1. Describe the nature and causes of the employee health insurance cost problem in this case. 2. What information should the employee health benefits committee gather before making any recommendations? Why?
1. Describe the nature and causes of the employee health insurance cost problem
in this case.
2. What information should the employee health benefits committee gather before
making any recommendations? Why?
DeCarlo came away from the conference with a greater appreciation of the complexity
of the problem of increasing employee health insurance costs and a greater
determination to do something about it. However, he wasn’t sure about his next steps.
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 highquality personnel. At the same time, he realized that if no changes were made, his
health insurance premiums may be greater than his total projected company earnings
by the year 2016.
Quality Auto Parts’ 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. Physician reimbursement is based upon the number of procedures
they perform and the physician reimbursement rate for each procedure.
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
Windham, 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 four general options for the future: 1) stay with the current traditional indemnity
policy with an average cost of $10,465 per year; 2) offer an HMO option in addition to
the current plan; 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); or 4) the combination of
catastrophic health insurance plan for major medical expenses coupled with a Health
Savings Account (HSA) for smaller, more routine healthcare expenses.
The committee members are split on the four options. The other employee wishes to
continue with the current plan, Schramm wants to adopt the self-insurance option, and
Windham wants to offer the HMO option. DeCarlo, the CEO, has previously expressed
interest in the catastrophic plan coupled with an HSA. All four are looking to you to
make a recommendation and help them reach a consensus
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