Reducing Health Care Costs Full-Scale Term Paper

Excerpt from Term Paper :

Executives of major companies, like Coca-Cola Enterprises in Atlanta, believed that B-200 was especially helpful in rehabilitation and prevention of re-injury, as employees usually resumed work when their backs stopped hurting, thinking the injury was already treated. They, however, lost some functional abilities and remained vulnerable to the same injury and hurt. An experimental injury-prevention and rehabilitation project conducted at the Coca-Cola Bottling Company showed that it reduced the incidence of back injuries among its employees by 32% at the average and workers days lost to these injuries by more than 78%. In comparison, the incidence of back injuries in plants, which did not participate in the project increased at an average of 32% and days lost to more than 300%. Other companies with similarly high incidence of back injuries and low success levels of treatment and rehabilitation took to aggressive prevention programs. One was Du Pont Company, which lost $40 million of employee pay for lost work days and in medical expenses in 1987. With an aggressive prevention program, it saved $50 million in 1989 and $50 million worldwide annually in 1992. As a result, the company invested between $8 and $1 million on the campaign, seeing that the prevention scheme and employee involvement were central to the success of its pro-back management objectives. Many other companies have been taking more aggressive and creative steps towards the treatment, rehabilitation and prevention of back injuries among their employees (Bell).

In addressing the problems posed by rising health care costs, many other companies have been replacing conventional pension plans with less costly alternatives, such as a class-based pension plan (Papalla 2005). It would allow a company to reduce spending while increasing benefits for employees. A class-based pension plan can save money, enhance flexibility and provide benefits for rank-and-file employees, especially when there was an age gap between owners and employees. It was also called a cross-tested or new comparability plan. It grouped employees of different categories to determine the amount of contribution the employer made. Large organizations often used it to reward high productivity and provide incentives to employees. A class-based plan could also boost the contributions of a small organization. It could be customized according the needs of either large or small business (Papalla).

A company, which would use a class-based pension plan, could define class, as long as this was clearly done in the plan and arrangement would not discriminate or favor highly paid employees (Papalla 2005). A change in definition or number of classes desired should be expressed as amendment or amendments in the plan. Although classifying employees was not illegal, the Department of Labor or Internal Revenue Service might object to the arrangement. Small businesses could use class-based plans for flexibility when they wanted higher retirement plan contributions or more current compensation. Big businesses, on the other hand, could use them as incentive when grouping employees by job title, division or region. These plans were, however, not always feasible for organizations without non-owner employees and wanted all owners to be treated alike. And they were not workable if the owners or key employees were younger than most of the employees (Papalla).

The analytical findings of a recent study of 358 local governments revealed that municipal governments provided part-time employees with benefits, which were significantly lower that those for full-time employees (Roberts 2003). These were family-friendly benefits typically provided by organizations to more highly educated personnel directors and benefits administrators. The benefits were in the form of vacation, sick leave pension and health insurance. Part-time employment is a basic staffing agency in the U.S. And other countries. In the U.S., an estimated 21.4 million permanent part-time employees accounted for 15.8% of the 135.2 million workers. Of the 10.4 million local workers, 1.6 million worked part-time. In addition to the issue on the degree of equity between full-time and part-time employees was whether the municipal governments should be praised for providing benefits to their part-time employees

Municipal governments employed part-timers for reduced compensation and benefits costs, greater flexibility in service delivery and staffing, and the opportunity to screen them for full-time jobs (Roberts). On the other hand, employees were attracted to part-time employment because of flexible schedules, work and family balance, the opportunity to explore career, work experience, income supplementation, and chance to earn income while looking for a full-time job. Part-time employment was, however, criticized for a number of reasons. It lacked compensation equity. Most part-timers were women and minorities who encouraged and perpetuated employment discrimination. Part-timers were typically not committed to their work. Part-time employment elicited lower human capital investment and appreciation. Part-time work was also relatively more expensive to supervise, had higher turnover rates and took longer periods for part-timers to attain competency. The majority of part-timers were 80% voluntary. Structural changes in the global economy today favor an increase in the volume of temporary, contractual and part-time employees (Roberts).

