Discussion:
Review a SUPPLEMENTAL CASE Controlling Employee Benefit Costs
The Challenge
DeCarlo came away from the conference with a greater appreciation of the complexity of the problem and a greater determination to do something about it. However, he wasn't sure what to do. He
viewed his company as a "preferred employer" because it had always paid above the market wage rates, and its benefits were always more liberal than those of other U.S. companies and particularly those of foreign competitors. DeCarlo did not want to do anything to jeopardize his company's advantage in attracting and retaining high-quality personnel. At the same time, he realized that if no changes were made, his health insurance premiums would be greater than his total projected earnings by the year 2008. Quality Auto Parts's present health insurance plan (Blue Cross¬Blue Shield) is a traditional indemnity insurance plan. All employees have one plan which makes no effort to control the health care services provided. Employees select their own physicians and the insurance company pays reimbursement for whatever services are provided at whatever price the particular provider charges. Neither physicians nor employees have a financial incentive to economize in the use of services or to seek out low¬cost providers. DeCarlo decided to establish an Employee Health Benefits Committee that would report to him in one month with recommendations for containing health benefit costs while minimizing adverse employee reaction. Membership on the committee consisted of Foster, Schramm, and two other employees. You have been asked to serve as an employee member of this committee. The committee has recommended that DeCarlo consider three general options for the future: (1) stay with the current traditional indemnity policy with an average cost of $5,316 per year; (2) offer an HMO option in addition to the current plan; and (3) establish a special self-insurance fund and negotiate preferred provider arrangements (PPOs) with local providers. (i.e., discounted prices in exchange for the directing of these employees to these providers). The committee members are split on the three options. The other employee wishes to continue with the current plan. Schramm wants to adopt the self-insurance option and Foster wants to offer the HMO option. All three are looking to you to make a recommendation and help them reach a consensus.
Response the Questions:
1. Describe the nature and causes of the cost problem in this case.
2. What information should the committee gather before making any recommendations? Why?
3. Given the desire of most employees to protect themselves from high health care costs, is there any way for the company to continue to attract the best employees while containing health benefit costs? Why or why not?
4. On the basis of what you know about this company, which of the three specific proposals would you be likely to recommend? Can the company adopt some combination of the three options? What do you recommend and why?