on the area of the country.
Walgreen's offering last year matched the silver plan on Aon's exchange, so there are two options that are less expensive and two that are more expensive.
Based on Aon Hewitt's data collected so far, about 42 percent of participants chose a plan less expensive than they had previously used, while 26 percent chose a higher-cost plan and 32 percent stayed at the same level.
Tom Sondergeld, senior director of health and well being for Walgreen, said Walgreen joined a private health exchange to offer its employees more choice, while still supporting a generous pharmacy benefit he said was central to the company's mission.
Walgreen is not planning any other major benefit changes for 2014, which starts in late October, Sondergeld said. The company will continue its reward-based wellness programs and a smoking surcharge of roughly $600. It will not change coverage for spouses, as UPS recently announced.