Part-time employee benefits were typically provided to those with higher levels of personnel manager education and those providing family-friendly benefits (Roberts 2003). The research found significant structural inequities in benefits coverage between full and part-time employees in both the public and private sectors. Municipal governments provided more benefits coverage for part-timers and this was viewed as desirable in enhancing these employees' equity, attain the municipal governments' public policy objectives, and cultivate better human resource outcomes (Robers).

One more approach to reducing health benefits costs could be by separating mental health care from other benefits (Shoor 1993). Management should restructure mental health benefits when implementing plans for mental health and substance abuse in order to realize large cost cuts while improving access to appropriate treatment. Management should also turn the supervision of the benefits to entities, which specialized in the mental health field. The trend was reported to be getting stronger in the last decades. In 1992, 24% of employers used such health benefits entities to provide mental health and substance abuse utilization review for in-patient services. There was a corresponding increased among outpatient services from only 16% in 1991 to 22% in 1992. The number of employers using such entities or providers increased from 8% in 1991 to 19% in 1992. The reason was that such an entity or provider understood the unique problems of mental health service delivery better. A 1991 report said that managed mental health plans mostly incorporated utilization review with incentives for employees to choose their preferred providers for treatment, case management, prevention education and integration with other services. In 1992, employers spent an average of $318 per employee on mental health and substance abuse benefits and this figure almost doubled to $163 in only five years earlier. But today, 91% of employers surveyed by Foster Higgins limited in-patient mental health and substance abuse treatment and 94% reported capping outpatient limits. These compared to 1991 trends when 87 of employers placed limitations on inpatient mental health treatment, and 91% on outpatient care (Shoor).

But limiting benefits in order to cut health costs did not appear to be the answer to the problem, in the view of many other employers (Shoor 1993). Doing this would have an effect on absenteeism, productivity and workers' compensation claims because they would not get well. These employers felt that limiting benefits would lead to an increase in turnover, absenteeism and medical claims in the long-term. A review of utilization information from 1983 led researchers to the conclusion that mental health and substance abuse treatment could be provided at about $700,000 without the necessity of decreasing or limiting benefits (Shoor).

Companies now chose to carve out their mental health benefits but their concerns exceeded cost containment (Shoor 1993). Their first direction was to establish a more universal managed care. Some of them observed that the carve-out option had more than enabled employees to get accustomed to managed care. Their plan provisions had not changed from the previous format or indemnity plans, but costs were substantially going down. In 1992, one of these employers paid mental health charges at approximately $1.25 million. But within the first months of the current year, the costs went down to only $433,000. The company expected the figure to decrease to only $850,000 at the end of the year (Shoor).

Companies in the past limited in-patient visits to 30 days a year and outpatient visits to 20 (Shoor 1993). They reimbursed at 80% without limit on additional out-patient visits and reimbursed at 50%. Outpatient care carried a maximum of $30,000 lifetime coverage. The carve-out redesign reduced all benefits and employees' access to mental care had increased. The lifetime maximum benefit for mental health and substance abuse treatment was $50,000. in-network treatment was, however, actually reimbursed at 90% and out-of-network care charges reimbursed at 50%. Expert opinion said that it would be too early to measure or project the economic impact of the carve-out. Meantime, employees could only be helped go through the system (Shoor).


Bell, Nancy N. Oh My Aching Back! Many Companies Have…

Cite This Term Paper:

"Reducing Health Care Costs Full-Scale" (2007, February 28) Retrieved January 18, 2018, from

"Reducing Health Care Costs Full-Scale" 28 February 2007. Web.18 January. 2018. <>

"Reducing Health Care Costs Full-Scale", 28 February 2007, Accessed.18 January. 2018,