SHLDQ Sears Holdings Corporation (CE)

By Julie Jargon and Anna Wilde Mathews 

Starbucks Corp. on Monday became one of the most high-profile employers to switch its employees to a private health insurance exchange.

Instead of the one health insurer and three medical coverage levels they have now, U.S. employees -- from Chief Executive Howard Schultz to store baristas -- who work at least 20 hours a week will be able to choose from among up to six national and regional carriers, and five levels of medical plan.

In recent years, several large companies including Walgreen Co., Sears Holdings Corp. and Darden Restaurants Inc. have moved employees onto private exchanges, which are essentially online marketplaces where employers can have their workers choose health plans.

But they haven't caught on as quickly as insurers once expected. Consulting firm Accenture PLC once estimated that 40 million Americans would be getting insurance through private exchanges by 2020, but only about eight million people are on such exchanges now.

The slower-than-projected growth is partly tied to the delay in the Affordable Care Act's so-called "Cadillac tax," a tax on high-cost health plans that was scheduled to hit employers in 2018 but is now set to take effect in 2020, said Scott Brown, a managing director at Accenture. But also, he said, many of the largest employers aren't yet convinced the exchanges can actually reduce the cost of health coverage, as opposed to simply being used to transfer a greater share of the expense to workers.

"The tight labor market overarching question is, how much of this is a cost shift to the employee, versus true medical cost reduction?" he said.

The move by Starbucks -- which said it wasn't aiming for cost savings -- comes at a time when retailers are facing a tight labor market and various state and local minimum wage increases.

Last week, the company said it would raise wages for all U.S. store employees by at least 5% starting Oct. 3 and double the annual stock award for Starbucks employees who have worked for the company for two consecutive years. Starbucks employs roughly 157,000 people in the U.S. but doesn't break down how many work 20 hours a week or more.

Starbucks wouldn't disclose its employee turnover rate. Ron Crawford, Starbucks vice president of global benefits, said offering more insurance options eliminates a concern employees often have about switching jobs and losing the health coverage they were used to. "People intuitively like choice," he said.

Other restaurant companies have beefed up other efforts they said is aimed at attracting and retaining workers. Last year, before Chipotle Mexican Grill Inc. experienced a series of food safety problems, it hired 4,000 new employees during a one-day event and expanded college-tuition reimbursement to all hourly workers, added paid sick days and increased the amount of paid vacation it offers. McDonald's Corp. and Cheesecake Factory Inc. raised employee wages last year.

One criticism of private exchanges is that when employees are presented with a number of options, many, particularly those who are younger, healthier and have lower incomes, tend to opt for plans with relatively inexpensive monthly costs and higher out-of-pocket bills when they need care.

The risk is that as healthy people migrate to low-cost plans, the cost of more comprehensive plans for older or sicker workers could keep rising and become unaffordable, said Paul Fronstin, director of health research at the nonprofit Employee Benefit Research Institute.

But having more options may beat the alternative. "The traditional model is your employer picked your insurance and you could take it or leave it, " Mr. Fronstin said.

The ultimate impact on employees also depends on the way their employer structures its benefits. Generally, in a private exchange setup, the employer gives employees a set sum of money that they can apply toward their insurance, and if they choose a pricier plan, they pay more out of their own pocket for the coverage.

But if employers don't ramp up the sums they contribute each year as health coverage gets more expensive, employees can find themselves paying out more.

Starbucks, which has historically paid 70% of the cost of a relatively rich plan, said it has always adjusted its contribution upward as health-care costs have risen and that it will continue to do so.

Mr. Crawford said Starbucks doesn't expect to save any money by switching to the exchange operated by consulting firm Aon Hewitt, a unit of Aon PLC. "In fact, we've structured it so that we won't," he said. The ACA's Cadillac tax also wasn't a reason for the switch, he said.

The company's standard and most commonly used "silver" plan, which carries a relatively low deductible, will remain much the same and continue to cost single employees $27 per paycheck and employees with families $153 per paycheck.

The company is adding a slightly richer lower-tier plan called "bronze-plus" as well as a more expensive "platinum" option.

Write to Julie Jargon at julie.jargon@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com

(END) Dow Jones Newswires

July 18, 2016 16:51 ET (20:51 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.