As the Wall Street Journal reported last month, Walgreens, the nation’s largest drugstore chain, in a drastic effort to curb the escalating costs of providing healthcare, plans to move more than 180,000 of its workers—and their families—into an online private insurance exchange. Think this is a passing fad until the next cost-saving venue is created? You may want to think again.
Since the mid-1940s, many employees’ compensation packages have included healthcare benefits for them and, more importantly, their families. Although offering limited flexibility, employers have typically provided several health insurance options for their employees to choose from but, in doing so, employers also incurred most of the costs.
Over the past few decades, employers have been slowly shifting larger and larger portions of the rising healthcare costs to the employee in the form of higher premiums and/or deductibles. Most employers have tried to keep these increases to a reasonable level to retain their employees. But now, we are faced with the proverbial “tipping point” of healthcare delivery. The idea of private insurance exchanges is not entirely new, as it has worked well in smaller, more localized geographic pockets across the country. However, not only is the trend of shifting larger and larger portions of the spiraling costs to more workers gaining traction, but shifting the risk of being a self-insured to a fully insured employer is also becoming more common. This fully insured approach reduces a company’s healthcare exposure by taking the risk of unpredictable expenses and moving them to the insurer. By making a lump sum payment to the employee, the employer can now create an environment of predictability and stability with respect to healthcare expenses.
But what about the employee in this equation? Walgreens and the other companies that are making this shift in healthcare options maintain that this will create greater employee engagement and offers a choice of options that “best” fit employees’ personal and family needs. For example, this year Walgreens employees have 2 high-deductible plans to choose from. In 2014, the new options will include 5 insurance carriers with up to 5 options each, thus creating up to 25 new venues for healthcare delivery. (As a side note, we can only hope that Walgreens employees will be given a road map to navigate their future healthcare delivery frontier!) In any case, the idea is to create competition in the marketplace to reduce the overall healthcare costs for the employees and their families. Will this actually happen? It is too early to predict because many insurers are trying to keep the initial costs low during this “honeymoon” period. However, costs continue to rise and if employers do not adjust the lump sum payment to purchase healthcare, then the employee will be forced to pay the difference by way of higher premiums, deductibles, and coinsurance.
One trend that is here to stay will be the ever-increasing environment of “defined contribution.” As in the case of Walgreens and other companies such as Darden Restaurants, Inc., which is the parent company of such eateries as Red Lobster and Olive Garden, and Sears Holdings Corporation, which has almost 2500 retail and specialty stores across the United States, more and more employers are providing a defined financial benefit to purchase healthcare or to offset healthcare expenses through a health savings account (HSA). The basic premise of an HSA is to allow employees to have more control over managing their healthcare expenses. Over time, empowered employees will not need their employers to assist them in their healthcare choices—but they will still need the employer funding. Defined contribution could very well change the retention strategies of many employers as the conversation changes from “what healthcare options do you provide,” to “what is my lump sum payment going to be to provide healthcare for me and my family?”
So get ready, because other options not “in the norm” are hitting like a tidal wave and you don’t want to be caught at sea without a life preserver. Imagine, as a retiree, your former employer has now thrown you into the private exchange for your retiree health benefits. You will now deal with an insurer, not your former company. Imagine, as an employee, you will continue to be offered health insurance but your spouse now has to get his or her own health insurance through their employers—if it’s offered—or the private exchanges.
Imagine, if the 25 healthcare options work through the private exchange for Walgreens, who will be the next retail pharmacy chain to jump ship?
