Private health insurance exchanges growing fast

Jayne O'Donnell | USA TODAY

Walgreen's announcement that it will send its workers to a private health insurance exchange to buy their own plans is a sign of the times that isn't going away.

And that may be good news for consumers, though it's too soon to tell, experts say.

These private exchanges, which have only existed for about a year, are run by outside benefits companies and typically offer more insurance choices than those offered by employers. Employers contribute a set amount and employees choose which plan best suits their needs.

The Walgreen exchange, announced Wednesday with benefits company Aon Hewitt, is similar to the state exchanges required under the Affordable Care Act. In those exchanges or marketplaces, uninsured Americans will buy health insurance plans on their own that are often subsidized by the federal government. In this case, Walgreen provides the financial assistance.

In five years, more than a quarter of the estimated 170 million people now covered by insurance through their employers will be getting their benefits this way, according to research from consulting firm Accenture. At that time, enrollment in these private exchanges is expected to top that of the new state exchanges. That's despite the fact most Americans are unaware of private insurance exchanges, Accenture says.

But it's still unclear whether the contributions from employers, including Walgreen, will keep pace with the cost of health care, warns Ron Pollack, executive director of non-profit health care group Families USA. If companies keep paying "the same nominal dollar amount to its workers, that amount will cover a smaller percentage of premium dollars as premiums increase," he says.

"It's hard to know how each employer is going to behave," says Rich Birhanzel, managing director of Accenture's health insurance exchange business. "Even in today's world, there are very different strategies (with health insurance): Those who view it as a retention tool and those struggling with affordability."

The Walgreen program provides more health coverage choices and an opportunity for most employees to lower their out-of-pocket health care costs next year, the company said.

Walgreen's move follows Trader Joe's announcement Sept. 13 that it was dropping part- time employees from its health insurance plan and sending them to their state exchanges with $500 to put toward the plans.

Walgreen joins several other large employers in the move toward private insurance exchanges. These include Time Warner, International Business Machines (IBM) and Sears Holdings, which owns Kmart.

"This is an irreversible trend from defined-benefit to defined-contribution employer-based health coverage," says Wendell Potter, a former spokesman for Cigna insurance, who is now an industry watchdog. "It is comparable to the move several years ago from pensions to 401(k)s."

Walgreen said its employees will be given the same amount of money to buy insurance on a private exchange run by benefits company Aon Hewitt as it contributes to their plans now.

Aon Hewitt says 600,000 U.S. employees and their families will be covered under plans in the Aon Hewitt Corporate Health Exchange in 2014. Walgreen becomes the 18th large employer to offer health benefits this fall through the Aon Hewitt exchange. The exchange will be the largest multicarrier private health care exchange of its kind in the U.S.

The average health care cost for large employers in the U.S. has increased to more than $10,000 per employee over the last decade, and the amount employees will be asked to contribute is expected to grow much faster than the rate of salary increases, says Aon Hewitt.

Workers worry whether they are likely to get the same coverage they've historically received for the same amount of money, says Mike Thompson, a principal with consulting firm PwC's global human resources services practice. While "employees do spend the money more wisely when it feels like their money, I think the jury is still out on the new exchanges."

Walgreen has 8,117 stores in the U.S. and about 160,000 employees. Its shares rose 71 cents, or 1.3%, to close at $55.63.