Drugstore chain Walgreens - based in the Chicago area - will become the latest big employer to send its workers shopping the exchanges for their health insurance instead of providing a few choices for them.
Walgreens may be your drugstore stop. It also employs thousands of people. And the Deerfield-based company says starting next year its employees will be offered health insurance through a private insurance exchange. Walgreens pays a set premium amount and the employees can choose among 25 plans.
"Some will be more expensive than in the past, some will be probably about the same, some will be less but not cover them as well," said Michael Nugent, Navigant, a consultant for insurance and healthcare providers who does not consult with Walgreens.
Nugent says the rising cost of healthcare has outpaced wages and inflation -- meaning big businesses are trying to control their costs by offering limited healthcare contributions and leaving the rest up to the employees.
"It's really a shade of things to come," Nugent said. "This will continue to occur quite a bit."
More than 61 million Americans work for companies with more than 500 employees. And changes are coming for those used to relying on an employer's health benefits.
"The future is always scary, especially if you're someone who has gold-plated benefits. Those may not exist, certainly to the degree they are now," said John Challenger, Challenger, Gray & Christmas.
Outplacement specialist Challenger says the burden is being shifted to employees regarding healthcare coverage choices and expense. He says it is similar to when employers shifted from pensions to 401k retirement plans.
"Now we are going to have to do the same thing for health insurance. We are all going to have to become more knowledgeable about what the best things is for us," Challenger said.
The private health insurance exchanges are separate from the public exchanges that will be provided through the Affordable Care Act. Initially, employees going through the private exchange may spend more on insurance, but with more competition for your healthcare coverage, that may lead to lower healthcare costs. Now it is especially important to look at notices and information your insurance company and employer may send you about healthcare options and changes.
"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 Walgreens.
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. 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.
Walgreens 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 started offering its private exchange last year, and has about 200,000 people covered through it in 2013. It expects that total 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 next year.
Employees using the Aon Hewitt exchange answer between 10 and 15 questions to figure out which plan may work best for them. One of the questions asks whether the employee could handle a $1,500 medical bill. That helps determine whether a high-deductible plan would work for an employee.
High-deductible plans come with a lower premium, or cost of coverage, than more traditional plans, but they require the employee to pay more upfront before most coverage kicks in.
The employer's contribution to coverage purchased on these exchanges may cover a greater or smaller portion of the insurance bill than the worker is accustomed. It depends on the plan selected.
The process is more complex than making trip plans on a travel website, said Ken Sperling, Aon Hewitt's national health exchange strategy leader.
"It's a little bit more involved than buying a plane ticket, but I don't think it's more involved than buying a TV," he said.
Workers who use these exchanges can wind up paying a bigger share of the insurance bill for their coverage over time if the contribution from their company doesn't climb to keep up with insurance costs or the worker doesn't chose a cheaper plan.
Sondergeld, the Walgreen executive, said his company will consider adjusting its contribution in the future if needed.
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.
Private exchanges are being considered more in the retail and manufacturing industries, according to Kaiser, which studies health care issues and does not run an exchange.
How fast defined contribution coverage grows remains to be seen. Health benefits trends tend to grow slowly. Many companies prefer to wait to see how other companies fare after making a big switch before they try it on their own employees.
But benefits experts say more companies are starting to appreciate the stability defined contribution plans offer. The approach means a company isn't on the hook for an unexpected expense if a wave of big medical claims hits during the year.
"It's something they can budget for as opposed to something they are surprised with," Sperling said.
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The Associated Press contributed to this report.
