No bailout required; Great Western Financial is one savings and loan with its eye on the bottom line. Its health care cost increases have been nickels and dimes compared to the corporate average

Business & Health, July, 1991 by Lynne Christensen

In January of this year, the Princeton, N.J.-based health care consulting firm A. Foster Higgins announced that corporate health care costs in the United States rose an average of 17.1 percent between 1989 and 1990 and were costing employers $3,217 per employee. In response to similar increases occurring over the last few years, creative, combative strategies to curtial out-of-control costs have been implemented and experimented with in just about every company that offers a health benefit plan. The question is: Has anyone out there had any success?

At least one company, Great Western Financial Corporation, can boast an annual increase in health care costs of only 5.5 percent for the past four years. How did this Southern California-based savings and loan institution manage to keep health care costs under control? There is no one easy answer, and the company's experience doesn't necessarily apply to every business. However, there are some key factors in Great Western's strategy that may prove instructional.

Western style

Great Western made the decision to change its health benefit plan drastically five years ago when a number of strategic acquisitions caused the company to grow substantially. The corporation and its subsidiaries currently have 14,000 employees in 1,222 offices across the country, primarily in California and Florida.

Up until that expansionary onset, the company's management maintained a "hands off" attitude toward health benefits, leaving all decisions to the California League of Savings and Loan Associations, an organization formed by a coalition of institutions to administer member health plans.

With its work force growing, however, Great Western wanted to offer a flexible benefits plan. Since CalLeague was unable to supply this option, Great Western struck out on its own. That was in 1987. Today, Great Western offers a comprehensive health benefits menu that includes three indemnity choices along with at least two HMO options (depending on the location of the work site). Employees can choose a plan with a $250, $400, or $1,000 deductible. In addition, employees are encouraged, via a higher corporate reimbursement rate, to utilize a PPO network.

Trish Benninger, vice president, human resource services, attributes the company's success in running a cost effective health benefits program to five key factors: management involvement, plan design, pricing structure, a close alliance with consultants and third-party administrators, and tinkering. One additional element--and one which Benninger admits needs to be better promoted to employees--is the growing necessity to encourage beneficiaries to become more discriminating health care consumers.

Benninger stresses the importance of early and continuous involvement on the part of Great Western's senior management in making decisions regarding the structure of the benefit plan, as well as the equally critical task of communicating with employees. Early in the plan adoption process, the 10 senior bank managers made a commitment to review the status of the benefit plan every month with regard to financial decisions and coverage changes that might affect employee relations.

Code of the Western

Great Western developed a philosophy for administering its self-funded plan based on a principle of balance. The officers determined that no single benefit option should bear the entire brunt of excessive cost increases. To maintain balance among the plans and keep annual cost increases to a minimum, management carefully reviews the cost increases imposed on all of the plans and distributes them in the most prudent fashion.

For example, when indemnity costs rose to a point where the benefit was in danger of being priced out of the reach of employees, management had to make a decision either to keep the pricing pure or redistribute costs among the various plans to keep them in balance. They decided that in order to offer employees a true choice it was best to allow the HMO plan to subsidize some of the cost of the indemnity plan in that particular year. In other years, when HMO increases outstrip indemnity increases, the reverse happens.

Benninger admits that the pricing structure is very complex. "We don't just evenly split the costs between us and the employee," she says. "We evaluate what a cost increase does to the employee. If it's going to result in an employee picking up, for example, a 30 percent increase in his premium, we don't let him bear the full brunt of it." Every year management evaluates all of the cost increases and determines how much the employee can absorb and how much the company can afford. At that point the increases are apportioned between the company and the employee and distributed across all of the plans.

No claims jumping

Over the course of time this pricing strategy has tended to even out. The most important thing is that the cost to the employee stays relatively stable. This prevents beneficiaries from jumping around from plan to plan in response to widely varying prices.