Target may cut health benefit

Chain is offering 2 cheaper plans


MINNEAPOLIS -- Stung by rising health costs, Target Corp. is considering scrapping traditional health insurance for its employees.

The Minneapolis retailer has already begun offering new plans, which have higher deductibles coupled with two types of private savings accounts.

Documents from Target to employees warn that the traditional plan won't be available much longer, but a Target spokeswoman said that no final decision has been made to abandon them.

For Target's young, healthy workers, the changes could save money. But for workers with chronic health problems or even a baby on the way, the changes could mean significantly higher medical expenses.

The changes, which took effect last month for most of Target's 338,000 employees, will be watched closely by other employers struggling with rising health care costs. Nationwide, health care premiums paid by workers and their employers soared 73 percent from 2000 to 2005.

Last year, companies spent an average of $3,413 in health care premiums per worker, up from $2,376 in 2001. Workers also have been hit, paying $612 a year in annual premiums, up from $360 in 2001, according to the Kaiser Family Foundation.

"For the time being, most employers in this country see spiraling health care costs as an uncontrollable headache," said Jon Gabel, vice president of the Center for Studying Health System Change, a nonpartisan research group in Washington. "They're looking to successful companies like Target for answers."

Documents provided by Target employees offer a detailed window into how one company is trying to resolve the problem. In the documents, Target touts the changes as part of a broader effort to encourage employees to take increased responsibility for their health care spending, which the company believes will help reduce costs.

"Think of it like the retail business - when people are spending their own money, they want the best value at the best price," says a guide given to employees.

One of Target's two alternative plans offers health insurance with high deductibles along with health savings accounts (HSAs).

The accounts let users set aside money to spend as they see fit on medical needs. Unspent money stays with the employee from year to year and job to job and grows tax-free. Employees can comparison-shop among doctors and health care providers.

The other option is a plan offering health reimbursement accounts and medical insurance with high deductibles. The reimbursement accounts are similar to HSAs, except that they are financed by the company and do not transfer if a worker changes employers. This plan has much higher premiums, but the deductibles are lower than in Target's HSA plan.

Target continues to offer a conventional health care plan, in which the retailer pays 80 percent of all health care expenses. But it's unclear how much longer this option will last. A plan guide given to workers earlier this year said the traditional plan will be available only for a "limited time in the future."

Target spokeswoman Carolyn Brookter said the company has not made a final decision on whether to keep the conventional plan.

She denied that the company is shifting costs to employees and said it would continue to pay the majority of employees' health costs. In 2004, Target covered 67 percent of all costs associated with its health care plans, according to the most recent data from the U.S. Department of Labor.

"We believe consumer plans allow us to continue providing competitive benefits ... while addressing the rising costs of health care benefits," she said.

Target declined to disclose how much it expects to save from the changes, or how much its health care costs have risen in recent years.

Critics say the new plans' relatively high deductibles are too expensive for workers with families or existing health conditions and could discourage unhealthy people from working at Target.

"If you can go year in and year out without having to go into a doctor's office, this plan is for you," said Kip Sullivan, a steering committee member of the Minnesota Universal Health Care Coalition, whose members include labor and political groups.

"But if you happen to have some health problems, not even serious ones, then this probably will give you an incentive to either drop health care coverage altogether or leave Target."

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