Walgreen Joins in Exodus of Workers to Private Exchanges

Walgreen Co. (WAG), the biggest U.S. drugstore chain, will move its workers into a private health insurance exchange to buy company-subsidized coverage, the latest sign of how the debate over Obamacare is accelerating a historic shift in corporate health-care coverage.

About 160,000 Walgreen employees now have to choose which coverage plan suits them best at a time of rising complexity in the health-care system. While Walgreen said it will provide funding in 2014 equal to what workers get now, the move curtails uncertainty on future outlays, and there’s no guarantee the company’s contribution will rise if premiums do.

Walgreen joins Sears Holdings Corp. (SHLD) and Darden Restaurants Inc. (DRI) in a private exchange run by Aon Plc (AON) that includes 18 companies and 600,000 people, Aon said. While the private effort isn’t directly linked to Obamacare, the growing use of private exchange similar to the law’s public ones adds new fodder to the debate over the law’s influence.

“For a while, large employers have been moving in this direction,” said Thomas Buchmueller, a professor at the University of Michigan’s Ross School of Business in Ann Arbor, by telephone. “After the legislation was passed, they looked at the exchanges and said, ‘This is something we can do.’”

Photographer: Daniel Acker/Bloomberg

About 160,000 Walgreen Co. employees now have to choose which coverage plan suits them best at a time of rising complexity in the health-care system. Close

About 160,000 Walgreen Co. employees now have to choose which coverage plan suits them... Read More

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Photographer: Daniel Acker/Bloomberg

About 160,000 Walgreen Co. employees now have to choose which coverage plan suits them best at a time of rising complexity in the health-care system.

Michael Polzin, a spokesman for Deerfield, Illinois-based Walgreen, denied that his company’s move was driven by the Affordable Care Act’s 2010 passage and provisions, saying, “It’s something we’ve been looking at very closely in the last couple years.”

‘Hard to Link’

“It’s hard to link the two,” Polzin said in a telephone interview. “We want to continue to be very innovative in the health care we’re providing employees, just as we’re innovative as a health-care provider.”

Walgreen rose 1.3 percent to $55.63 at the close in New York. The shares have jumped 56 percent in the last 12 months.

The options offered by the private exchange offer similar levels of coverage to those in the Affordable Care Act’s public exchanges, though workers will get their subsidies from their companies instead of the government, said Ken Sperling of Aon.

Other large employers, including International Business Machines Corp. (IBM) and Time Warner Inc. have this year moved their retirees into private exchanges from company-picked plans. Trader Joe’s Co., the closely held grocery store chain, has said it will move part-time workers at its 400 stores onto the Obamacare exchanges, and United Parcel Service Inc. decided to drop health benefits for 15,000 of its workers’ spouses who can get insurance through another company.

‘Tired of Volatility’

Companies are “tired of the volatility, the complexity and the cost” tied to traditional health plans, said Sperling, the national health exchange strategy leader at Aon. “Volatility, complexity and cost -- those are the things that run through health care right now.”

Disappearing are the days of the company owning their workers’ welfare, said Linda Barrington, the executive director of Cornell University’s Institute for Compensation Studies.

Retirement plans such as “401(k) and the like require more of employees than did the traditional pension, albeit they also offer more ’choice,’” Barrington said in an e-mail. “Choice can be good. But making the right choice requires educating oneself and discernment in the decision -- both which are responsibilities that take time, and maybe some talent.”

The move to put workers into private exchanges will probably gather steam, said Paul Fronstin, director of health care research at the Employee Benefit Research Institute.

Not ’Overnight’

“I expect it too, though I also expect it won’t happen overnight,” Fronstin said in an e-mail. “Most major trends in benefits have taken decades to take off.”

Walgreen’s financial contribution to workers’ health plans will be “very comparable to what we currently pay for their premiums,” said the Walgreen spokesman, Polzin.

Aon, based in London, will help lower growing employer costs, which can be $10,000 per worker, Sperling said. Consumers in turn will get more choice, and experience in the private exchanges suggests that they’ll opt for less coverage, rather than richer, more comprehensive plans, he said, in a telephone interview.

Walgreen has 8,117 stores in the U.S. The company will give employees the same amount of subsidy next year as it now pays for their premiums, Polzin said. Its health-care costs will be little changed in 2014 from this year, he said, as opposed to what would otherwise be an increase.

More Choice

Previously, Walgreen had two insurers each offering two plans, for four total options, Polzin said. The Aon exchange has five insurers each offering five different plans. Under the private exchange system, companies give workers a subsidy, and the employee will make up any difference in cost for more complex coverage.

In Aon’s private exchange, which last year had about 100,000 workers in it, 42 percent of people chose health insurance with less coverage and lower cost, than they had previously through their employer. And 26 percent of people chose richer benefits.

“Most people don’t need a whole lot of health-care coverage,” Sperling said. A small fraction of people, less than 10 percent, drive the bulk of health-care costs, he said.

Most large employers are self-insured, meaning that they take on the financial risk of their employees’ health costs. While an insurer typically administers the plan, if health costs go up in a given year because a lot of people get sick, the company pays. Under a subsidy model in the exchanges, a company’s costs are more predictable and controlled, and the insurer takes the financial risk.

Not Specialized

Aon’s Sperling said it is part of companies getting away from things they don’t specialize in, like providing benefits, and letting them focus on running their businesses.

IBM said this month it will shift about 110,000 Medicare-eligible retirees to Towers Watson’s Extend Health, the largest private Medicare exchange.

Former workers will find more options than the business could provide through its own plan, IBM, the third-largest U.S. employer according to data compiled by Bloomberg, said in a statement e-mailed Sept. 7. Caterpillar Inc. and DuPont Co. also have moved Medicare-age retirees onto the Extend exchange.

IBM said at the time that it had capped retiree health insurance subsidies in the 1990s, and the move wasn’t about cutting costs, rather it was to give workers more choice of plans.

To contact the reporter on this story: Drew Armstrong in New York at darmstrong17@bloomberg.net;

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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