Big Firms Overhaul Health Coverage – Self Insured Employers Bailing Out

Sears Holdings Corp. and Darden Restaurants Inc. are planning a radical change in the way they provide health benefits to their workers, giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace, says the Wall Street Journal.

  • The companies say the change isn’t designed to make workers pay a higher share of health coverage costs.
  • Instead they say it is supposed to put more control over health benefits in the hands of employees.

The approach will be closely watched by firms around the United States. If it eventually takes hold widely, it might parallel the transition from company-provided pensions to 401(k) retirement savings plans controlled by workers and funded partly by employer contributions. For employees, the concern will be that they could end up more directly exposed to the upward march of health costs.

  • Neither Sears nor Darden would say how much money employees would receive to buy health insurance.
  • Darden says its sum would rise as health care costs rise.
  • Sears declined to disclose details of its contributions strategy.
  • Darden did say that employees will pay the same contribution out of their own pockets that they currently do for approximately the same level of coverage.
  • Employees who pick more expensive coverage will pay more from their paychecks to make up the gap.
  • Those who opt for cheaper insurance, which may involve bigger deductibles or more limited networks of doctors and hospitals, will pay less.

The hope is that insurers will compete more vigorously to get workers to sign up, which will lower overall health care costs. Darden and Sears are both currently self-insured, meaning that the cost of claims each year comes out of company coffers.

The approach isn’t directly tied to the federal health overhaul law, which largely goes into effect in 2014. That law will make it easier for employers to funnel workers toward purchasing plans in the individual insurance market, perhaps aided by an employer contribution. The exchange used by Sears and Darden still involves employer-backed group plans, not individual insurance, however, so it doesn’t rely on the law’s changes.

Source: Anna Wilde Mathews, “Big Firms Overhaul Health Coverage,” Wall Street Journal, September 26