Walgreens has joined the ranks of thousands of businesses small and large, by announcing it will move to a Defined Contribution model for employee health benefits in 2014. Through the plan, Walgreens will allocate a fixed dollar amount for employees to purchase health insurance through a private health exchange. Employees will have a health insurance menu of 25 plans to choose from.
Walgreens' Defined Contribution and Private Exchange Model
Previously, Walgreens had two insurers offering two plans each (4 plan choices), now they have five insurance companies offering five plans each (25 plan choices). This gives Walgreens' 160,000 employees choice on which coverage plan best suits their needs. It will also provide an opportunity for Walgreens retirees, who weren’t previously eligible for health care benefits, to participate in plans.
Defined Contribution and Private Exchanges vs. Self-Insurance
Currently, most large employers are self-insured, meaning that they take on financial risk of their employees’ health costs. So if one year everyone gets sick, and premiums increase as a result, the employer pays for it. With the defined contribution and a private exchange model, employers have more controllable health insurance expenses, because they provide a defined contribution to each employee and allow the employee to choose which plan best fits their need.
According to Walgreens, the company is providing the same funding for health insurance in 2014 as it does now.
Trend Away From Self-Insured Plans
Walgreens isn’t the only large company sending their employees to the private exchanges. International Business Machines Corp (IBM) and Time Warner Inc. have both moved their retirees to private exchanges from company picked plans. Sears switched to a defined contribution and private exchange model last year, Trader Joe’s Co. announced they will send its employees to the public exchanges for health insurance, and United Parcel Service (UPS) decided to drop health benefits altogether for 15,000 of its workers’ spouses.
What do you think of Walgreens' move to a defined contribution and private exchange model? Leave a comment below.