Academic journal article Journal of the International Academy for Case Studies

Innovation in Employer Health Coverage: The Consumer Driven Health Plan (Cdhp) at Logan Aluminum

Academic journal article Journal of the International Academy for Case Studies

Innovation in Employer Health Coverage: The Consumer Driven Health Plan (Cdhp) at Logan Aluminum

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case concerns a particular emerging innovation in employee health care coverage called Consumer Driven Health Plans (CDHP). Secondary issues examined include issues related to healthcare costs increases in the U.S. and other developed nations. The reactions to these healthcare costs increases are categorized, defined, and illustrated. It becomes clear from the case that they may be no easy answer to rising healthcare costs. Further, issues related to employee involvement and the strategic fit between CDHP and involved employees is explored.

The case has a difficulty level of three, appropriate for junior level or above. The case is designed to be taught in one class hour after at least one hour has been spent surveying existing approaches being used by employers to provide health care insurance coverage such as HMOs. PPOs, and POS plans. The case is expected to require one hour of preparation by students.

CASE SYNOPSIS

Healthcare costs are soaring in the U.S. and in other developed nations. The model used in the U.S. is that the government provides healthcare insurance for the poor and for senior citizens, while employers traditionally provide healthcare coverage for employees. Employers and government have tried approaches to containing the costs of healthcare insurance while still providing coverage. The government created the "health maintenance organizations" (HMOs) and the marketplace created "point-of-service" (POS) and "preferred provider organization" (PPO) plan designs. Managed care approaches were introduced into virtually all plans in an attempt to control runaway costs in recent years. Some feel that the a "free ride " approach causes consumers of healthcare to have no financial stake in the costs of health services which, in turn, makes such costs hard to control.

Consumer driven health plans (CDHPs) have emerged as plans designed to get the consumer to take a normal consumer interest in the cost and quality of healthcare service. CDHPs must have two elements: some type of medical spending account and high deductible healthcare coverage insurance. Logan Aluminum manufacturing company provides a graphic illustration of the positive elements of a CDHP with lots of additional plan elements, such a wellness, financial incentives, and free health services. Since Logan has implemented the CDHP healthcare costs have not seen the huge increases seen in the U.S. The fact that Logan uses participative management and team approaches in other areas of its operation is seen as helping to get participation and teamwork on solving the healthcare cost problems.

INTRODUCTION OF CASE

The topics of healthcare and health insurance are never far from workplace, political, or personal discussions. In 2004, health insurance costs posted their fourth straight year of double-digit increases. Over the past four years, health insurance costs have leaped 59 percent, an amount about five times faster than both wage growth and inflation. For the first time, the total annual price tag of the common PPO (Preferred Provider Organization) plans exceeds $10,000 (Salganik, 2004). Paying this amount as an insurance premium would the entire paycheck of a minimum-wage employee. At this point, the employer, on average, pays $7,526 of that $10,000, while the employee's share is $2,674 (Gabel et. al., 2004).

For 2004, employer-sponsored health insurance covers 161 million Americans under age sixty- five and nearly 12 million senior citizens. The average monthly cost of single coverage rose to $308 ($3,695 annually) for single coverage and to $829 ($9,950 annually) for family coverage. This includes PPO, HMO, and other comprehensive health insurance plans. The burden is similar for both the small and the larger employer. The total premiums paid by small firms for coverage are statistically equivalent to premiums paid by larger firms. The average contribution that small firms make toward single coverage also is statistically equivalent to the average contribution made by large firms but the small firms pay slightly less toward family coverage (Gabel, et. …

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