For some American workers, picking the right health insurance is becoming like hunting for the perfect business suit: It takes some shopping around to find a good fit and avoid sticker shock.
Employer-sponsored health insurance is undergoing a big shift. Companies such as Sears Holdings Corp. and Darden Restaurants Inc. are giving workers a fixed amount of money and letting them choose their own coverage based on individual needs.
This approach, called “defined contribution” insurance, is different from the traditional practice most U.S. employers have used for decades: offering workers a one-size-fits-all plan containing benefits they may not want.
It also means workers accustomed to having their benefits chosen for them could wind up with bigger bills and inadequate coverage if they choose poorly.
“It's a big, big change in the nature of what it means to have health insurance,” said Harvard economist David Cutler.
Until now, defined contribution plans have been limited mainly to small businesses and retirees.
But more employers are considering them as a way to control rising costs. After all, the average annual premium for an employer-sponsored family health plan has almost doubled in the past decade, to nearly $16,000, according to the nonprofit Kaiser Family Foundation, a research group. Companies generally foot at least 70 percent of that bill.
Benefits consultant Mercer found that 45 percent of the 2,809 employers it surveyed this year are either using or considering a defined contribution approach.
As a result, insurers and benefits companies are rolling out online exchanges where workers can shop for and buy health plans, something like how they buy plane tickets on travel websites. These private exchanges are similar to the public ones due to start late next year as part of President Barack Obama's health care overhaul.
Aon Hewitt, a benefits consulting giant, expects 200,000 people to enroll this fall in coverage offered through its online exchange. WellPoint Inc., the nation's second-largest health insurer, which runs Blue Cross Blue Shield plans in several states, plans to debut its exchange next year.
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Defined contribution plans can be much different from traditional health insurance.
Most employer coverage now gives workers one plan, maybe a choice of two.
Under defined contribution, the company gives each employee a set amount of money toward coverage, and the worker picks the plan. That might mean choosing from a menu of a few plans the employer offers or going on an exchange to sort through dozens of choices from multiple insurers.
Depending on the worker's choice of plan, the employer's contribution might cover all the premium or just part of it.
A young, healthy, single worker, for instance, might pick a plan that balances a small premium with a high deductible, which is the annual out-of-pocket amount a patient pays before coverage kicks in.
Defined contribution is an attractive method for companies that want more predictable health care costs or more choices for their workers.
Neither Sears nor Darden, which operates the Red Lobster and Olive Garden chains, would say how much they're planning to give employees to buy health insurance.
Sears said 90,000 of its employees will be eligible for its defined contribution approach and will have 15 choices of health plans.
Darden, with 45,000 full-timers, said its workers will be able to go online and pick from five medical plans, four dental plans and three that provide vision coverage. Previously the company had just one health plan.
Darden said is contribution to workers for their insurance will rise as health costs climb. Ultimately, it said, workers will pay about the same out of pocket as they do now for about the same level of coverage — but will have more flexibility.
“One of the things (employees) asked for was more choice in their health care,” said company spokesman Ron DeFeo. “As we looked for a way to do it, this was the best option.”
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The plans can be a good option for smaller businesses as well.
Dick Bernstein owns Security Auto Loans Inc., a New Hope, Minn., subprime auto loan provider with about 40 employees. He wanted to offer health insurance to keep good workers, he said, but other small-business owners warned him that premiums for traditional plans could soar 20 percent a year.
So in January, Bernstein began offering his employees a defined contribution plan through Bloom Health, a Minnesota company. He gave each worker $3,000 and sent each to a secure Bloom website to pick a plan. The site asked them about 35 questions to pin down their health needs, financial situation and comfort with risk.
The approach is good for his business, Bernstein said, because he contributes a fixed amount every year, making his costs predictable. Plus he doesn't have to devote staff hours to finding the right insurance plan to offer.
“That was another key point for me: I didn't have to be part of this decision-making process,” he said. “I didn't have to figure out what's best for my employees.”
Heather Lockman, one of his loan processors, was skeptical at first. But she changed her mind when the website process ended up offering her 20 different plans to choose from. In the end, the 36-year-old picked a low-cost plan with a $3,000 annual deductible and maternity coverage but not a mental health benefit. The $3,000 Security Auto Loans gave her covered her annual premium, so she will have few out-of-pocket expenses if she stays healthy.
“It gives me more control over my health coverage,” Lockman said. “It makes it fit my lifestyle.”
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Supporters of defined contribution say it forces people to pay more attention to details such as costs. And they say that could force insurers to compete more on price and quality. That could lead to lower health care costs overall.
“In every consumer marketplace, when you have real competition, prices go down. And we have seen those competitive juices flowing as we have gotten rates from participating insurers,” said Ken Sperling, Aon's strategy leader for health care exchanges.
Critics say defined contribution can stick workers with bigger bills if their employer's set contribution doesn't rise over the years to match costs. Over time, said economist Cutler, that could force employees to switch to ever-cheaper, ever-skimpier plans.
“That's a very big risk,” he said.
Moreover, workers may find the research daunting.
“I think people are going to have to spend more time understanding their options,” said Paul Fronstin, an economist with the Employee Benefit Research Institute. “There are all kinds of dimensions of information you'll be provided, potentially.”
There's understandably an “enormous amount of inertia” among consumers faced with shopping for an insurance plan, agreed Mark Pauly, a University of Pennsylvania health economist.
“Life's too short to spend all your time worrying about health insurance,” he said.
WellPoint Chief Financial Officer Wayne DeVeydt says he expects interest in the plans to pick up in the coming years.
“Right now employers are really trying to understand what the health care landscape will look like,” he said.