Walgreen Co. is joining a growing push from big businesses to shift more responsibility for finding insurance onto their employees as health care costs continue to climb.
The nation’s largest drugstore chain said Wednesday that it will send workers to a private health insurance exchange where they will pick from as many as 25 plans instead of having the company give them two to four options.
Employers normally pay most of the coverage cost, and Walgreen’s contribution toward the benefit won’t change. It said the move will give its workers more choices and help them become better consumers.
“I think the only way to drive down costs in the health care space is to have the consumer buying the health care be knowledgeable and educated and understand what they are buying,” said Tom Sondergeld, senior director of health and wellbeing for the Deerfield, Ill., company.
Walgreen shares hit an all-time high of $55.73 Wednesday before closing up 71 cents at $55.63.
Employers have struggled for years with health care costs that climb faster than inflation and consume growing portions of their budgets. More are starting to veer from the decades-old practice of offering workers only a plan or two with benefits the employee might not want.
The alternative, called defined contribution health insurance, involves giving employees a set amount of money and then letting them pick their own coverage through a private marketplace or exchange that helps them sort out the choices.
The switch can make the employer’s health care costs more predictable or give them a way to reduce the amount they spend per employee. Proponents of the approach say it also forces employees to pay more attention to the cost of their coverage, and that will make insurers compete more on price.
But it also means workers who are used to having their coverage chosen for them could wind up with big medical bills and inadequate coverage if they don’t pick wisely.
The exchanges are similar to the public exchanges or marketplaces that will debut next month for coverage that starts in 2014 as part of the health care overhaul, the massive federal law that aims to cover millions of uninsured people.
Sears Holdings Corp. and Darden Restaurants Inc., which operates the Red Lobster and Olive Garden chains, are among the companies that have already shifted to this approach with a private exchange run by benefits consultant Aon Hewitt.
Walgreen runs more than 8,100 drugstores nationwide and provides health coverage for about 180,000 employees and dependents. It also will use Aon Hewitt’s exchange for coverage that starts next year.
Aon Hewitt expects enrollment in its exchange business to triple to more than 600,000 people for coverage that starts next year. The consultant said it has 18 companies, each with more than 5,000 employees, lined up for 2014.
Employer-sponsored coverage is the most common form of health insurance in the United States, covering more than 149 million non-elderly people. Benefits experts say defined contribution plans make up a relatively small slice of that total, but the trend is expected to grow, especially with big companies.
A total of 29 percent of firms with 5,000 or more employees surveyed earlier this year by the nonprofit Kaiser Family Foundation said they are considering offering benefits through a private exchange. In contrast, only 7 percent of companies with 200 to 999 workers are considering it.
Benefits experts say more companies are starting to appreciate the stability defined contribution plans offer. The approach means a company that pays its employee medical bills isn’t on the hook for an unexpected expense if a wave of big claims hits during the year.
“It’s something they can budget for as opposed to something they are surprised with,” said Ken Sperling, Aon Hewitt’s national health exchange strategy leader.