Starbucks CEO Howard Schultz announced this week compensation and benefits changes for all employees including shifting health insurance coverage from a single carrier to a private exchange where employees can select preferred benefit levels and carriers.

In a message to all partners, Schultz revealed that beginning in October, all employees and shareholders in U.S. company-operated stores will receive an increase in base pay of 5% or greater determined by geographic and market forces. In addition, he said, changes to the employee stock ownership program, Bean Stock, could result in compensation increases between 5-15%.

Furthermore, instead of offering three levels of health care coverage through one health insurer, partners employed at least 20 hours/week will be able to choose from up to six country-wide and regional carriers and five “metallic” levels of medical plan offered by the Aon Active Health Exchange.

[Image credit: Bloomberg]
[Image credit: Bloomberg]

Along with more options and cost savings, partners will have access to Healthcare Advocates — a team of individuals who work directly with partners year-round to help them choose, and then get the most out of, their healthcare plans.

“Much like a travel site, our partners will be able to navigate an easy-to-use online platform to choose between more insurance carriers and coverage levels at more competitive prices to help them find the right plan for their own needs,” says Ron Crawford, Starbucks vice president of global benefits.

The Aon Active Health Exchange, geared to companies with 5,000+ employees, currently covers 55 companies with one million covered lives. Aon Hewitt CEO of Global Health John Zern explains that each bronze, silver, gold or platinum plan offered by different carriers in the same exchange will have the same plan design, including covered services, deductibles and co-insurance.

“However, once employees decide the level of coverage they need, they will typically select their carrier by comparing premiums and whether or not their preferred doctor and hospital are in-network,” he says.

Though research suggests individuals will typically select the middle plan offered, Zern says "we see a really nice distribution across the metallic levels. From year to year, employees can also flex into different metallic levels based on their needs.”

In a press release, Starbucks said it will continue to fund approximately 70% of the premium costs and cover 100% of preventive care services. The company also suggests that eligible partners in the U.S. could save up to $800 annually by moving to a health insurance plan that better meets their individual needs. Potential savings are even more for partners who select family coverage, with the opportunity to save $2,600 annually, Starbucks said.

Paul Fronstin, director of the Employee Benefit Research Institute’s Health Research and Education Program, says giving employees more choice is both a pro and a con of insurance exchanges.

“Employees will get more choice than they are used to having, but they may be uncomfortable with that situation because they have never had to shop for health insurance before,” he says. “And even though Starbucks says they will continue to contribute as much to the cost of employee health care, at some time they may not. But you don’t have to be in a private exchange for that to happen.”

He also notes that if people who use less health care services gravitate to lower cost plans, this could result in adverse selection where higher cost plans selected by less-healthy employees could become unaffordable and possibly disappear.

A survey from Liazon, a private benefit exchange provider that EBN recently reported on, notes that growth in the private exchange market has been steady, but slower than expected because many employers simply don’t understand what they are and what they can gain from them.

Thirty percent of respondents preferred to continue having control over their benefit plan design and a little more than a quarter of survey participants did not believe that a private exchange would help control costs.

But Zern says that the Aon Exchange is beating the national average when it comes to healthcare premium increases over the last four years.

“Companies that renewed on Aon’s fully-insured, large market active exchange experienced a 3.3% average cost increase for 2016 including costs associated with the Affordable Care Act and administration,” he says, adding that the average healthcare cost increase for large U.S. companies is 5.5-6.5%.

Fronstin says when comparing the pros and cons of single insurer plans vs. insurance exchanges for employers and employees, “neither approach is all bad or all good.”

“There are trade-offs,” he says. “And for the most part, the devil is in the details which we don’t have yet.”
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