Walgreen Co. will become the latest big employer to send its workers shopping for their health insurance coverage instead of providing a few plan choices for them.
The nation’s largest drugstore chain said Wednesday that it will start giving workers a contribution toward the cost of coverage and then send them to a private health insurance exchange where they will pick from as many as 25 plans. Walgreen currently offers its workers two to four options depending on where the employee lives.
Employers normally pay most of the coverage cost, and Walgreen Co.’s contribution toward the benefit won’t change. It says 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, Walgreen’s senior director of health and wellbeing.
Employers have struggled for years with health care costs that climb faster than inflation and consume growing portions of their budgets each year. More are starting to veer from the decades-old practice of offering workers only a plan or two with benefits the worker 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, usually with help from a private exchange that guides them through the plans to find the best coverage fit. The switch can help make the employer’s health care costs more predictable or manageable.
The exchanges are similar to the public exchanges or marketplaces that will debut next year as part of the health care overhaul, the massive federal law that aims to cover millions of uninsured people.
Sears Holdings Corp. is among the companies that have already shifted to this defined contribution approach with a private exchange.
Walgreen runs more than 8,000 drugstores nationwide and provides health coverage for about 180,000 employees and dependents. It will use an exchange run by benefits consulting giant Aon Hewitt.
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.
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 health plans make up a relatively small slice of that total, but the trend is expected to grow.