How would you describe the nature and causes of the employee health insurance cost problem? What information should be gathered and reviewed before making a recommendation?
Case Study Forum Instructions
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Reading & Study Materials (2 citations in current APA format required).
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Topic: If you were on the Health Benefits Committee of Quality Auto Parts, in the Nikomo, Fottler, & McAfee: Case Reading: Controlling Employee Benefit Costs, how would you describe the nature and causes of the employee health insurance cost problem? What information should be gathered and reviewed before making a recommendation? Explain and discuss your answer.
Textbook: Nkomo, S., Fottler, M., & McAfee, R. (2011). Human resource management applications: Cases, exercises, incidents and skill builders (7th ed.). Mason, OH: South-Western Publishing Co.
Student 1: Quality Auto Parts, an automotive manufacturer, is faced with a problem. The company wants to provide their employees with exceptional benefits as they have been known to do, but need to do so in a way that is cost effective. Unfortunately, the rising cost of health insurance and struggling economy makes it difficult to do so. John DeCarlo, the CEO for the company found out, “the total employee health insurance costs increased from $4,680 per employee per year in 2000 to $9,869 in 2010” (Nkomo, Fottler & MAfee, 2011, 234) and costs continue to rise. The company must determine the best way to continue offering benefits in a cost-effective manner.
In order to determine the best plan of action for the organization, John DeCarlo creates a committee to look into its options. The group has multiple options to consider. For the Health Benefits Committee to make an educated recommendation, additional information needs to be obtained and reviewed. Each option which the group is asked to consider needs to have details provided with regards to cost and the actual coverage entailed. In addition to obtaining information on each of the options available, the organization should also consider researching its competitors to determine what they offer and how they structure their plans. “One of the best strategies for determining external equity is to conduct a benefit survey. Alternatively, many consulting organizations, professional associations, and interest groups collect benefit data that can be purchased. Perhaps the most widely used of these surveys is the annual benefit survey conducted nu the U.S. Chamber of Commerce. The Employee Benefit Research Institute is also a first-rate source for benefits information” (Milkovich, Newman & Gerhart, 2017, p. 453). Through obtaining information on what competitors offer, Quality Auto Parts can better judge how their current structure and the proposed will stack up against others in the market.
Quality Auto Parts is known “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” (Nkomo et al., 2011, 235). Through thoroughly researching and picking the best option for both the company and its employees, the organization can continue to do so as “medical benefits continue to be ranked tops in importance for most employee groups” (Milkovich et al, 2017, p. 445). The Bible says in Philippians 2:4, “Let each of you look not only to his own interests, but also to the interests of others” (BibleGateway, n.d.); through providing benefits and taking care of their employees, Quality Auto Parts is doing just that.
BibleGateway. (n.d.). Retrieved April 26, 2017, from https://www.biblegateway.com/passage/?search=Philippians%2B2%3A4
Milkovich, G. T., Newman, J. M., & Gerhart, B. A. (2017). Compensation (12th ed.). New York, NY: McGraw-Hill.
Nkomo, S., Fottler, M., & McAfee, R. (2011). Human resource management applications: Cases, exercises, incidents and skill builders (7th ed.). Mason, OH: South-Western Publishing Co..
Quality Auto Parts’ insurance plan is an old-fashioned plan where the employees have no say in what type of coverage is provided. As Nkomo mentions, “(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” (Nkomo, 2010, p. 235). In particular, the biggest problem is from the health insurance company continuously increasing their premiums over the last several years in order to recuperate from their recent losses.
According to Nkomo:
Many of the speakers at the conference cited large catastrophic-illness claims, increased use of mental health and substance abuse services, increased use of medical services, high-technology medicine, cost-shifting from government programs (Medicare and Medicaid) to private insurance, high physician fees, the AIDS crisis, the demographics of employees in the auto industry (i.e., a higher percentage of older employees), and recent premium increases by both traditional and managed care plans attempting to recoup recent losses. (Nkomo, 2010, pg 234).
Before making any impulsive decisions on switching their current provider, the Health Benefits Committee will need to research several other options that are available. “High-deductible health plans (HDHPs) are one option to traditional health plans which employers have considered to respond to the increased costs of health care” (Smith, 2015). Since there is such a high deductible involved in this plan, the employees will need to be more careful when using their insurance. However, traditional plans can also have the option to include a flexible spending account. “High-deductible plans may qualify employers to offer their employees an option of a health savings account. So in choosing between a traditional plan and a high-deductible plan, an employee should not only consider the premiums and the medical benefits offered, but should also consider the tax implications of that choice” (Smith, 2015). It is shown that, “a high-deductible health plan (HDHP) combined with a tax-favored health savings account (HSA) induces more savings and less treatment compared with a full coverage plan under reasonable risk preferences” (Peter, 2016).
In order to reduce minimal reaction from the employees, it will be essential to show the employees that the company has done all of its research in order to provide the most affordable and sensible policy for everyone involved. While there may be some changes, allowing your employees to have a sense of direction is crucial to keeping this a smooth transition. My recommendation is to essentially provide several different options for employees so they are able to choose what overall best suits those participating. Going forward, there will be a combination of choices three and four that were recommended by the committee. This includes, “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); along with merging with the following, “The combination of catastrophic health insurance plan for major medical expenses coupled with a Health Savings Account (HSA) for smaller, more routine healthcare expenses” (Nkomo, 2010, p. 235). Furthermore, it will be in the best interest of the committee to continue to monitor these changes going forward. At the end of the day, it is always best to put any decisions you need to make in God’s hands. “Do not be anxious about anything, but in everything by prayer and supplication with thanksgiving let your requests be made known to God. And the peace of God, which surpasses all understanding, will guard your hearts and your minds in Christ Jesus” (Philippians 4:6-7).
Nkomo, S. M., Fottler, M. D., & McAfee, R. B. (2010). Human resource management applications: Cases, exercises, incidents and skill builders (7th ed.). Mason, OH: South-Western Cengage Learning.
Peter, R., Soika, S., & Steinorth, P. (2016). Health insurance, health savings accounts and healthcare utilization. Health Economics, 25(3), 357-371. doi:10.1002/hec.3142. Retrieved on April 26, 2017 from http://onlinelibrary.wiley.com.ezproxy.liberty.edu/doi/10.1002/hec.3142/abstract
Smith, S. R. (2015). Tax and other implications of traditional health insurance plans versus high-deductible health plans. Journal of Business and Behavioral Sciences, 27(2), 102. Retrieved on April 26, 2017 from http://search.proquest.com.ezproxy.liberty.edu/docview/1750411683?pq-origsite=summon&accountid=12085