Private Exchanges Grow in Popularity

March 25, 2013

Sears Holdings Corp. and Darden Restaurants Inc. have a new approach to offering their employees health benefits. Each firm gives their workers a sum of money and allows them to choose their health plans from an online marketplace. The system allows workers to take on health cost risks to save money, says the Wall Street Journal.

  • The new marketplace is operated by consulting firm Aon Hewitt, a unit of Aon PLC, and was used by more than 100,000 employees of the two large companies.
  • Both employers gave employees a set contribution that could be applied toward the health plan of their choice.
  • Workers have the option to pay more each month for plans with more benefits or to choose cheaper plans that have larger out-of-pocket fees and higher deductibles.

People who spend their own money tend to be more cautious when racking up medical bills compared to those with traditional insurance plans.

  • The marketplaces are referred to as private exchanges and are separate from the public exchanges that will be created by the state and federal governments under the Affordable Cart Act.
  • In theory, the public exchanges will operate similarly to the private exchanges, which have been received positively by Sears and Darden employees.
  • Consulting agencies and major health benefits players like Mercer, Buck Consultants and Towers Watson & Co., are also all offering their own version of the private exchanges.

In 2012, more than 70 percent of Sears' and Darden's workers chose a preferred-provider organization (PPO) plan but that percentage dropped to 47 percent in 2013 when the workers entered the exchange. In 2013, 39 percent of workers chose higher deductible consumer directed health plans, up from 21 percent in 2012. Overall, 42 percent of employees chose plans that were less expensive and 26 percent chose plans that were more expensive after entering the private exchange.

  • Both companies indicate that early surveys show employees are pleased with the programs and each company is considering renewing their use of the private exchange.
  • Many other companies are also considering adopting the private changes and the companies offering them are reporting a very high interest level.

Source: Anna Wilde Matthews, "To Save, Workers Take On Health-Cost Risk," Wall Street Journal, March 17, 2013.

 

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