Managing Health Care Costs: Private Sector Innovations

By Sean Sullivan; Polly M. Ehrenhaft | Go to book overview

Deere and Company

Deere's corporate efforts to manage health care costs go back to the late 1960s and early 1970s. The company's annual health care bill as recently as 1972 was $20 million. At that time it decided to self-insure and to self-administer health and accident claims of employees, dependents, and retirees. By self-administering its claims, the company built a data base on utilization and costs -- information that companies were not generally getting from their insurers. Deere was one of the earliest corporations to become self-insured (a recent survey of 500 firms found that nearly 40 percent of them were now at least partially self-insured).

Having established an efficient claims payment mechanism, Deere came to realize that it nevertheless remained powerless to control the ever-rising health care bills fed into the mechanism. Selfinsurance and self-administration produced only administrative cost savings, which -- though nice to have -- were minuscule compared with the price tag for delivery of services to its employees. By 1977 the company's health care bill had climbed to $60 million, and it decided to conduct a thorough study of how it was managing its health care costs.

The study prompted two major decisions: (1) the company should reorganize itself to give sufficient management attention to the task; (2) after putting its own house in order, it should try to act jointly with providers in dealing with health care issues.

Deere's first step was to form a new health care department that brought together various functions concerned with health care that were scattered around the company. By creating a high-level position for the manager of this department, the company made plain that it was serious about doing more than just studying the problem. This position was recently raised to a higher managerial level, indicating Deere's commitment to gaining greater control of its costs by managing rather than merely administering the health care function.

Deere also created a health care systems group to manage its claims processing and develop the claims data base needed to try to

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