At Walgreen, the giant drugstore chain, employees now have a much broader choice of insurers and plans. Once limited to two options, either from a local Blue Cross plan or UnitedHealthcare, workers can now choose among as many as 25 plans from five insurers, depending on where they live, including Kaiser Permanente, the well-known California-based H.M.O.
As health care costs continue their steady climb, employers are looking for ways to slow the pace. A survey of large employers released on Thursday showed that companies were shifting more costs onto their employees but were also experimenting with concepts like private exchanges that allow companies like Walgreen to offer their workers more choices in health care plans.
The average annual cost of coverage for both employers and workers increased to $12,535 in 2014, compared with $11,938 last year, according to the survey of 595 large companies by Towers Watson, a benefits consultant, and the National Business Group on Health, a Washington-based employer alliance. Employees are paying almost a quarter of the amount, now $2,975 a year, up nearly 7 percent from 2013.
While there are few signs that the nation’s large employers are likely to drop coverage for their workers anytime soon, companies continue to hunt for new concepts, like private exchanges. Similar in design to the public exchanges created under the federal health care law, they are available only to employees of certain companies and are not offered on the open individual market. Like the public exchanges, though, the theory is that by being part of an exchange that offers multiple plans, insurers will compete more aggressively on price. They would also push for better deals with hospitals and doctors and do better managing potentially expensive diseases.
The other appeal of the exchanges is to allow consumers to choose the kind of plan they want instead of having the government or the employer choose a plan for them. “Private and public exchanges epitomize the shift from wholesale to retail,” said Ceci Connolly, a managing director for PwC’s Health Research Institute, an arm of the consulting firm PricewaterhouseCoopers.
Employees, like individuals in the public exchange, can also switch insurers if they think their share of premiums has risen too quickly or if they struggled for hours on the phone trying to get a claim paid.
Only a small fraction of the 122 million workers now getting coverage through employers is currently enrolled in these private exchanges, but the number could rise to tens of millions by the end of the decade, according to Bruce Ballentine, who recently wrote a report on exchanges for Moody’s Investors Service.
Several private exchanges are also being offered by large benefit consultants like Aon Hewitt, Mercer and Towers Watson, which are making significant investments and promoting the idea with their existing corporate clients. “These benefit consultants have longstanding relationships with employers,” he said.
Some insurers are offering exchanges themselves, with marketplaces looking more like an old-style cafeteria plan and limited to a single insurer but with a broader array of plans than an employer might typically offer.
“There are so many things that have the exchange name, and there are significant differences,” said Cary Grace, the chief executive of Aon Health Exchanges.
Early results from Aon Hewitt, released Thursday, show that premium increases for companies on the exchanges are lower than companies without them. The average cost of premiums for 2014, for the 150,000 or so workers enrolled in its exchange the previous year, is expected to rise just 5.1 percent, compared with the 6 or 7 percent estimated for large employers over all.
Aon’s model requires the insurers to assume the risk of paying the employees’ medical bills rather than simply managing claims for the large employers that self-insure. By forcing the insurers to be responsible for the costs of the employees’ health care, “we’re realigning the incentives,” said Ken Sperling, the Aon Hewitt executive who helped lead the effort. Aon says it has now enrolled more than 600,000 employees from different companies.
Like the public exchanges, Aon’s private exchange also relies on dividing plans into tiers that offer varying levels of coverage. The bronze plan, for example, has a deductible of $2,500. Premiums vary by employer, depending on that company’s history of medical claims.
Walgreen offered the Aon exchange for the first time for plans that went into effect this year. “We got overwhelmingly favorable response in the sign up process and the choices that were available to them,” said Michael Polzin, a spokesman. With a broad mix of employees, the company was looking for a way to offer a variety of plans.
While employers could use private exchanges as a way to cap how much they will pay for health benefits, much the same way they use a 401(k) to replace a pension plan, Walgreen said it was not viewing the exchanges as a way of reducing its share of health costs. “We want to make sure our benefits are competitive,” Mr. Polzin said.
What the private exchanges like the one from Aon do not offer — yet — is an abundance of new entrants, like the co-ops created to offer nonprofit consumer-based alternatives on the state exchanges, or smaller plans offered by a large health system. Benefits consultants and others say the long-term goal is to achieve a diversity of offerings, but the current exchanges now favor large well-established insurers. “This is going to be iterative,” Ms. Grace said.
Companies are turning to exchanges more aggressively for retirees, according to Ron Fontanetta, an executive with Towers Watson, and they are looking closely at the public exchanges for their part-time employees. The concept of these marketplaces is “a very clear trend,” he said. “There’s no question that many employers are asking about private exchanges.”
Employers are also looking closely at other ways of controlling health costs, including using on-site clinics or experimenting with different kinds of networks of hospitals and doctors, Mr. Fontanetta said. And while they plan to continue to pay for coverage, they are looking at ways they could reduce their financial commitment by scaling back what they pay for dependents’ coverage, for example.
While health care costs have been rising more slowly in recent years than they have in decades, they continue to outpace inflation, Mr. Fontanetta said. Employers are thinking hard about what steps they can take to reduce their exposure, he said, at a time when health care is changing rapidly. “The current time period represents a watershed moment for employers.”