MCD McDonalds Corp

Starbucks Corp. said it would be offering employees new health-insurance choices as part of an effort to make the coffee chain a more attractive employer.

The company on Monday is expected to announce details of a plan to offer U.S. employees who work 20 hours or more a week the chance to shop for health insurance on a private exchange.

Instead of the one health insurer and three medical coverage levels they have now, employees from Chief Executive Howard Schultz to store baristas will be able to choose from up to six national and regional carriers, and five levels of medical plans, starting Oct. 1.

Private exchanges, which are essentially online marketplaces where employers can have workers choose health plans, 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 move by Starbucks comes as 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 efforts to attract and retain 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.

Private exchanges can be beneficial to employees, said Paul Fronstin, director of health research at the nonprofit Employee Benefit Research Institute.

"The traditional model is your employer picked your insurance and you could take it or leave it," he said.

The ultimate impact on employees may depend on the way their employer structures its benefits. Generally, 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 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 a paycheck and employees with families $153 a paycheck.

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

Still, 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.

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 11:25 ET (15:25 GMT)

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