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Medical cost containment and managed care at Campbell Soup Company.

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. The program is managed by the company and not by an insurer or provider.

As CSC sees it, advantages accrue to the employee, the physician, and the company. For the employee, PCN is easy to understand and claims handling is simplified. Benefits are improved since primary care is covered 100% rather than 80%. The employee chooses a primary care physician who makes any necessary referrals to hospitals or specialists. At, Campbell, participation is optional and is based on an annual choice between the Primary Care Network and the regular plan.

In return for certain contractual and budgetary stipulations, the participating family physician benefits from an increased patient load and controls all referrals for additional care. As mentioned above, compensation is "fee for service" which physicians prefer. Accounts receivable problems are minimized since the company is a dependable and timely payer. Through participation on the Plan Board, the physician has input into the improvement of the network operation. The role of the family physician is enhanced and the company's health care services are firmly based in the local community. The PCN maintains the community's established referral patterns.

As for the company, it is responsible for negotiating contracts with the physicians, establishing budgets, and participating on the Plan Board. The PCN's case management approach provides a rational, systematic, and more controllable delivery system. Obviously, if cost containment can be achieved without takeaways, financial improvement can be achieved without harming employee morale.

Participation on the Plan Board by both company management and physicians provides several advantages. There can be detailed reporting of critical data at all levels of care, which makes the analysis of medical trends possible. With this information, medical services can be more efficiently utilized and the company will be better prepared to deal with any significant changes. Peer review and utilization review can also be more effectively handled.

Quality Care Programs (QCP) and Other Innovations

Consistent with national trends, Campbell found that its expenditures on treatment for psychiatric and substance abuse problems were rising more than 20% a year in the late 1980s. Having already put in place an Employee Assistance Program (EAP) in 1986, Campbell decided to extend the managed care approach to behavioral health in 1990. Known as the Quality Care Program, it was introduced at selected Campbell facilities where behavioral treatment costs were especially high. As with the Primary Care Network, the QCP is designed to control costs while actually improving the benefit to the employee. Under QCP managed care, in-hospital treatment rose from 80% to 100% coverage while outpatient treatment went from 50% to 80%.

Another innovation came with the opportunity to purchase prescription drugs less expensively by mail order which was introduced in 1989. The following year saw the extension of the flexible benefits program to the entire Campbell Soup Company. Further administrative changes were put in place in 1990 to monitor the benefits process. In 1992, claims performance standards were set and a Medicare "carve out" was developed to review and further refine utilization.


In the face of rising and uncontrolled health benefit costs, the Campbell Soup Company took a proactive position on cost containment. It is a multi-faceted approach centered on managed care in both the areas of physical and behavioral health. By assuming direct responsibility for controlling these costs, the company sought out and implemented the most promising measures. The early results are encouraging. Employee acceptance of the managed care approach is steadily increasing while the rate of growth in outlays for health benefits is slowing down. However, the programs require close monitoring, continuous evaluation and regular revision. Given the significant amount of a company's resources involved, this extra effort is clearly well-justified.

J. J. Hague is Director of Corporate Benefits, Campbell Soup Company, Camden, New Jersey and Joseph A. Giacalone is Associate Professor of Economics and Finance, St. John's University, New York.
COPYRIGHT 1992 St. John's University, College of Business Administration
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:Symposium: Health Care
Author:Hague, J.J.; Giacalone, Joseph A.
Publication:Review of Business
Date:Dec 22, 1992
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