| NEW YORK
NEW YORK Oct 15 Petco Animal Supplies Inc
and restaurant operator DineEquity Inc, the
parent of Applebee's and IHOP, are among 33 companies moving
medical coverage for their employees to a private exchange
starting in 2014, a new sign of corporate America's shift away
from directly providing benefits.
Mercer, a division of Marsh & McLennan Companies Inc
, will become the benefits administrator for 75,000
employees and 90,000 dependents, the company said on Tuesday. It
will also operate a separate private exchange for 35,000
Medicare-eligible retirees at 19 companies, including Kinder
Morgan Inc and St. Louis Metro Transport.
For such private exchanges, 2014 is proving to be a
watershed year, with over one million active employees due to
participate, up from about 100,000 in 2013, as companies seek
new ways to reduce their exposure to rising healthcare costs.
Akshay Kapur, a principal at Booz & Co, predicts that could
surge to between 10 million and 20 million employees by 2017.
The move is coinciding with the launch of new subsidized
insurance exchanges in 50 states under President Barack Obama's
healthcare reform, an option that is expected to attract some
Americans who have health insurance through their employers in
the hopes of getting a better deal.
"I think we reach critical mass in 2014," said Eric Grossman,
a senior partner at Mercer, referring to the private exchanges.
"If you look at the top health and benefit surveys about
employer interest, private exchanges are at the top of that list
and frequently number one."
A private exchange run by benefit consultant Aon Hewitt
will cover about 600,000 people in 2014 at large
companies like Sears Holdings Corp, Walgreen Co
and Darden Restaurants Inc. Buck Consultants, a unit of
Xerox Corp, will cover about 400,000 people at mid-range
companies like Bob Evans Farms Inc and household
products maker Church & Dwight Co Inc.
Using an exchange allows companies greater control over how
much they spend for health coverage than directly providing
benefits through an insurance company. They can cap their
contribution to employee medical coverage as a fixed dollar
amount each year or as a percentage of total costs.
BUYING DOWN THE COVERAGE SCALE
For employees, the impact of the switch depends on how their
company structures its contribution. One positive is that they
often have more choices of plans on exchanges.
The Mercer exchange will offer five plan levels, which are
named according to the carrier and the deductibles, but roughly
correlate to the tiers of "bronze", "silver," "gold" or
"platinum," defined by Obama's Affordable Care Act.
When given a set amount to shop with, research shows that
workers tend to pick "leaner" health plans than their employer
would for them, saving money for both sides, said Kapur.
That is the case at Addison Group, a Chicago-based staffing
firm of 2,100 employees that is joining Mercer's exchange. Last
year, the company offered two gold-level plans to its employees.
But it found that the workforce, which is largely under 30 and
single, wanted more choices and greater ability to save.
For 2014, the company will contribute 6 percent more to the
premium costs per employee, but will end up saving about 15 to
18 percent overall by tapping into Mercer's negotiating leverage
with insurance carriers and using its scale as an administrator,
said Pat Jones, Addison Group's chief financial officer.
But for many employees, the shift will mean higher costs,
especially at companies switching to a defined dollar
contribution to shop with.
Among the 33 employers joining Mercer's exchange, there is a
mix of those who are contributing defined dollar amounts and
those contributing a percentage of the full cost.
"Some companies are paying equal or very slightly more than
they paid last year. We have others that are increasing their
defined contribution compared to what they spent last year, with
and eye to controlling costs in the future," said Grossman.
Some companies are also offering larger contributions for
non-smokers and for those who complete biometrics screenings.
Kapur said employers are also aware of the risks of shifting
too much cost to valued workers who might seek better benefits
"They will raise their contribution to a level that allows
them to be competitive in the marketplace," he said.
When Addison Group tells its employees about its new plan,
Jones thinks the biggest negative reaction will be the
association with the federal Obamacare exchange that has been
crippled by technology problems since its launch on Oct. 1.
"It's going to be important to message that this is
something completely different," Jones said.