By Beth Pinsker
NEW YORK, Oct 15 (Reuters) - Petco Animal Supplies Inc and restaurant operator DineEquity Inc, theparent of Applebee's and IHOP, are among 33 companies movingmedical coverage for their employees to a private exchangestarting in 2014, a new sign of corporate America's shift awayfrom directly providing benefits.
Mercer, a division of Marsh & McLennan Companies Inc, will become the benefits administrator for 75,000employees and 90,000 dependents, the company said on Tuesday. Itwill also operate a separate private exchange for 35,000Medicare-eligible retirees at 19 companies, including KinderMorgan Inc and St. Louis Metro Transport.
For such private exchanges, 2014 is proving to be awatershed year, with over one million active employees due toparticipate, up from about 100,000 in 2013, as companies seeknew ways to reduce their exposure to rising healthcare costs.Akshay Kapur, a principal at Booz & Co, predicts that couldsurge to between 10 million and 20 million employees by 2017.
The move is coinciding with the launch of new subsidizedinsurance exchanges in 50 states under President Barack Obama'shealthcare reform, an option that is expected to attract someAmericans who have health insurance through their employers inthe 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 aboutemployer interest, private exchanges are at the top of that listand frequently number one."
A private exchange run by benefit consultant Aon Hewitt will cover about 600,000 people in 2014 at largecompanies like Sears Holdings Corp, Walgreen Co and Darden Restaurants Inc. Buck Consultants, a unit ofXerox Corp, will cover about 400,000 people at mid-rangecompanies like Bob Evans Farms Inc and householdproducts maker Church & Dwight Co Inc.
Using an exchange allows companies greater control over howmuch they spend for health coverage than directly providingbenefits through an insurance company. They can cap theircontribution to employee medical coverage as a fixed dollaramount each year or as a percentage of total costs.
BUYING DOWN THE COVERAGE SCALE
For employees, the impact of the switch depends on how theircompany structures its contribution. One positive is that theyoften have more choices of plans on exchanges.
The Mercer exchange will offer five plan levels, which arenamed according to the carrier and the deductibles, but roughlycorrelate 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 thatworkers tend to pick "leaner" health plans than their employerwould for them, saving money for both sides, said Kapur.
That is the case at Addison Group, a Chicago-based staffingfirm of 2,100 employees that is joining Mercer's exchange. Lastyear, the company offered two gold-level plans to its employees.But it found that the workforce, which is largely under 30 andsingle, wanted more choices and greater ability to save.
For 2014, the company will contribute 6 percent more to thepremium costs per employee, but will end up saving about 15 to18 percent overall by tapping into Mercer's negotiating leveragewith 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 dollarcontribution to shop with.
Among the 33 employers joining Mercer's exchange, there is amix of those who are contributing defined dollar amounts andthose contributing a percentage of the full cost.
"Some companies are paying equal or very slightly more thanthey paid last year. We have others that are increasing theirdefined contribution compared to what they spent last year, withand eye to controlling costs in the future," said Grossman.
Some companies are also offering larger contributions fornon-smokers and for those who complete biometrics screenings.
Kapur said employers are also aware of the risks of shiftingtoo much cost to valued workers who might seek better benefitselsewhere.
"They will raise their contribution to a level that allowsthem 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 theassociation with the federal Obamacare exchange that has beencrippled by technology problems since its launch on Oct. 1.
"It's going to be important to message that this issomething completely different," Jones said.