More Companies Embrace Exchanges To Curb Health Care Costs

Sept. 21--Workers from Montana's Rib & Chop House restaurants in Hermitage and Meadville will go to a website to shop for health insurance plans next month, but they won't be using online exchanges set up under the Affordable Care Act.

They'll be on a private exchange run by Pittsburgh health insurer Highmark Inc., where they'll have a fixed amount of money contributed by Montana's that they can choose how to spend, said Megan Pratt, who manages human resources for the restaurant company.

"Our broker thought it would work well for us," Pratt said. "We have line staff who make minimum wage to salaried managers that make more than that. It would be fitting to have a platform that offered more than one plan, and they could pick a plan that fit their budget."

It's a change in the way employers traditionally have provided health insurance, and represents an evolution of the long-term trend of companies shifting more benefit costs onto employees.

Highmark's exchange is one of dozens popping up across the country, run by insurers and benefit consulting companies, giving employers a new way to control health costs and reduce administration.

And companies, which have taken similar steps with retirement benefits by shifting from pensions to 401(k) plans, increasingly are attracted to the concept of a private health exchange and defined contributions.

A national survey by consulting firm Mercer this year found a quarter of employers were considering switching to a private exchange in just two years, and 45 percent expect to move to an exchange in five years. In 2011, Mercer's survey found only 18 percent were considering an exchange.

Aluminum-maker Alcoa Inc. this month said it would move its retirees to a private exchange. Drugstore chain Walgreen Co. this year moved its 170,000 workers to one.

Experts say this fast-growing trend represents a watershed moment in employer-employee relationships.

"Ultimately, we're seeing the beginning of the end of the employer-sponsored market," said Brian Wright, an insurance industry analyst at Sterne Agee.

Wright and others point to the success of the federal government's HealthCare.gov and similar state-run exchanges, which attracted millions of people to shop for insurance this year, coupled with the strong interest in private versions as slowly shifting the responsibility for health coverage away from employers and onto individuals and the government.

Trend likely to grow

Employers steadily have gotten out of health benefits during the past 15 years as costs have risen dramatically, according to the Kaiser Family Foundation. The Menlo Park, Calif., nonprofit found that 55 percent of employers offered health insurance this year, down from 66 percent in 1999. Over that same period, the average cost of premiums for family coverage nearly tripled, from $5,800 a year to $16,800.

Dr. Ken Melani, the former CEO of Highmark who now works as a private consultant, said the government has taken a greater role in financing health coverage in the past 50 years: first with the Medicare program for retirees, then with Medicaid for the poor and now with tax subsidies for low-income workers who buy coverage on HealthCare.gov.

"It's been slowly eroding in terms of the amount of financing that employer-based coverage represents," Melani said.

It's a trend that's not likely to slow because increases in health costs, which have moderated in the past several years, are predicted to begin rising faster during the next decade.

Higher costs will push even more companies out of the practice of offering health benefits and into defined contribution arrangements, Melani said.

"We'll eventually get to a system where it's individuals paying for health care ... and employers just paying wages," he said. "Employers don't want to be in this business."

Or as Wright put it, employers are increasingly saying to their workers: "I don't buy your homeowners insurance, so why should I buy your health insurance?"

Burden on workers

While the move to private exchanges and a defined contribution offers positives for companies, it can place greater burdens on workers. Critics have argued that defined contributions are just another way, like high-deductible plans, for employers to foist more costs onto their workers, which can lead people to skip treatments or medications.

Cutting benefits can make it harder to recruit high-quality employees, experts say.

There are other obstacles as well. One is a penalty under the Affordable Care Act that fines large companies $2,000 per employee for not providing coverage.

Another is the substantial tax benefit to workers from employer-sponsored health insurance that would go away if companies stopped buying health insurance.

"You've got to make the tax treatment for nonemployer-based coverage basically the same," said Stuart Butler, an economist with the liberal Brookings Institution in Washington. "It's got to be neutral."

A way to control costs

Montana's owner made the decision to switch to a private exchange because he can restrain spending and give his employees more choices, Pratt said. The restaurant's owner, who employs 27 full-time workers, is not required under the health reform law to provide insurance, but he does so to try to retain and recruit workers, Pratt said.

He previously offered only one health plan and covered 100 percent of the premium, she said. Now employees have the choice of five plans but must pay 60 to 70 percent of the cost, depending on the plan they choose.

With the options in a private exchange, Pratt said, "he's able to control the cost on his end, and the employees are able to control their cost. It gives us a way to meet in the middle."

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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