Is employer-provided health insurance going the way of the defined-benefit pension?
It’s a question that took on new immediacy yesterday when the national pharmacy chain Walgreen Co. announced that it would restructure its corporate health benefit plan by providing payments to eligible employees to purchase insurance on a private health insurance exchange. The company cited rising health-care costs and administrative burdens of federal health reform for its decision.
Walgreen joins Sears Holdings Corporation and Darden Restaurants in replacing the traditional company health insurance plan with subsidized access to private online marketplaces that function much like the public exchanges created under the Affordable Care Act.
It’s all part of a broader shift in health benefits that has also seen major employers such as Time Warner and International Business Machines move retirees to private exchanges; United Parcel Service end health benefits to employed spouses of 15,000 non-union workers; and the grocery chain Trader Joe’s end health benefits for part-time workers and instead give them $500 to go to public exchanges.
Many health-care economists believe the shift to subsidizing employees on health exchanges is both inevitable and positive because it gives those employees more choices and cheaper coverage than company plans. The change also gives employees the power to make their own choices on health insurance instead of accepting choices made by human resource departments.
Others, however, worry that health subsidies provided by employers will not keep pace with the rising cost of insurance.
But is the move away from traditional employer plans really a trend? The signals are mixed here in Massachusetts, where employers appear more inclined to adjust the existing insurance model than to adopt a new one.
A report by the state Attorney General found that membership in tiered health insurance products has doubled since 2008. The 2012 AIM Benefits Survey, meanwhile, found that 38 percent of employers had increased co-pays for employees during the previous 12 months. Forty-one percent boosted deductibles and 37 percent increased co-payments for visits to the hospital emergency room.
The AIM results are consistent with recent data from the Massachusetts Center for Health Information and Analysis showing that the health coverage available through Massachusetts employers in 2011 cost more and had lower benefit value than in 2009. Premiums rose by 9.7 percent from 2009-2011 to pay for benefits that decreased by 5 percent, according to the Center. Deductibles grew by more than 40 percent during the two years, approaching the national average.
At the same time, Bay State employers appear committed to providing some form of traditional health insurance to workers. The percentage of companies offering coverage has risen from 70 percent to 77 percent since 2006, when there was widespread concern that employers facing the 2006 health reform law would “dump” workers from plans and instead provide them money to buy coverage through the Health Care Connector.
Sixty two percent of Massachusetts residents still buy health insurance through their employers.
“Health insurance remains a key element in the ability of companies to attract and retain talented employees. What you are seeing is employers struggling to deal with relentless premium increases while still maintaining coverage options,” said Kristen Lepore, Vice President of Government Affairs at AIM.
That balancing act has become a bit easier as the rate of medical inflation has slowed to a 50-year low. The Commerce Department reports that prices paid for medical care in July rose just 1 percent from a year earlier, the lowest rate of growth since the 1960s.
Experts disagree about whether federal health reform will accelerate the move of employers out of the health insurance business. Stanford University researchers predicted last week that rising health-care premiums could spur 2.5 million workers to switch from employer plans to coverage under federal health reform the health law, increasing costs for the government by as much as $6.7 billion.
“You’re completely moving away from a paternalistic employer deciding what’s best for employees,” Paul Fronstin, an economist with the Employee Benefit Research Institute told The Wall Street Journal this week.
“Workers don’t need their employer anymore for health coverage. They just need the employers’ money.”
We’re interested in your thoughts.