New path for health insurance: Shopping credits for Sears, Olive Garden workers

Emmet Pierce

Two major corporations hope to chart a new course for the way businesses provide health insurance benefits by offering lump-sum credits to workers and letting them shop from a menu of participating insurers.

Sears Holdings Corp., which owns the Sears and Kmart retail chains, and Darden Restaurants Inc., whose brands include Olive Garden and Red Lobster, say they aren’t shifting health insurance costs to workers to ease their own financial burdens as medical costs rise. The idea is to create an insurance exchange that encourages insurers to compete harder for their employees’ business and lower costs for everyone, Sears spokesman Chris Brathwaite says.

“First and foremost, we are still providing an employer-sponsored health program,” Brathwaite says.

The Sears-Darden exchange, which is being coordinated through consulting giant Aon Hewitt, is creating a more competitive marketplace, Brathwaite says. Through the exchange, employees’ health plan choices have risen from four to 15.

“We don’t discuss our costs for sponsoring the health care program,” Brathwaite says, “but we believe there are efficiencies for both the company and the associates through this program.”

A Darden representative couldn’t be reached for comment.

Mike Christie, senior vice president of health care exchanges at Aon Hewitt, says more than 100,000 workers from Sears, Darden and Aon are taking part in the “multicarrier corporate health care exchange.” Other major employers are watching the experiment closely.

A new insurance shopping experience

Christie stresses that none of the participants are using the exchange to cut costs at the expense of workers. Under the program, workers “will have transparency, choice and control,” he says. “(Workers) will see the true full cost of coverage … (and) the employee subsidy amount. In the current environment, very few employers offer a choice where the employee gets to pick the carrier.”

This will change the health insurance shopping process for employees – sorting and comparing the options “makes it more like a retail shopping experience,” Christie says.

“This is a market and situation that is starved for innovation right now,” he says. “We are the only ones doing this … . Tis a very different approach.”

‘The devil is in the detail’

Kathleen Stoll, director of health policy for Families USA, a consumer advocacy group, has been following development of the exchange.

“It is part of a larger trend,” Stoll says. “Employers are looking at how they can hold down health care costs.”

Stoll sees advantages to the model, but she worries that employees could end up paying a greater share of health costs down the line.

Far from being “bad guys,” most employers “are struggling to continue to offer health care to their workers,” she says.  Exchanges like the one Sears and Darden are forming with Aon[MJL1] sound promising, but “the devil is in the detail.”

One problem with such exchanges is that younger, healthier workers tend to select cheaper plans with high deductibles that mainly provide care for catastrophic illnesses, Stoll says. These workers are counting on their youth and good luck to keep them out of the doctor’s office, reducing their need to foot the bill for co-pays and prescriptions.

Older, less healthy workers can’t do that without taking a financial risk, Stoll says. They typically choose plans with a more complete range of care. Because the younger workers pick less comprehensive plans, the insurance pool for policies favored by the older workers becomes smaller and costs rise.

The downside of more insurance choices

“Choice is not always a good thing when it comes to health insurance,” Stoll says. “Fundamentally, health insurance is about pooling risk across healthy and sick people over the course of their lives. When I am young, I pay in so when I am older I will have affordable coverage.”

Christie predicts more companies will turn to insurance exchanges similar to the one Aon is forming to foster competition among insurers. Maura Laughlin Carley, president and CEO of Healthcare Navigation LLC, a health care advocacy and consulting firm, says how well such exchanges work will depend on participating businesses’ willingness to continue shouldering insurance costs and make sure lump-sum credits rise along with inflation.

“As long as the employer is offering good choices and still providing people with enough money, it should be fine,” Carley says. “The problem will come down the road, if the cost of coverage keeps going up and the employer is keeping what it contributes flat.”