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July 20, 2016

Sign of the times? Starbucks to launch a private insurance exchange for employees

Daily Briefing

Read Advisory Board's take on this story.

Starbucks announced Monday that it will launch a privately run insurance exchange for eligible employees to provide them with more choices for health plans. The coffee company will become one of the highest-profile companies to launch such an exchange, the Wall Street Journal reports.

Details of the exchange

Currently, Starbucks employees who work at least 20 hours a week can select among three health plan options—gold, silver, and bronze—from Premera Blue Cross. On its new private exchange, set to launch this fall, employees will have access to "four to six national and regional carriers offering five different medical plans," the company said. Premera, Aetna, Cigna, UnitedHealth, and additional regional carriers in certain markets will offer plans on the exchange, which will be run by Aon Hewitt.

Starbucks has approximately 160,000 U.S. employees, but it is unclear how many of those employees are eligible for health insurance, the Journal reports.

Are you ready to buy your coverage on a 'private exchange'?

Starbucks will continue to cover approximately 70 percent of employees' premium costs and 100 percent of the costs of preventive services. The company said a greater breadth of coverage options will help employees find a plan that fits their needs, and that in some circumstances an individual could save as much as $800 a year by switching plans. "The potential savings are even more for partners who select family coverage, with the opportunity to save $2,600 annually," the company said.  And even the lowest-tier plans will have a "low ceiling" on employees' potential out-of-pocket costs, according to a company spokesperson.

Starbucks said the switch to a private exchange is expected to be cost-neutral for the company, and that any incidental savings would be reinvested in employees.

Ron Crawford, Starbucks VP of global benefits, said, "Providing industry-leading benefits for eligible full- and part-time partners is a cornerstone of who we are as a company." Offering more options, Crawford added, was a natural way to increase the competitiveness of its benefits. "People intuitively like choice," he said.

The growth of private exchanges

Several other large companies, including Walgreens, Sears, and Darden Restaurants, have launched private exchanges, although they "haven't caught on as quickly as insurers once expected," Julie Jargon and Anna Wilde Mathews reports for the Journal.

Such exchanges are gaining popularity because they offer a way for employers to cut costs by reducing administrative burdens and, in some cases, shifting workers to leaner plans.

Making private exchanges work

Private exchanges have not grown as quickly as once predicted because many private companies are skeptical that they can reduce health care costs, the Journal reports.

One of the challenges, said Paul Fronstin, director of health research at the not-for-profit Employee Benefit Research Institute, is that it can be difficult to properly calibrate benefit offerings on private exchanges. In some cases, he noted, healthy employees gravitate to low-cost plans with higher  cost-sharing, raising the cost of coverage for  sicker employees who purchase more comprehensive plans.

Kristi Savacool, CEO of Aon Hewitt, said Starbuck's shift to running a private exchange could mean the approach is gaining steam in the market. "It is encouraging when a marquee company like Starbucks adopts and embraces a private exchange model," she said (Jargon/Wilde Mathews, Wall Street Journal, 7/18; Mangan, CNBC, 7/18; Japsen, Forbes, 7/18).

Advisory Board's take: A Q&A with Alicia Daugherty

Alicia Daugherty is managing director for the Market Innovation Center and Service Line Strategy Advisor programs.

Daily Briefing: What key information do providers need to know about private exchanges?

Daugherty: Employers are attracted to private exchanges for three reasons: cost, choice, and reduced administrative burden.

Exchanges often increase choice for employees, and employers hope they'll reduce administrative burden by simplifying and standardizing plans. They also think exchanges will make their long-term costs lower and more predictable, especially if they shift to a defined-contribution model down the line.

Among early adopters, most employees have chosen high-deductible plans. Given beneficiary behavior on HDHPs, provider volumes, revenue, and outcomes could be affected. Employers that are likely to move faster to private exchanges are those that have higher proportions of high-risk or rising-risk employees, those that have more diverse employee populations (for whom additional choice of insurance products is highly appealing), and those that have employee-centric and innovation-embracing cultures.

Q: What is the state of private exchange adoption now? Are exchanges successfully delivering value to stakeholders?

Daugherty: In 2014, 45 percent of major employers surveyed by Deloitte said they were considering using a private exchange by 2018. But actual adoption hasn't moved as quickly as some industry analysts predicted.

Given the low rate of adoption, it's too early to tell whether they're delivering value. However, they're certainly helping employers provide more choice. For employers that hope to shift to a defined contribution model, moving to a private exchange allows them to begin introducing the idea of employees shopping for health plans.

Q: Where can readers find further details?

Daugherty: The white paper Private Insurance Exchanges: What You Need to Know dives into the details: what private exchanges are, the size of the market, early results, impacts on providers, and what the future holds.


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