Academic journal article Review of Business

Medical Cost Containment and Managed Care at Campbell Soup Company

Academic journal article Review of Business

Medical Cost Containment and Managed Care at Campbell Soup Company

Article excerpt

Coping with the escalating costs of providing health benefits to active and retired employees is one of the toughest challenges facing American companies. Since health insurance in the United States is largely employer-based, both current and retired workers are very dependent on their company's ability to offer and maintain affordable benefits. That many of the more than 35,000,000 Americans without health insurance coverage are employed emphasizes the difficulty of this task. Moreover, large health insurance costs can have a significant impact on the international competitiveness of U.S. industry, thereby exacerbating already serious trade and employment problems.

Thus, companies large and small are working diligently to get a handle on the cost of their health care benefits. To accomplish this without eliminating or "slashing" coverage requires careful analysis and creative strategies. This article will review the approaches taken by a well-known, major U.S. corporation, Campbell Soup Company (CSC), to contain its health benefit costs.

Headquartered in Camden, N.J., CSC provides health benefits to 25,260 current domestic employees and 9,110 domestic retirees. The per capita cost is $2907 per active worker and $1756 per retiree for a total annual cost of almost $90 million. Other aspects of Campbell's workforce demographics that have a bearing on the situation are the category of employee, the employee location, and the type of health plan participation. Currently, 35.2% of the Campbell workers are salaried, 40.1% are union hourly employees, and the remaining 24.6% non-union hourly employees. The workforce is distributed 24.9% urban, 24.0% suburban, and 51.1% rural. By plan, 92.7% of the employees have indemnity coverage while the remaining are HMO participants.

The Starting Point: 1985

Having experienced 14.4% and 19.9% annual increases in per capita and aggregate health benefit costs between 1983 and 1985, CSC began a systematic review of its program in 1985. At that time, its medical plan provided hospital and major medical coverage with a $50 deductible on major medical, 80% coinsurance, and a $1000 out-of-pocket maximum. Dependent coverage required a modest employee contribution of $3.40 per month. There was no utilization review process and coordination of benefit claims and procedures was poor.

Over the next several years, the following cost containment measures were introduced:

* Stop Loss Insurance (1985)

* Employee Cost Sharing (1986)

* Utilization Review (1986)

* Preferred Provider Network (1987)

* Flexible Benefits-Vlasic Division (1987)

* Large Loss Claims Management (1988)

Although these initiatives helped, the overall cost of the situation did not change much. By 1988, the Benefits Department came to several important conclusions. CSC judged its medical plan to be very generous, a "Cadillac" plan. This was emphasized by the fact that when employed spouses had a choice of plan, Campbell's was usually selected. The company determined that there would be union resistance to changes in plan design, but management did not support "takeaways" either. Analysis also revealed significant geographic differences in medical costs. Further, it was found that flexible benefit programs, where employees selected benefits based on their personal circumstances, are workable only for salaried personnel. Unbundling of benefits, too, was also an issue. The ensuing Benefits Department strategy was to find a program which would help control the escalation of medical costs, would not be "takeaways", did not have to be negotiated through collective bargaining, and would be an optional choice for the employee.

Managed Care -- Primary Care Network (PCN)

In 1989, the Campbell Soup Company decided to introduce managed care via a primary care network. The PCN concept is based on the practice of family medicine. Payments to physicians are traditional "fee for service" rather than capitation payments. …

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