NEW YORK (TheStreet) -- Corporate America stands to save trillions of dollars by pushing workers and retirees off company-sponsored health plans onto less costly insurance exchanges, and household names from General Electric (GE) to IBM (IBM) and Wal-Mart Stores (WMT) are on the cutting edge of the shift.
GE alone reported saving $3.3 billion by moving retired production workers to a private exchange, where they will join salaried retirees, according to a quarterly filing last month. The Fairfield, Conn.-based company had already reported $832 million in savings on retiree health benefits in 2012 and $586 million in 2014.
"We are in a transitional period," Thomas Kochan, a professor of employment policy at the Massachusetts Institute of Technology, said in an interview. "U.S. corporations would save an aggregate $3.25 trillion by moving their employees and retirees to private exchanges."
Time Warner (TWX) , DuPont (DD) and Alcoa (AA) are also among the early adopters, nixing at least portions of their sponsored coverage in favor of capped contributions to workers insured through exchanges. The moves look good on financial statements, but they have met a hostile reception from workers, in some cases prompting lawsuits.
Both GE and Wal-Mart have noted that their actions are line with those of other large companies and said the exchanges offer workers more choices. IBM, Wal-Mart and Alcoa declined to comment.
"How fast and how widespread the movement of companies dropping their health coverage has yet to be determined," said MIT's Kochan. "If you ask companies if they prefer to be out of the business, the answer is yes. If you ask if they expect to be out of the business, the answer is yes. But do they know how they are planning to make the transition? The answer is they don't have a clue."
Many employers have already moved, or are considering moving, retirees under 65 from sponsored plans to defined contributions that could be used in federal or state Affordable Care Act exchanges, according to a Kaiser Family Foundation report last year. "Observers predict this will be a major trend going forward and in some cases see the ACA marketplaces as further displacing employer-provided coverage," author Frank McArdle said in the report.
At the same time, the portion of large companies offering any form of retiree health care has dropped from 66% in 1988 to 28% as of 2013, the report found.
Wal-Mart, the largest private sector employer in the U.S., announced its plans to cut health benefits for 30,000 part-time workers last October, citing the rising national cost of health care. Retirement benefit costs at the discount retailer, which have been steady at about $1 billion for the past three years, represented about 6% of its 2014 earnings, according to a regulatory filing.
In GE's case, qualified retirees are given annual subsidies of $1,000 to enroll in benefits via OneExchange, a private exchange administered by Towers Watson (TW). While some private exchanges pre-date the Affordable Care Act, known as Obamacare, they gained visibility through its use of the business model for federal and state systems.
IBM, anticipating retiree health-related expenses would triple by 2020 through mounting premiums, announced in September 2013 that it would move roughly 110,000 retirees to Tower Watson's Extend Health exchange, subsidizing the coverage with annual contributions. Time Warner said in 2013 that it would move its salaried employees to a private exchange, and Alcoa shifted its salaried employees to Tower Watson's OneExchange in January.
New York-based Towers Watson recently announced its exchanges will cover 1.2 million employees, retirees and dependents from 1,500 client companies on its exchanges this year, a whopping 50% increase from last year, according to a company release. Its shares are up more than 260% since the Affordable Care Act was signed into law, and the business consultant booked a 44% increase in exchange sales in the second quarter, largely driven by an increase of 160,000 in OneExchange members.
"Many employers transitioning from a group plan choose to offer a defined contribution in the form of a retiree reimbursement account, paying a specified amount annually for benefits," Jane Funk, chief growth officer for UnitedHealthcare Retiree Solutions, said in a statement. "In other cases, employers provide a lump-sum payout."
UnitedHealthcare is a subsidiary of UnitedHealth Group, the largest single health carrier in the U.S.
Some insurers view declining federal subsidies for corporate participation in Medicare Part D, the prescription drug benefit program that was signed into law in 2006, as one of the reasons for the shift. Another is the Affordable Care Act's tax on high-value health plans, which goes into effect in 2018.
"Recent legislative and regulatory changes resulting from the Patient Protection and Affordable Care Act (ACA) have made the individual Part D market more attractive to both retirees and employers by providing some prescription drug coverage to help bridge the coverage gap," Funk said.