Is IBM’s move to “exchanges” the end of employer-sponsored healthcare as we know it?

In a word, jein.

That’s what Germans say instead of “yes and no” (ja-nein — get it?)

Bloomberg has an article on IBM’s recent announcement to move its retiree healthcare to a “private exchange.” Apparently, the WSJ has further details on this move, but it’s behind a paywall so I myself haven’t been able to read it, much less link to it.

But here are the key points:

A “private exchange” is something multiple firms are developing to attract employers as an alternate way of providing healthcare benefits. It’s also called a “defined contribution” model, because the employer provides the employee with a fixed amount of money (which differs by family status) to buy health insurance on the “exchange,” which is meant to be similar to the “public exchanges” using the same gold/silver/bronze terminology — various health insurance providers offer insurance with different benefit levels, providing the employee with greater choice than if the employer had to make arrangements with just a single insurer. The hope is that the insurers will perceive their participation in the exchange as a marketplace in which they compete with other providers and attempt to offer their best price.

Employees participating won’t necessarily perceive this as anything dramatic, depending on how it’s presented to them. They’ll have an annual enrollment process similar to the past, just with more choices, and with the cost of the plans highly visible (and also knowing the employer subsidy). For active employees, I believe the pricetags won’t be age-rated, either.

What’s not clear to me — and I say that as an actuary, though not working in this field directly — is what participating employers’ plans are as far as future costs. Will they target, say, a 75% subsidy of the average “silver” plan, and match the cost increases each year, or will they decide, “our subsidy this year will be a 3% increase on last year’s subsidy, regardless of how medical inflation has moved”?

In the case of IBM, according to the Bloomberg report, this is a non-issue. IBM isn’t moving to exchanges to save themselves money, as they already have a cap on retiree medical spending, with the per-employee subsidy fixed at the level it reached at a point in the 1990s. So IBM is moving to an exchange model in the hope of lowering healthcare costs for retirees and, one imagines, reducing its administrative costs.

The bigger question is what will happen as employers move to this model for their active employees? Will they limit their subsidy level? Will they find ways to move towards further disconnecting themselves from healthcare? (Could they find the necessary loopholes to provide employees with tax-free vouchers towards the purchase of health insurance wholly disconnected from the employer-healthcare system?) Or is this simply a valuable means of providing employees more choice and injecting more competition into health insurance?