ROBERT SIEGEL, HOST:
Today, Walgreens became the latest major U.S. company to announce that it is shifting employee health benefits to a new so-called private exchange system. 160,000 workers at the drug store chain will now shop for their health care at an online marketplace. As NPR's Chris Arnold reports, the hope is such systems will hold down rising costs.
CHRIS ARNOLD, BYLINE: Walgreens is on the forefront here of a trend among large companies and here's a way to understand what they're doing. It's a lot like the shift in retirement plans. Employers used to offer people pensions, but now they're much more likely to match some of your contributions to your retirement or your 401(k) plan. And then you go out and make all the investment choices yourself from big range of options.
GARY BURTLESS: The shift away from a single company health insurance plan is very similar.
ARNOLD: Gary Burtless is a labor economist with the Brookings Institution who studies health care. He explains that instead of just getting a regular health insurance plan, the workers in this system will use an online exchange to choose between many different insurance plans.
BURTLESS: Each employee will have a variety of options, some of which will be very generous, cover a lot of their bills. But the worker will be required to make a larger contribution for those expensive generous plans.
ARNOLD: Michael Polzin is a spokesman for Walgreens.
MICHAEL POLZIN: We're expanding the options they have available to them from about two plans to as many as 25.
ARNOLD: Polzin says that Walgreens will continue to contribute the same portion of cost for a comparable plan under the new system. But this new approach could save both Walgreens and the employees money in two different ways. First, there will be cheaper lower-cost options available for employees who don't expect to go the doctor as much.
POLZIN: Thirty-five, 36 percent of our employees are single and under age 30. So if they feel they don't need a lot of health insurance and they just need coverage in case something extraordinary happens, we have some very low premium plans available to them.
ARNOLD: And some of those plans are really cheap, actually.
POLZIN: As low as $5 a month or less for a very high-deductible plan.
ARNOLD: Industry analysts say that if this is calibrated properly, you can get people to only go to the doctor when they really need to, since they'll be more aware of the cost that's coming out of their own pockets, though you obviously don't want to discourage people from seeking care when they need it.
Also, having many different insurance companies on the exchange could mean more competition. Michael Polzin from Walgreens.
POLZIN: We were pleasantly surprised at the premium rates that came back from the insurance carriers in the marketplace. So, I think it showed that, you know, providing that competition is going to drive down health care premiums.
ARNOLD: By the way, these private exchanges are similar to the public exchanges offered through President Obama's Affordable Care Act. And it's probably not a coincidence that they're getting set up just as those public exchanges come online. But these are separate from the public exchanges and they're set up by private healthcare consulting firms.
BRYCE WILLIAMS: We have over 90 carriers and 3,000 plan choices.
ARNOLD: That's Bryce Williams who's a managing director at Towers Watson. That's one of the big consulting firms that's setting up these private exchanges. More companies, including IBM, Chrysler, and Ford have already done this with their retirees' health care. So there's a track record there to look at.
WILLIAMS: For the last three years, the average rate increase of all the plans in our website have averaged less than 2.8 percent.
ARNOLD: Williams says that's a smaller price increase than the employers were seeing before they shifted over to these private exchanges. Still, some experts watching all this are concerned. Topher Spiro is vice president for health policy at the Center for American Progress.
TOPHER SPIRO: I think its great to provide workers with more choice, in that it could create more competition. But it all depends on how the contribution is set. If the contribution does not grow with health care costs, then workers could end up paying more and the employer is just shifting cost to the worker.
ARNOLD: Walgreens says it is not planning to shift more of the costs to its workers. And Gary Burtless points out that under the Affordable Care Act, employers cannot shift too much of the cost to workers without facing penalties.
Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.
